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Tri-Party Arrangements:Considering All Perspectives
Presented by,Max Reiboldt, CPA, President / CEO
Coker Group
2015 New York Metro ASC SymposiumOctober 15
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Healthcare Trends
Compliance Pay for PerformanceReform Demand for
services
ConsolidationFour trends in healthcare today are leading to market consolidation. As a result a growth in tri-party arrangements between health systems / hospitals, ambulatory surgery centers (ASCs) and management companies are proving to be a viable solution.
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Tri-Party Arrangements
Hospital / Healthcare System
Ambulatory Surgery Center (ASC)
Management Company
Advisory Firm
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Tri-party Arrangements
Advantages Increase name recognition Growth of procedures performed Increase services IT infrastructure Robust reporting capabilities Organizational structure Shared interests Position organization in way that
benefits payer contracting Increase access to care Capital injection “Cashing-out” physicians
(partially)
Disadvantages Risk financial incomes Less control Regulatory compliance
measures Increased expenses (i.e.,
clinical, operations, IT, personnel, etc.)
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DIFFERENT SIDES OF A TRI-PARTY ARRANGEMENT
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Management Company
Primary functions Investment Financing Options – capital infusion Partnerships (i.e., operating and managing agreements, subscription
agreements, fund escrow, corporate documents, etc.) Site Planning (i.e., site identification and selection, lease negotiations,
architectural design, space planning, construction estimates, etc.) Management and Operations (i.e., policies and procedures, managed
care contracts, payroll, benefits, accounting and office systems) Turnarounds (i.e., managed care contracting, contract compliance,
patient satisfaction, staffing, compliance and billing / collections, etc.) Acquisitions (i.e., partnership structuring, growth capacity analyses
and staffing realignment) Health system coordinated investment
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ASC - Physicians
Increase referral presence Growth of procedures performed (while maintaining patient safety and adhering to
care delivery regulations) Cost effective care Promote name recognition
Management companies assist physicians with the following: Provide infrastructure and support to adapt to growing regulatory changes related
to accreditations and certifications Offer re-finance and avenues for growth and cost containment Develop strategic planning and budgets Analyze revenue cycle with benchmarking related to internal goals and industry
trends Cultivate healthy joint relationships between hospitals and physicians Provide “cash-out” scenarios
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Health System / Hospital
Investor partner Majority interest (often) Negotiate payer contracts (if majority owner) Financial wherewithal to cash-out equity of investors Hospitals align strategically with physicians Integration with physicians to better address accountable care
requirements Collaborate with physicians via co-management and service line oversight Collaborate with both management company and physicians in
development of new centers and efforts and other growth effort
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Advisory Firm
Perform due diligence Evaluation of the most critical aspects of the arrangement (i.e., financial
documents including managed care contracts, operations, clinical, legal / regulatory, arrangement valuation, etc.)
No direct incentives Subject matter expertise Identify and address risk factors related to arrangement that may stop or
delay the process Identify factors that will significantly impact / change the arrangement’s
valuation Integration planning
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Tri-Party ArrangementCASE STUDY
• ENT specialty practiced in four locations hired a management company to handle full management.
• The management company was incentivized to help the practice because of their stake in the organization.
• The management company provided personnel, supply chain, contracted services, valuation and equity, compensation and joint ventures.
• The nearby healthcare system, with a number of locations, approached the ENT practice about a potential purchase.
Situation
• The management company, on behalf of the ENT practice, worked with the hospital’s advisory firm to negotiate a fair market valuation (FMV) for the transaction.
• The management company advocated for the physicians because there is a financial interest in the organization.
• The advisory firm completed a due diligence process for the hospital to assist with determining risk factors in the arrangement.
Approach
Outcome
The management company and the advisory firm determined an FMV fee of the transaction, based upon an independent appraisal having been completed. Both hired a third party advisor to assist with the due diligence process specifically focusing on financials, managed care contracts, physician contracts and agreements and documentation. The practice benefitted because they increased their referral presence, increased services and improved their name recognition. The advent of a hospital partner brought a percentage stake of the ASC, providing capital and the “cashing-out” of some of the physician equity and risk.
Southeast region
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Key Takeaways
Healthc
are S
ystem /
Hos
pita
l
Act as an investor, may have majority interest, negotiate payer contracts, deeper pockets to cash-out equity of investors and align strategically with physicians.
Manage
ment Co
mpany
Provide excellence in management expertise plus investment dollars. Management companies are incentivized to help practices grow and increase revenue.
Amb
ulato
ry Su
rge
ry Cen
ter
Increase referral presence, increase services, provide cost effective care, and promote name recognition.
1. Reform
2. Regulatory compliance
3. Shift to pay-for-performance
As consolidation continues, we are likely to see an increasing number of tri-party arrangements. Key drivers for consolidation are:
Tri-party arrangements include the following perspectives:
4. Demand for services
5. Mutual respect and value of all parties
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Contact
Max Reiboldt, CPAPresident/CEO
Coker Group Holdings LLC2400 Lakeview Parkway| Suite 400
Alpharetta, GA 30009T: 678-832-2007
Q & A
