Creating a SDG

[thegenius]

Has anyone ever been involved in an ER practice that either created or converted into an SDG? For instance maybe the ED practice was part of a CMG, and then they broke off to form their own democratic group. Seems like a major undertaking, the new democratic group would have to provide (or contract out)
- billing
- payroll
- malpractice insurance
what else? has to be a lot more.

For the SDG groups out there what are some examples of administrative costs / percentages?

---

Members don't see this ad.

 

[EctopicFetus]

Happy to discuss via PM.

All you need to run a group:
1) is a contract with the hospital
2) Contract with payers as required
3) BIlling and coding
4) Med mal
5) Practice management which includes payroll benefits, filing necessary paperwork with the govt. Bank accounts etc.
6) scheduling

Many of the billing and coding companies will help you do any of these things. Happy to discuss specifics via PM or phone.

 

[TheComebacKid]

This sounds like a massive undertaking to me.

How much capital do you need to start a group? Or do you typically just start with multiple physicians who are ready to join the group and have them "buy in"?

Sorry, very little experience about this but I was curious as well.

 

[EctopicFetus]

This sounds like a massive undertaking to me.

How much capital do you need to start a group? Or do you typically just start with multiple physicians who are ready to join the group and have them "buy in"?

Sorry, very little experience about this but I was curious as well.

You will need some capital but this can potentially be secured with a line of credit from a bank or many billing companies will do this too.

in reality you need money for payroll until money starts rolling in. If the hospital is unhappy they can give you a 12 month interest free loan as well. Honestly, it isnt much. if you bring on a bunch of docs who are all partners. Your only real expense is med mal (state specific) and MLP pay. Of course you have to pay a lawyer to look over stuff. No cost of equipment etc.

 

[EctopicFetus]

You will need some capital but this can potentially be secured with a line of credit from a bank or many billing companies will do this too.

in reality you need money for payroll until money starts rolling in. If the hospital is unhappy they can give you a 12 month interest free loan as well. Honestly, it isnt much. if you bring on a bunch of docs who are all partners. Your only real expense is med mal (state specific) and MLP pay. Of course you have to pay a lawyer to look over stuff. No cost of equipment etc.

Finishing my thought.. if the docs can afford to go without getting paid for 3 months the cost is low. some people cant afford that. While it is a HA would you do it for 1-200k/yr in perpetuity for 3-6 months of work? Seems like a strong ROI to me.

 

[bikERdoc]

Then why doesn't it happen more often?Sounds a little over simplified.

Any anecdotal stories of this going smoothly in a major city over the past ten years?

[insert bitter doc who went through a buyout 1 year out and would love to find sustainable SDG, but feels there is better chance of finding a unicorn]

 

[Hamhock]

Then why doesn't it happen more often?Sounds a little over simplified.

Any anecdotal stories of this going smoothly in a major city over the past ten years?

[insert bitter doc who went through a buyout 1 year out and would love to find sustainable SDG, but feels there is better chance of finding a unicorn]

Yes, and how do non-competes play into this?

HH

 

[EctopicFetus]

Then why doesn't it happen more often?Sounds a little over simplified.

Any anecdotal stories of this going smoothly in a major city over the past ten years?

[insert bitter doc who went through a buyout 1 year out and would love to find sustainable SDG, but feels there is better chance of finding a unicorn]

The cmgs can offer things groups don’t want to. Who is the individual who goes to the c suite with a pitch? Right. People are too greedy and scared. On top of that sdgs usually don’t see value in their admin. Hence little time put in and contracts get lost. Starting an sdg is easy if you can get a contract.

Many of the cmgs have stipulations that you can’t steal their contracts. Go away for a bit. Keep tight with your c suite. Get the contract back and fix whatever they decided they were unhappy with.

I found a 2nd great sdg after my first sold out against my wishes. Required me to move. Now hospital comes to us to solve problems and work cooperatively.

Sdgs have to work to solve the problems the cmgs say they will.

Group in Arizona lost their contract cause hospital wanted them to “take over” hospitalists. Aka cross subsidization. Group said no. Hospital brought in emcare for all with no subsidy which was cute until emcare failed. Now they are hospital employees and frankly earn 1/2 of what they do when they ran their own group. Is a 50% paycut worth it?

Re non competes it is state by state. In my state there is no post employment restrictive covenant as it is illegal for physicians.

So you can have to structure the group in a way that makes sense legally. Requires a lawyer and their fees to get paid.

Why do you think starting up a group is hard? The hard part is literally getting a contract. Then you have to figure out your finances and requirements. A billing company will and can do this for you in exchange for your business. Note I have no affiliation with any of them other than 2 different ones we used at my 2 sdgs.

 

[EctopicFetus]

Hell, get a contract. Pay me and I’ll run it for you. I’ll prove how easy it can be.

 

[Vandalia]

The VC guys like to talk about "barriers to entry." You may have a great business idea, but if 10,000 people can do exactly the same thing, it is worthless. For the car companies, it is the $10B you need to build a factory; for Intel it is the intellectual property; for a good gas station it is the prime location. So the key that goes along with getting a contract, is keeping a contract. The lack of non-competes can work for or against you: it is great when forming a group, but it also means that someone can come along and do exactly the same thing poaching your peers.

One bad thing about EM is that we obviously don't "own" patients. Corporate medicine can over cash for the hospital (whether they will be able to deliver on that promise is another thing.) So again the key question is how you are going to keep the contract, especially when another entity comes in offering cash.

 

[EctopicFetus]

The VC guys like to talk about "barriers to entry." You may have a great business idea, but if 10,000 people can do exactly the same thing, it is worthless. For the car companies, it is the $10B you need to build a factory; for Intel it is the intellectual property; for a good gas station it is the prime location. So the key that goes along with getting a contract, is keeping a contract. The lack of non-competes can work for or against you: it is great when forming a group, but it also means that someone can come along and do exactly the same thing poaching your peers.

One bad thing about EM is that we obviously don't "own" patients. Corporate medicine can over cash for the hospital (whether they will be able to deliver on that promise is another thing.) So again the key question is how you are going to keep the contract, especially when another entity comes in offering cash.

Well the only way to “pay cash” is cross subsidization unless you form a likely illegal JV like Emcare and HCA have. Outside of that what makes you better is getting better docs, low turnover, committee involvement etc. You know the stuff that SDGs do that make them better than CMGs. CMGs have their advantages too. My SDG has had our contract for 30+ years, our current contract was a 7 year no out, our new contract is gonna be something similar hopefully (we are negotiating right now).

In the last 3 years 3 companies have offered to buy us. Similarly we know of 2 who went to the hospital and asked for our contracts.

If your SDG isnt better than a CMG in terms of pay then you will lose docs and frankly the extra work needed to be a good SDG isnt worth it. A good SDG is like a Bentley and the CMGs are like a VW that lies about its emissions. They can both get you from point A to point B. One will be a smoother ride, be customized to the hospitals needs and have all the extras, while the other lies, cheats and steals but you dont care much cause you want to do as little as possible.

 

[EctopicFetus]

The VC guys like to talk about "barriers to entry." You may have a great business idea, but if 10,000 people can do exactly the same thing, it is worthless. For the car companies, it is the $10B you need to build a factory; for Intel it is the intellectual property; for a good gas station it is the prime location. So the key that goes along with getting a contract, is keeping a contract. The lack of non-competes can work for or against you: it is great when forming a group, but it also means that someone can come along and do exactly the same thing poaching your peers.

One bad thing about EM is that we obviously don't "own" patients. Corporate medicine can over cash for the hospital (whether they will be able to deliver on that promise is another thing.) So again the key question is how you are going to keep the contract, especially when another entity comes in offering cash.

Also, Once you get a contract like I said you have to work to keep it. I make way more per hour what an “average” em doc makes. You know what? That gets my ass into meetings I am not paid for, volunteer work etc. My job has low turnover and we probably get 40 resumes per position which is never advertised. You think EmCare can say that? TH? USACS? APP? Or frankly the semi CMGs like Apollo, vituity?

 

[Vandalia]

I think we are saying the same thing. My fundamental point is that while forming a group and getting a contract may be relatively easy, keeping it will require a lot of hard work. The saying that I told everyone was Don't Kill the Golden Goose.

"White Coat Investor" will probably kill me for this back-of-the-envelope analysis, but figure out what your group earns from your contract (total physician compensation) in a year. Assume a 5% rate of return. So take that compensation number and multiply it by 20. That is very roughly what your contract is worth. If you had that amount of money as an asset, everyone in the group would be spending every night in a lawn-chair with a shotgun in their laps guarding it.

EM can be fragile because there is not the loyalty from patients and there is not really the potential of loyalty from other physicians than path, rads, or anesthesiology can get. The market can also make it difficult to get EM physicians to help lock down the contract. A pediatrician can't get a linear and immediate increase in salary by working another 8 hours a month, so spending that amount of time on committees doesn't seem like that bad of an idea. For the EM physician on the other hand, that 8 hours is 8 hours where there is an immediate opportunity cost: she could relatively easily spend that time earning a decent amount of money somewhere.

Don't kill the golden goose.

I don't mean to suggest that the people at Summa Emergency Associates (SEA) did anything wrong in Akron. But I have to wonder, if the hospital CEO (he was a physician I believe) was EM, and the CMO was EM, and just throw it out, the town mayor was EM, would they have lost the contract? I really don't think so. I shudder every time I see a hospital where the medical leadership is not at least liberally sprinkled with EM physicians. We are the best qualified for these jobs, and they are in our long-term interest.

If you are in a horrible area, with a horrible payer mix, you probably don't have much to worry about. If you are in a good area, with a good hospital and good compensation, you have to be constantly on-guard. Money can turn the best friends against each other, and there will always be someone whispering "sweat nothings" into the ear of the CEO. There is no sure-fire solution, but it is important to sink the roots into the hospital as much as possible. If there is no cost to a CEO, he will sell the EM contract out in a heartbeat. If he knows it will cost him his CMO, screw-up his credential work for months, mess up JCAHO prep, then at least he will hesitate for a minute. However, this takes a lot of hard work.

This merges with the advice I gave young EM physicians: Sure, do the locums work, but don't put a job worth hundreds of times more money at risk because of it.

Don't kill the golden goose... and if you don't want to be forced to move in 6 months, value the people who are working to keep your contract.

 

[EctopicFetus]

I think we are saying the same thing. My fundamental point is that while forming a group and getting a contract may be relatively easy, keeping it will require a lot of hard work. The saying that I told everyone was Don't Kill the Golden Goose.

"White Coat Investor" will probably kill me for this back-of-the-envelope analysis, but figure out what your group earns from your contract (total physician compensation) in a year. Assume a 5% rate of return. So take that compensation number and multiply it by 20. That is very roughly what your contract is worth. If you had that amount of money as an asset, everyone in the group would be spending every night in a lawn-chair with a shotgun in their laps guarding it.

EM can be fragile because there is not the loyalty from patients and there is not really the potential of loyalty from other physicians than path, rads, or anesthesiology can get. The market can also make it difficult to get EM physicians to help lock down the contract. A pediatrician can't get a linear and immediate increase in salary by working another 8 hours a month, so spending that amount of time on committees doesn't seem like that bad of an idea. For the EM physician on the other hand, that 8 hours is 8 hours where there is an immediate opportunity cost: she could relatively easily spend that time earning a decent amount of money somewhere.

Don't kill the golden goose.

I don't mean to suggest that the people at Summa Emergency Associates (SEA) did anything wrong in Akron. But I have to wonder, if the hospital CEO (he was a physician I believe) was EM, and the CMO was EM, and just throw it out, the town mayor was EM, would they have lost the contract? I really don't think so. I shudder every time I see a hospital where the medical leadership is not at least liberally sprinkled with EM physicians. We are the best qualified for these jobs, and they are in our long-term interest.

If you are in a horrible area, with a horrible payer mix, you probably don't have much to worry about. If you are in a good area, with a good hospital and good compensation, you have to be constantly on-guard. Money can turn the best friends against each other, and there will always be someone whispering "sweat nothings" into the ear of the CEO. There is no sure-fire solution, but it is important to sink the roots into the hospital as much as possible. If there is no cost to a CEO, he will sell the EM contract out in a heartbeat. If he knows it will cost him his CMO, screw-up his credential work for months, mess up JCAHO prep, then at least he will hesitate for a minute. However, this takes a lot of hard work.

This merges with the advice I gave young EM physicians: Sure, do the locums work, but don't put a job worth hundreds of times more money at risk because of it.

Don't kill the golden goose... and if you don't want to be forced to move in 6 months, value the people who are working to keep your contract.

I agree with all except the value. I have been thru a sale and my current group was offered multiple times recently to be purchased. I think you are saying a group is worth 20x your revenue. Reality and a realistic number is you are worth 7-12x your profit. The profit is what you could get another doc or PA to work and compare that to what you earn.

I use assumptions of 2pph for an MD and separately calculate MLP profit. If you generate 20M a year in revenue, and expenses like med mal, charting, admin costs are 2M. You have 18M in $$ available for compensation.

If you got docs in to see 2pph for 225/hr and the number of hours needed worked out to 14M a year then your profit is 4M. Take that number and multiply by 7-12. Most buyers now are in the 7-9 range. A few years back 10-12 wasn’t crazy.

They will make up the money with their better contracts, more aggressive coding (which you the doc are responsible for but with a CMG you have no say or ability to see this). They will also push the docs to see 2.2 pph as it only improves profit.

Long story short most ED groups are worth 800-1.4M per partner. Few are worth more. If you are valued less than that then I recommend you get someone to teach you how to run a business.

You are right in that you need to put in “extra” work for no pay. The pay comes in the form of you making more than the CMGs. I make well over 2x what my local market brings. Ill happily sit in a meeting or 2 and help do stuff for this.

 

[hundreddaysoff]

Go away for a bit. Keep tight with your c suite.

This seems like a huge part of the barrier to entry and a very useful skill to learn. How do you keep tight with an entire hospital C-suite, or even meet said C-suite, when you were JAFERD before and now you have to work another gig to eat and aren't even in town a lot of the time? Like, do you text them funny cat pics every couple weeks?

And how much harder is this if the hospital is owned by HCA or the like and the C-suite has their own corporate overlords?

 

[MechEDoc]

And how much harder is this if the hospital is owned by HCA or the like and the C-suite has their own corporate overlords?

Sounds like offering to cook your own recipes at a local McDonald's. You'd probably be best off targeting an independent hospital that staffs with a CMG and gets mediocre service.

 

[EctopicFetus]

This seems like a huge part of the barrier to entry and a very useful skill to learn. How do you keep tight with an entire hospital C-suite, or even meet said C-suite, when you were JAFERD before and now you have to work another gig to eat and aren't even in town a lot of the time? Like, do you text them funny cat pics every couple weeks?

And how much harder is this if the hospital is owned by HCA or the like and the C-suite has their own corporate overlords?

Be clear. HCA has a joint venture with Emcare. You have NO chance there.

Rather you need something local. You have to know the c suite from prior work. Ideally it is the hospital CEO. usually they will sit on some committee, join that committee. kick ass there. There is no doubt there is a huge barrier to entry. It’s not an accident the CMGs try to limit who gets time with the C suite. usually it is a VP of the CMG who isnt a true clinician.

You have to understand what they want. If it is HCA or Tenet then it is about money, quality of docs, going thru patients quickly and maximizing ED efficiency.

if it is a local non profit they care about that too but perhaps they want docs involved on their boards/committees. You can tout community ties and involvement. You have to play up your strengths.

 

[EctopicFetus]

Sounds like offering to cook your own recipes at a local McDonald's. You'd probably be best off targeting an independent hospital that staffs with a CMG and gets mediocre service.

Yes. I think it depends. You need a relationship with the C suite usually the CEO, COO or CMO. Depends on the hospital system. You need that relationship so you can understand what they are looking for so you can craft your pitch.

 

[bikERdoc]

Posting up the same question as before. Why don't we see this happening more often if it's so feasible? Why aren't more SDGs popping up?

My group had multiple offers on the table before it finally sold out. I imagine every group near a major city does.

The sharks are in the water, the contracts are only for a few years at a time. Even if your new SDG manages to lock down a contract, the contract is back up for grabs in only a few short years. It's not something I'd be super excited to sink all my savings into. Way too much risk.

We need longer contracts, more lobbying for small group protections, and perhaps a non corporate leader of acep to lead the way. Clearly that's not happening right now.

 

[GeneralVeers]

Posting up the same question as before. Why don't we see this happening more often if it's so feasible? Why aren't more SDGs popping up?

My group had multiple offers on the table before it finally sold out. I imagine every group near a major city does.

The sharks are in the water, the contracts are only for a few years at a time. Even if your new SDG manages to lock down a contract, the contract is back up for grabs in only a few short years. It's not something I'd be super excited to sink all my savings into. Way too much risk.

We need longer contracts, more lobbying for small group protections, and perhaps a non corporate leader of acep to lead the way. Clearly that's not happening right now.

When EMP lost our contract in 2013, the group of us, about 30 docs tried to form our own group and even submitted an RFP to the hospital. We had every single doc in the group on board and pitched it to the hospital that if they kept us, we would be fully staffed and we could keep up the same metrics and procedures as before. The hospital of course turned us down and went with another local group who ended up being absorbed into TeamHealth. Interestingly TeamHealth is losing the contract this month.

 

[bikERdoc]

When EMP lost our contract in 2013, the group of us, about 30 docs tried to form our own group and even submitted an RFP to the hospital. We had every single doc in the group on board and pitched it to the hospital that if they kept us, we would be fully staffed and we could keep up the same metrics and procedures as before. The hospital of course turned us down and went with another local group who ended up being absorbed into TeamHealth. Interestingly TeamHealth is losing the contract this month.

Who are they losing it to? And what happened to the 30 docs who were previously employed by EMP that didn't get the contract?

 

[coachB]

Who are they losing it to? And what happened to the 30 docs who were previously employed by EMP that didn't get the contract?

Vituity

 

[GeneralVeers]

Who are they losing it to? And what happened to the 30 docs who were previously employed by EMP that didn't get the contract?

Vituity (aka CEP). About half the EMP docs stayed with the new group because they didn't want to move for family reasons. About 25% started working for the other CMGs in the area, and 25% moved out of state or went locums full time.

It is interesting because all the TeamHealth docs have a non-compete clause, and so far I'm not seeing many of the TeamHealth docs on the new schedule. Guess they got screwed.

 

[EctopicFetus]

Posting up the same question as before. Why don't we see this happening more often if it's so feasible? Why aren't more SDGs popping up?

My group had multiple offers on the table before it finally sold out. I imagine every group near a major city does.

The sharks are in the water, the contracts are only for a few years at a time. Even if your new SDG manages to lock down a contract, the contract is back up for grabs in only a few short years. It's not something I'd be super excited to sink all my savings into. Way too much risk.

We need longer contracts, more lobbying for small group protections, and perhaps a non corporate leader of acep to lead the way. Clearly that's not happening right now.

again, you can ask for a long contract. My current group had a 7 year no out. We are working on a new contract. Same ask. Hospital appears to be happy to give it to us. now we are solving issues for them so its not exactly a simple gift.

more groups dont do it because they dont have the relationships or skills. A handful of people have started sdgs simply because hospitals have asked them to do it because they are sick of the CMGs.

As far as cost and your savings. The risk there is small. You have to either work for no pay (delayed collections) for 3 months or so or be able to secure a biz loan.

What other startup costs are there? None.. no equipment.

SDGs aren’t popping back up simply because people dont have the relationships and the deals you sign when you sell your group make it difficult.

If you stay on at a hospital it is explicit in your contract you wont take over the ED contract. So you would have to be gone for 1-2 years and maintain that relationship with the C suite and then have them give you back the contract and get people on board with you.

 

[EctopicFetus]

Vituity (aka CEP). About half the EMP docs stayed with the new group because they didn't want to move for family reasons. About 25% started working for the other CMGs in the area, and 25% moved out of state or went locums full time.

It is interesting because all the TeamHealth docs have a non-compete clause, and so far I'm not seeing many of the TeamHealth docs on the new schedule. Guess they got screwed.

Another reason CMGs are scum. Had this happen to a bunch of docs here who used to work for emcare and when they lost their contract it created a mess and left a bad taste in the hospitals mouth.

 

[bikERdoc]

again, you can ask for a long contract. My current group had a 7 year no out. We are working on a new contract. Same ask. Hospital appears to be happy to give it to us. now we are solving issues for them so its not exactly a simple gift.

more groups dont do it because they dont have the relationships or skills. A handful of people have started sdgs simply because hospitals have asked them to do it because they are sick of the CMGs.

As far as cost and your savings. The risk there is small. You have to either work for no pay (delayed collections) for 3 months or so or be able to secure a biz loan.

What other startup costs are there? None.. no equipment.

SDGs aren’t popping back up simply because people dont have the relationships and the deals you sign when you sell your group make it difficult.

If you stay on at a hospital it is explicit in your contract you wont take over the ED contract. So you would have to be gone for 1-2 years and maintain that relationship with the C suite and then have them give you back the contract and get people on board with you.

Fair enough. You did say that above. I believe all our contracts the last several years have been 3, but I'm not entirely sure on that.

Our group staffed our current hospital for about 35 years before it sold it. Same docs now, same relationships with the C suite. I don't think there is any interest in branching away from the CMG amongst the group leadership at this point.

The cost in my mind is not just financial. You spend a butt load of time setting up a group, figuring out insurance relationships, malpractice costs, and overhead. Then you run the risk of all that getting gobbled up by THEmcareUSACS. And now Vituity? (cute name btw). Seems risky, but maybe not.

I think in the current paradigm, the guys/gals approaching the last 5-10 years of their careers see an opportunity. "We could get bought out and at lease walk away with something. Or we could lose the contract, in which case we just wake away. Empty handed." They justify it by saying that they've secured a contract into the future. But in reality, they've created a lot of McDonald's workers.

 

[EctopicFetus]

Fair enough. You did say that above. I believe all our contracts the last several years have been 3, but I'm not entirely sure on that.

Our group staffed our current hospital for about 35 years before it sold it. Same docs now, same relationships with the C suite. I don't think there is any interest in branching away from the CMG amongst the group leadership at this point.

The cost in my mind is not just financial. You spend a butt load of time setting up a group, figuring out insurance relationships, malpractice costs, and overhead. Then you run the risk of all that getting gobbled up by THEmcareUSACS. And now Vituity? (cute name btw). Seems risky, but maybe not.

I think in the current paradigm, the guys/gals approaching the last 5-10 years of their careers see an opportunity. "We could get bought out and at lease walk away with something. Or we could lose the contract, in which case we just wake away. Empty handed." They justify it by saying that they've secured a contract into the future. But in reality, they've created a lot of McDonald's workers.

Typically ED contracts are for 3 years with an evergreen but there is no reason not to ask or demand more. Well likely when you sold (and when you work for them) you agree not to interfere with their business agreement. So the only way it would work is if someone left for a year or 2 and then took the contract. It is tricky for sure.

You forgot APP up in your list of turd companies.

Maybe my experience is such that I think the time invested is small with big rewards. Frankly you can hire a billing company to do your "practice management". They will do all those things for you. It likely will cost you some profits but save you time. I think med mal would be more local but thats literally a phone call or 2 and let them tell you what it costs. it is not like you have to do much there.

Have to get the contract thats the real challenge. Then being involved and seen as indispensable is the real key to maintaining your contract.