Evaluating Business Opportunities
Physicians need a good understanding of a potential partner, regardless of the business model being considered.
Editor's note: This is the final article in a 3-part series.
Considering a new practice business model to stay competitive in today's shifting landscape is a highly individualized decision that can have a big impact on your future. As you begin to examine different types of strategic partnerships, some options will rise to the top. It is important to continue to be thorough during the due diligence process to ensure you select the best option for you and your practice.
In part 1 of this series, we discussed how several challenges — including the shift away from fee-for-service to value-based payments — are pushing physicians to consider different business models. Part 2 outlined the various pros and cons of several options: staying independent, partnering with a hospital, partnering with a large kidney care provider and merging with another independent nephrology group. The next and often final step is to further investigate the business model that seems to be the best fit for your practice.
Examining your partner
Regardless of the business model you are considering, it is important to have a good understanding of your potential partner. Taking the following steps may help yield invaluable information as you further evaluate your options.
- Identify their leader. This is especially important when you are considering merging with another independent nephrology group, where individual personalities and experience can disproportionately impact how the organization functions.
- Identify their interests. Why is the potential partner looking to grow? For example, in the case of a hospital, is the organization looking to merge to fill out their roster of physicians, or does it have a specific strategy for nephrology? Is their focus on chronic kidney disease or more exclusively on transplants? The answers to these types of questions can help determine whether the partner's interests align with your priorities.
- Understand their culture. Diving deeper into a potential partner's strategy, mission and values can help determine whether the synergy necessary for a successful partnership exists.
- Understand the governing structure. How are decisions made? Will you, for example, have a say in quality reporting?
Divesting your practice will likely bring along a change in compensation. Payment arrangements fall along a wide continuum — from being entirely based on productivity to 100% salary. In this era of integrated care and risk-based arrangements, it is also important to understand whether you are able to participate in the upside of meeting specified clinical and financial goals.
Of course, the purchase of your practice is also no small question. Keep in mind that some organizations require a fair market valuation opinion. This can slow the divestiture process due to the accompanying regulatory requirements. Regardless, consider how the purchase price will be structured. Are there incentives for staying on? Any restrictions? Deals vary greatly so it is important to understand these details.
In addition, be wary of an offer that appears out of line with the partner's acquisition costs. An inflated price likely comes with a lot strings attached. Look for a valuation process that is compliant, consistent and transparent.
The new frontier of large kidney care providers
Historically, nephrologists had just a few options when considering business opportunities: working for a hospital, working for themselves, or merging with another nephrology group. Only recently have larger dialysis providers started employing nephrologists, and this lesser-known option warrants further examination. Here are some issues to consider:
- Motivation. Is the entity actively trying to grow nephrology and chronic kidney disease opportunities? How does this fit with their larger strategy and yours?
- Experience. Does the provider have experience managing practices separate and independent from dialysis facilities? How about the management team? Do they have experience locally, regionally or nationally?
- Infrastructure. From the Merit-based Incentive Payment System (MIPS) to the Medicare Access and Chip Reauthorization Act of 2015 (MACRA), nephrologists have a lot on their plate. What technology platform do they use, and what infrastructure is available to support payment and reporting requirements?
Evolving to survive
Like many industries, health care is evolving rapidly and must keep pace with new demands. The alternative — maintaining the status quo amid rapid market changes — can decimate any business. Think Blockbuster. Remember them? The good news is there are several viable options for nephrologists and their practices. As you consider positioning yourself for the future, it never hurts to examine your options. Indeed, it is what all healthy businesses should do. Asking the right questions will help set you on a path to future success.
Robert Provenzano, MD, is vice president for medical affairs at DaVita Kidney Care in Denver. He also is on the editorial advisory board of Renal & Urology News. Mark Hovermann, MBA, is Senior Director, Corporate Development.
Lanny Teets is Director, Transactions & Growth Initiatives, at Nephrology Practice Solutions.