How a Physician Practice Can Negotiate an M&A Project with a Health System - Option 3
What are the Business Model Options that physician organizations have?
Option 3: The Physician Practice Hybrid Mergers and Acquisitions Model
There are some physicians that have pension plan arrangements that are significant, where a physician will put from $30,000 to $50,000 a year away for retirement. What the health systems offer vs. what the physicians, themselves, can put away in their own practice may differ, and the physicians would not be able put away as much money as they would like to.
Depending on the health system, they may put together what's called a group of friendly PCs, where the entity comes under the health system. The physician practice is owned by the health system, but the practice stays up and running to allow the physicians to remain as employees of that practice, so they can keep putting the maximum amount of money aside for retirement. However, the physician practice’s staff becomes employees of the health system. The main function of this hybrid model is to allow the physicians to continue to benefit from the higher pension plan contribution limits.
0:00 One more option, which is really just kind of a little differentiation on the acquisition model, we just call it a hybrid model. Basically what happens here is there are some physicians that have pension plan arrangements that are significant where they'll put $30, $40, $50,000 a year way for retirement.
0:25 A lot of times, the health systems, they have what's called a 403(b) plan, they'll have a separate pension plan, and they may have some high-end plan for high earners too. A lot of times when you look at what the health systems can offer vs.what the physicians themselves can put away in their own practice, going with the health system they would not be able put away as much money as they would like to in some cases.
0:55 If there's a very big difference there depending on how this is all set up as any kind of captive arrangement or something like that, depending on the health system, they may put together what's called a group of friendly PCs, where the entity comes under the health system now it's its owned by the health system, but the entity Itself
1:20 stays up and running but really just to allow the physicians to stay employees of that practice so they can keep putting money aside for the pensions. All the staff people, though, move over into the health system as employees. It's really just kind of almost like a shell organization whose only function is to allow the physicians to continue with the benefit of a pension plan that maybe significant what they're putting away.
EisnerAmper Partner Michael McLafferty provides an overview of all the steps in negotiating an M&A with a Health System. Mr. McLafferty has over 20 years of experience in the health care field providing business services to multi-hospital systems, pharmaceutical firms, surgery centers and physician practices.
Physician practices negotiating an acquisition by a Health System. Mr. McLafferty discusses why the pure acquisition option is the favorite for most health systems. Physicians and their staff become employees of the health system and the physician practice will be liquidated.
In the video series, Physician Practices Negotiating an M&A with a Health System, Mr. McLafferty explains the difference between acquisition and leasing options. In the physician practice lease model, the physicians and their staff remain employees of the physician practice.