Large single-specialty cardiology practices were not uncommon in the 1990s and early 2000s, but that has changed over the past decade as hospitals and health systems purchased cardiology practices, hired cardiologists directly, and entered into professional services agreements (typically called “PSAs”) with cardiologists. The shift of private cardiologists to hospitals was driven in large part by the significant fee-for-service difference between hospital outpatient department (HOPD) reimbursement and reimbursement for identical services provided in an independent physician’s office or outpatient center. surgery (ASC).
Over the past 10 years, the primary means of aligning physicians with hospitals has been employment contracts where physicians are employees of the “friendly” or “friendly” medical practice; or PSAs, where hospitals provide administrative services to physician practices while the practices remain independent. In this model, practices can gain access to some of the benefits of employed physicians—most notably, favorable hospital payer contracts.
According to a recent opinion piece in The Wall Street Journal “Medicare has paid hospital outpatient departments almost twice as much as it pays independent physicians or ASCs for the same services. Even off-campus facilities that are owned by a hospital but otherwise identical to independent physicians have enjoyed higher rates until recently.”
There is a strong push for site-neutral payments for cardiac testing to migrate more services to outpatient settings. This shift could reduce Medicare spending by more than $150 billion over the next decade and reduce beneficiary costs for premiums and cost-sharing by more than $90 billion over that time. Remarkably, such dramatic savings can be achieved without reducing the scope of services or otherwise compromising the quality of care. As increasing numbers of baby boomers retire and enroll in Medicare, the corresponding economic burden on Medicare trust funds necessitates these types of value-based cost-saving measures.
This reorientation of services to outpatient settings will likely cause hospitals to terminate their contractual relationships with cardiologists, sending physicians back to private practice. Indeed, we are seeing this process already beginning with some of our clients. The rollout presents several challenges, including but not limited to the fact that cardiologists transitioning back to private practice no longer have their own Tax Identification Numbers (TINs) and payer contracts. In light of these logistical challenges, and as a longer-term survival strategy, we are likely to see the reconstruction of large cardiology practices, this time with the potential for private participation.
Until recently, there have been few private equity opportunities for cardiology practices, but that could change relatively quickly. In a Wall Street Journal opinion piece, authors Neil M. Givala and Bobby Jindal note, “Cardiac care is on the cusp of a major transformation, but hospitals must not be left behind.” Astute hospital administrators have already anticipated the migration of cardiologists out of ambulatory care and have begun to prepare for a different type of consultation with cardiologists. We envision significant opportunities for single specialty and/or multispecialty mergers, where an investor, such as a private equity firm, purchases multiple medical practices and combines them into a larger practice. We also expect that managed services organizations (commonly referred to as “MSOs”) will continue to be used to achieve economies of scale in providing administrative services to practices.
Experienced healthcare attorneys who have represented both private practitioners and institutional providers during dynamic changes in the healthcare landscape can lead this transformation by working with various stakeholders to develop and implement mutually beneficial alignment models , while ensuring compliance with applicable laws and regulations.
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