Democratic Groups

So You Want To Start a Group

by George M. Innes, MD FAAEM

Times are changing and many hospital administrators are realizing that if they want a solid emergency medicine group they have to kick out the contract groups and allow local physicians to join together and form democratic practices. This is giving many of us an opportunity to start up practices. This is great for us and our patients. There is one problem however-no one showed us how to do it. We are physicians, not MBA's. To put together a group we must plan ahead if we are to be successful. The following is some of the steps I had to go through to start my new group, Emergency Medicine Consultants, PC in Watertown, NY

The first step in starting a group is identifying a hospital that would benefit from a change in management in the Emergency Department. National groups are infamous for promising administrators that they will recruit qualified, full-time emergency physicians to staff their departments. It is not long before the administration realizes that this is not what actually occurs. Instead of full-time physicians they get a parade of moonlighters who are brought in from all over the country. The medical staff does not get a group that they work with and know. They don't get a group that will be involved with hospital committees and projects. They do get last-minute credentialing problems, holes in the schedule, and complaints from the medical staff, emergency department nurses, and patients. These are the hospitals that are ready for change. It usually takes no more than giving options to the CEO.

To be able to know what you can offer you must review what is happening now in the hospital. Several statistics need to be obtained. You should request from the hospital a breakdown of the annual Emergency Department visits for the last three years. What percent were admissions? What is the breakdown by insurance carrier type? Does anyone else see patients in the ED other than the emergency group? Are there any trends in how these numbers have been changing over this period of time? If a hospital's volume is falling or if managed care is changing practice habits, your view of the potential revenues from the group must also be recalculated.

Billing can be an easy thing to handle if you have the right group working for you. Many billing consultants are available to assist you in calculating projected revenues. Many make the mistake in picking the group that promises the highest revenue. This may just be false hope (a sort of bait and switch) or may be a group that promotes up-coding to a point where you're at great risk of an audit. Remember it's your assets that are at risk. You could also be banned from the Medicare program if you are convicted of fraudulent billing even if you personally had no part in the actual coding of the charts.

A billing group should be chosen first based on reputation. There are many good groups out there with strong histories of delivering what they estimated without resorting to fraudulent billing. You

must have complete trust in the person you will be working with. Your financial future and the future of your group depends on it. Other factors to take into consideration include location, cost, and other services. My agent, Asterino & Associates, was willing to provide me with practice management and accounting services that were very valuable to me.

After picking a billing agent, have them audit a sample of charts (usually 3-4 weeks worth) from scattered months in the year. They can double check the patient mix against the numbers the hospital has given you. A charge per patient can then be estimated. This will allow you to calculate annual revenues. This service is usually provided for free by the billing agent if you agree to consider them when you actually take over the contract.

The more difficult part is calculating what your costs will be. You must analyze what the going rate for an Emergency Physician is in you area. You must also add in the cost of a benefit package which can run up to 25-30% of your total labor costs. Add to that recruitment fees of $15-20K per doctor if you use a national recruitment firm. You must also add in the cost of billing (14-15% of receivables), legal ($5-10K startup then $1K annually), accounting ($1-2K) and miscellaneous fees ($5K).

The difference between the two will be your profit or shortfall. Don't be upset if you find there is a shortfall. Most ED's in my state require stipends from the hospital. This money can be negotiated for plus a marginal profit. A good, solid group is worth the investment of a smart CEO. Just be sure you can support your calculations and present them to the CEO in a clear, concise fashion. Don't cut yourself short. Remember there will be times that physicians stay late. Unexpected costs can also arise. Don't negotiate yourself to a point where you have no safety buffer.

The negotiation should be between a representative of the group and the CEO. Leave the attorneys out until you have an agreement of principles. It is at that time that you can utilize the services of the lawyer to put it in writing. If you bring in your lawyer too early the hospital will do the same and the bills and the length of time needed for your negotiations will rise geometrically. This does not preclude you from seeking advise during a critical phase of the negotiation. I just recommend that you do it outside of the actual negotiation and before you sign anything.

It is always better for you to write the contract if the option is available. This is much easier than having to negotiate out many negative clauses that the hospital attorney will try to implement. Your attorney can draft a contract for as little as $1K. Again after the contract is presented by either side, review it with your attorney and then go back to the table alone to work out the details. Your attorney can than make the final reviews before signing the document.

Now the contract is complete. You must really get things into gear. Try to leave yourself at least three to four months before taking over the contract. You will need this time for your incorporation and to obtain your tax ID and provider numbers.

Incorporation is a quick process that can occur over a couple of weeks. You must do this prior to applying to the federal government for your tax ID number. You must then take this number and use it to obtain your provider numbers from the third party payers in your area. This can take weeks to a couple of months with some providers. Don't be surprised if some forms have to be

submitted a couple of times before they are accepted. Without having these numbers available you will not be able to bill until weeks after your startup. This can lead to cash flow problems. You could bill the patient directly. This usually leads to a substantial number of complaints and lost revenues. This is not the way to get things started.

The first three months you can expect a small cash flow. Your receipts will move from 10% in the first month to about steady state by month 4 to 6. You must have the capital to pay the group over this period of time. There are several ways to fund this startup. The first is a straight loan from the bank. This can usually be obtained for prime plus 1 to 1-1/4%. Most hospitals will be willing to guarantee the loan with the proper safeguards. If you take this route don't forget to add the cost of the interest to your calculations on subsidy needs.

The approach that I have used successfully in my last two contracts is to have the hospital prepay all or a portion of the subsidy up front. Depending how large the subsidy is you may need one to three years of this money over the first three months. This is where the hospital attorney usually jumps up and states with a sympathetic look that the hospital would love to help but can't because of inurement issues (a nonprofit organization can't use it funds to the advantage of an individual or for a profit organization). This is wrong!!! These monies are nothing more than a prepayment for services to be rendered. The money you are receiving is nothing more than a reimbursement of part of the funds that are due your group for administrative and teaching duties that you perform. This will save your group thousands and decrease your risk to nil. It will also save the hospital money because they will not have to increase your subsidy to make up for the interest payments.

The last detail is your benefit plans.

As soon as you start thinking about forming a group, begin contacting vendors for the services you will require. This includes 401 (k) plan administrators, health and dental insurance, workman's comp, liability insurance, life and disability insurance. There are many products out there. It is best to assign each member of the group one area to investigate. This will allow you to divide and conquer. Then have a group meeting for everyone to present their findings on the area they reviewed. The group then should make the final decision. The paperwork then begins, which can take as little as a week or as long as two months. Be prepared, you don't want to be caught without coverage. You also don't want to be caught making quick decisions without the proper background. This can and will cost you.

The contract between group members will be covered in future articles. This requires a long discussion in itself. If all is discussed and voted on in the early phases, the actual group contracts are easy. The key point is discuss all issues early and completely. This is not the time for misunderstanding. This could kill the group before it gets started. One of the key reasons a hospital administrator will listen to your proposal is the hope that there will finally be harmony in the ED. If you start up with problems within the group you will not pass go!

Samaritan Medical Center is my second group. Each transition was a lot of work but was worth it in the end. Democratic groups are the most positive environments to work under. The hard work does pay off in long-term satisfaction. Don't hesitate to get to work on this now! It is time we take back the specialty.

If you have any questions about how my group did this transition, e-mail me at ginnes@interserv.com or write to me through AAEM. The AAEM Board stands ready to assist you with your questions.