A STEP BY STEP PROCESS
FOR MEDICAL GROUP AFFILIATION

This document will assist interested groups in the process of determining levels of commitment, exploring different models, and implementing the necessary elements of the new entity.

Step 1

Develop the rationale which supports the overall idea of the proposed transaction and which describe the advantages to each entity. Step 1 will become the philosophical base on which to continue the discussions both internally and externally. Critical to step 1 is the opportunity for each participant to discuss the following question:

Why are we doing this?

Will we realize significant economics of scale?

Will the coordination of patient care be improved?

Can we enhance our ability to recruit doctors to the community?

Is there a financial benefit to coordinating our assets and capital?

Can we improve our information, management, or our ability to control expenses?

Will the market position of each participant be strengthened?

Will an affiliation reduce our internal and external risks?

Will an affiliation present us with new opportunities for business development?

Will we be better prepared to survive in a managed care environment?

Step 2

Once Step 1 is completed and a commitment to move forward is achieved, the group must determine the best model for the proposed affiliation. Discuss which characteristics of the models will best support the goals which have been agreed upon. Efforts now, to describe the relationship in as much detail as possible will prevent confusion and controversy in the future. The legality and practicality of the chosen model must be confirmed by all relevant participants.

1. If the chosen model is anything less than an outright merger or affiliation, then the structure of services offered and the relative cost of each must be agreed upon.
   
   
2. If there is to be a purchase of assets and employment of physicians, relative price and employment issues must be addressed.
   
   
3. CON statutes must be considered as an outside timeline issue.
   
   
4. A financial feasibility study must be performed to assure that the arrangement meets standards of prudence and sound fiscal policy for all the organizations involved.
   
   
5. All parties must be confident that appropriate due diligence has been conducted to allow full disclosure of all pending liabilities and potential risks.
   
   
6. Identify required notification to Medicare, Medicaid and other reimbursement intermediaries.
   
   
7. Identify necessary state and federal tax requirements and procedures.

Step 3

Establish a governance process which will allow the providers to retain control over medical matters while allowing the principals to maintain their jurisdiction and stewardship over financial issues. Special attention should be paid to accommodate the traditional culture of the practices participating.

Items to consider:

Discussions should be very precise regarding the difference between operational and governance issues.

The special relationships which arise in a joint venture between parochial entities and private groups must be explored.

The decision making prerogatives of an individual physician must be preserved and balanced with the long term planning needs of the overall organization.

Decisions which might be collaborative must be discussed to assure that they are made at the appropriate management level and with the proper amount of communication and consensus.

The role of management staff at the Group level and its relationship to the main organization must be explored.

An organization chart should be developed for the resulting entity.

Job descriptions (even in abbreviated formats) should be developed for any position on an organizational chart.

The role of various committees should be carefully defined.

Step 4

Discuss and develop consensus on issues related to physician compensation.

Identify the compensation methodology.

Establish baseline data for physician production

Develop trends for past professional fee revenue

Agree upon a compensation methodology which is consistent with overall corporate strategy

Discuss restrictive covenants or non-compete portions of any proposed agreements.

Develop means for determining extent of physicians' activity at other hospitals.

Review malpractice insurance coverage for physicians with special attention to types of coverage in force.

Review physicians' office space and support requirements.

Where appropriate, discuss role of physicians in credentialing in context of medical staff bylaws and existing protocols.

Determine a procedure for termination or continuation of individual employment arrangements.

Review existing documentation for "unwinding" present agreements.

Existing physician employment agreements

Pension plan documents

Benefit coverage

Step 5

If transfer of medical records is necessary, develop a process whereby patients will be notified about their rights and alternatives.

Step 6

If an MSO arrangement or a sale of assets is to occur review protocols for the conversion of employees from one entity to another.

1. Determine new salary classifications.
   
   
2. Develop a plan for benefit transition.
   
   
3. Determine the need for special arrangements or contracts for the present clinic administration teams.

Step 7

If the MSO or the equity transfer is to involve the sale of capital equipment, the price and mechanism must be explored.

1. Develop appraisal format and engage appraiser.
   
   
2. Terminate or transfer vendor arrangements.
   
   
3. Coordinate casualty policies.
   
   
4. Reorganize lease, warranties, maintenance agreements, etc.

Step 8

If real estate is to be the subject of reorganization efforts, there must be a market based appraisal and an agreement regarding the structure of the final transaction.

1. Obtain and review information on the medical office building.
   
   
2. Check related mortgages and financing.
   
   
3. Establish a purchase price (or rent) at fair market value based on a mutually agreed-upon appraisal.
   
   
4. Draft purchase or lease documents.
   
   
5. If necessary, examine treatment of loss carry-forwards or other tax effects for the physicians (or other private parties).

Step 9

The impact of the sale or reorganization on other relationships and contracts must be studied to determine if there is any prohibition or problem.

Supplier contracts

Debt instruments

Employment agreements

Collective bargaining agreements

Management agreements

Utility agreements

Lease of equipment

Equipment maintenance agreements

Lease of real property

Third party payer agreements

Insurance policies

Credentialing or privileges at other institutions

Contractual service arrangements

Franchises or guarantees from competitive entities

Step 10

Develop a procedure for the transfer of intellectual property and trademarks to system ownership.

Step 11

Determine management information system requirements, accounting and financial controls and any reporting system interrelationships between the new entity and local hospitals, or related hospital entities.

Step 12

Begin developing internal and external communication plans.

Step 13

Develop processes to support transition and final closure.

Establish a time line for all parties.

Develop a memorandum of understanding (MOU).

Establish list of issues and documents necessary for closure (to match MOU's).

Physician employment agreements

Job descriptions for physicians

Physician restrictive covenants

Clinic master agreement

Property options

Transfer or sale of equipment, assumption of loans

Property sales agreement

Management agreement regarding existing A/R

Property transfer, including title work

Key employee agreements

Formal transmittal of medical records and maintenance of patient listings

Insurance and malpractice coordination between existing and proposed carriers and policies

Coordination of benefits programs between existing and proposed programs

health insurance

pension programs

physician coverage

administrative or executive plans

Casualty policy coordination

Review contract vendor arrangements and convert where appropriate and desirable