Business Case:

Your employer, a Connecticut health care provider, is acquiring a mid-sized multi-specialty practice in a rural part of the state.The practice includes primary care physicians, a psychiatrist and a general surgeon.

Given its location and size, the acquired practice does not have a sophisticated infrastructure.It is largely a paper-driven patient record system.This has negatively impacted reimbursements from payors.The practice, however, was proud when it recently established its own webpage.Patients are allowed to go on the practice's website and schedule their own appointments.The patients can see what openings the doctors have and can list their names in a given slot so as to reserve an appointment, along with their contact information.The practice administrative staff goes on this site to confirm appointments.Patients are encouraged to check the site to see if names come off and appointment times open.The practice allows patients or relatives to call in by phone to request medical records.Records are sent by facsimile or by mail as directed by the requesting party.The psychiatrist in the practice has a large patient panel, and most of the mailed records are for his patients.

The psychiatrist works at an inner-city federally qualified health center.He sees a very high volume of patients there.Most of that population is Hispanic, but the psychiatrist does not speak Spanish.He is committed to the work in part because much of his focus in that position involves substance abuse counseling.He has a picture of himself leading a group therapy session for addicts on the group's website.While he admits that he struggles to understand some of his patients, he is troubled by their increasing reference to violence and gang behavior in their counselling sessions.

The general surgeon recently joined the practice.He has a small one-room ambulatory surgery center.The revenues from this center are shared per capita by the primary care physicians, the psychiatrist and the general surgeon.Recently, an independent two-man orthopedic group offered to buy into the facility.The group practice was interested in accepting this offer, as it wanted to maximize its economic returns associated with the ASC, but didn't have any other ideas as to how to use the ASC to its benefit.The group wanted to make sure that the new owners would commit sufficient volumes to support their investment.The group practice signed an option agreement with the orthopedic physicians, allowing them to buy a 25% equity stake in the facility and committing to build out an additional room in the center if the new surgeons committed to bring at least 2,000 cases to the ASC in the 1 year period from the date of the option agreement.

As professional reimbursements are declining, the group is considering the acquisition of imaging equipment to help realize revenues from the delivery of those ancillary services.It is considering allowing another group of physicians to share in the cost of the equipment and to use it on a part-time basis.

All billing and coding is done by the practice's internal staff.The staff has been in place for 15 years and is highly valued by the doctors, but the staff members have no formal training.The practice advises that they have not audited their billing practices, since their billings have never been challenged by any payor.The practice believes it is very competitive in the local marketplace.The president of the practice is also chair of the county medical society.He periodical meets with other local practice leaders and compares fees and reimbursements from insurers.

Identify potential legal issues that might exist with respect to the manner in which the practice has operated to date.How might you address these?What due diligence would you undertake before closing on this transaction?What steps might you take to improve the practice's financial performance and risk profile after acquiring it?