So getting back on track...
The CMG met with the members of EMGA to discuss their new role as contract holder. The tone of the meeting was mixed, as several EMGA members were optimistic to hear what the new group had to offer, but most were cautious and reserved. They all held their cards close to their chest. The CMG had a light lunch served in a very informal atmosphere. The Regional Medical Director (RMD), Vice President of Operations, and Recruiter from the CMG were at one end of the table, and the members of EMGA - physicians and midlevels - were around the table. The group already knew that two members of their group were not staying, and they worked clinically to allow the rest of the group to attend the meeting.
CMG gave a brief presentation to discuss their benefits, retirement package, health insurance, and structure. They were careful to mention that their corporate structure was very streamlined, and that the RMD would be available 24-7 to assist with clinical concerns, the VP would be available for administrative issues such as credentialing, billing, etc., and the recruiter was there to make it known that they have a presence ready to replace everyone at the table if need be to maintain the contract.
This is a standard move when CMGs come in to the picture - provide operational reassurance, and a veiled threat that you are replaceable from day one. This tactic is especially effective in situations such as this one with EMGA, as leverage will favor those with the most staffing on hand. The hospital administration has already told CMG that they wanted an additional physician shift added to the schedule, and this was one of the terms of a zero-sub bid that CMG won. EMGA knows this.
The meeting lasted about 1 hour, and everyone left with a better understanding of how things were expected to transfer over:
1) EMGA providers would be individually contacted by the recruiter to discuss rate, and be given a contract to review.
2) EMGA providers who chose not to proceed were asked to notify the recruiter within 7 days so they could begin to recruit for a replacement provider.
3) The EMGA group president was made the point of contact locally, and the RMD scheduled a meeting with him to help with the transition.
4) There are 45 days left between EMGA ownership and contract changeover.
That's it. That's the only interface that the regular physicians will ever have with the CMG (sometimes for the entire time they work there). When the meeting ended, EMGA members were given 7 days to make up their mind.
Now, for the behind the scenes happenings that make the back story even more important than any meeting. This is probably best organized by each player, to get a sense for how the two groups are posturing themselves for the process of takeover to begin. This is only the beginning.
CMG
What they know
CMG needs to hustle, and the last thing they want to do is upset the hospital by being unable to staff their new contract. The hospital CEO has already made it clear that he wants a smooth transition, nothing to upset the medical staff, and good quality physicians to run his ER. These are the basic expectations of any new contract. In addition, the CEO has stated that, with the exception of the current EMGA medical director, CMG must to everything they can to retain the members of the old group. The CEO wants to save face with the medical staff by keeping the providers that they know. He also understands the business and knows that if they are unable to keep the members of the old group, they will do what they must to be staffed, including replacing members of the old group. CMG is prepared to do this as well, but will prefer to keep as many of the old physicians as possible because they are known, liked, and already credentialed. Their recruiting costs will be zero (minus a cheap lunch), and they can carry on with business as usual. CMG also knows that the cost of an added provider will take from their bottom line, and that rate will be an issue. Going into their negotiation process, they know that EMGA already knows the books, the payer mix, and are all on the same page in this regard. They are going to take a pay cut, and keeping them on board will require some creative thinking and flexibility.
What they don't know
CMG does not know that two members of EMGA will never come on board. They are also not aware that the group has agreed to enforce their non-compete clause with the hospital, and that they may not be as easy to win over as they initially thought. They also do not know the back story about hospital politics, trauma center, pay for call, and the other pieces of information that led to the contract bid to begin with. Most importantly for EMGA, CMG does now know their internal economic changes, and the rate reduction they have recently taken as partners. In addition, they don't know the EMGA books, and can guess - at best - what the collection rate for EMGA was. In short, CMG does not yet know what they are going to pay the physicians.
EMGA
What they know
The group knows that the hospital wants them to stay. They know the economics of their practice and how much they earned and why. They know that the medical staff has their support. They are aware that CMG has a limited time window, and that they need to make their decisions together. They also sense that they have some leverage in the situation. CMG did not discuss rate with the group at their initial meeting. They suspect this is why they want to have each group member speak with the recruiter individually. No matter what they do, CMG has the contract at their hospital in 45 days, there is no leverage for them to sell their group or form a buyout.
What they don't know
CMG has a team of internal travelers who have already started credentialing with the hospital as backups in case they are needed. Despite their reputation for the company they are, CMG does not want to ruin a business relationship with the group members, and they may be more flexible with their business model than they think. CMG has nationwide negotiated contracts with every major insurance provider, and their reimbursement rate for the big three (Cigna, Blue Cross, United) is 30% higher than what they were able to negotiate as a private group, and their margin is much higher than their private group - even with another provider added.
EMGA calls a meeting that night with all of the partners to discuss the meeting with CMG and come up with a game plan. They have asked their attorney to attend. After much discussion and little argument, every member of the group, including the two that have stated their intent to move on, have agreed to talk with the recruiter - even if they don't plan to move forward. They have also reviewed the books, and do not feel that their margin is sustainable even if they stayed as a single group. They are prepared to soften their initial position - the writing is on the wall. However, they are also familiar with the CMG economy of scale, and hope to leverage this as they talk further. They have placed a target rate of $280/hr as their goal.
This is a pretty typical scenario with contract changeovers. As both groups "get to know each other" CMG wants to save as much money (profit) as possible and EMGA wants to limit their losses. They have individually been given 7 days to declare their intention to move forward with CMG, but have not been given 7 days to sign their contracts. In actuality, they have until the new group starts to delay their signature. Every day that moves closer to the deadline with the CMG makes the CMG more anxious, and more willing to "do what it takes" to start the contract. At this point, there are several options for the group that may be beneficial for both parties:
1) Operating Partnership
Given the groups business acumen and understanding of productivity and resources, it is possible that they may be able to collectively negotiate a group bonus pool for efficient practice management. This essentially permits CMG to conduct its own business, but allows the local group members to manage their scheduling in an efficient level. This is the closest option they may have available to function as a group and maximize their revenue if the CMG allows it. They may come close to their current operating margin with the bonus, and still make the CMG happy with their margin due to higher reimbursement rates.
2) Productivity-based rate
Knowing that there are always faster and slower providers, the group may be able to negotiate a higher rate/RVU model based on their practice trends and volumes. This rate, however will likely be diluted because of adding additional coverage.
3) Higher Fixed Hourly Rate
There is a possibility that the group, with its knowledge of payer mix, may negotiate a higher fixed hourly rate for its providers. This is the lowest likelihood because CMGs will always expect the providers to place a portion of their rate at risk (i.e. productivity/volume based) to keep their costs down.
THE PLAN
The group president will be meeting with the RMD to discuss changeover in two days. He is the most critical piece of this entire process for several reasons. The hospital has appointed him as their guy to serve as department chairman, and he is well respected by the physicians. Recruiting and finding a good medical director is one of the hardest things a CMG can do. RMDs hate startups because they often have to be on the ground running the group until a director is found, then they have to mentor the director to stabilize the group. This can take 2-3 years sometimes. Having a director on the ground at the time of changeover is key to their success and EMGA is going to leverage this position. The group president will also be negotiating his director stipend, which will be strategically placed by CMG to keep them there, and also limit their negotiation for the group. He needs to keep an even keel during this process for himself, and not be influenced to take from the group members with an exorbitant stipend. The group President plans to leverage his position as medical director to get the group a higher rate of pay. He will also approach the CMG with the idea of a shared operating partnership, which will give him exposure to the books and the ability to communicate them to the group. In their back pocket, the EMGA attorney is preparing releases from the non-compete clause, which the group plans to use as an individual buyout with CMG, and is also providing and evaluation of accounts receivable to present to CMG as part of the partnership agreement.
Please stay on track with this thread and discuss this changeover process between posts. This post is one of the most critical points to understand for the business of our speciality, and warrants reflection.
More to come as the negotiations begin to heat up...
