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Posts Tagged ‘divisional mergers’

Primary Care Integration Strategies – Divisional Group Practice Mergers

Tuesday, January 7th, 2014

Division Model Group Practice – Primary Care Integration Strategies 

Primary Care Integration Divisional Model It is no secret that the role of primary care is central to the creation of systems to respond to health care reform and changing reimbursement models.  To the extent primary care providers have not already relinquished their strategic positions by becoming employed, entering provider service agreements or service line management agreements with hospital controlled systems, primary care providers maintain a strong position in the market.

Primary care groups are still faced with the need to create or participate in organizations that provide for the best means to manage patient care.  Primary care groups are seeking strength in numbers by creating larger groups.  The goal is to best maintain their competitive position, to diversify risk, to create efficiencies through shared savings opportunities, and to maintain appropriate levels of influence over care cycles, protocols and division of emerging, episodic-based payment.

In order to achieve these goals, some independent primary care groups are considering merger with other groups.  Oftentimes, merging providers will seek ways to maintain some degree of intra-office independence while still taking advantage of the benefit of a larger group.

Provider mergers and acquisitions, particularly between competing independent practices in the same specialty area, can create sensitive antitrust issues.  Generally, competing providers are prohibited from agreeing to the price of services.  However, otherwise competing providers who legitimately merge into a single group are legally incapable of conspiring because they are a single entity.

The tension between the desire to maintain a degree of independence and the need to effectively merge practices leads to consideration of what has become known as a “divisional merger.”  A divisional merger is similar in many ways to the concept of a group practice without walls that was prevalent during the 1990s.  Under this model, individual offices or groups of offices form divisions that maintain some degree of operational and financial independence.  Structuring divisional model groups can be extremely tricky.  Balance needs to be created in the amount of financial, governance, and operational authority that is ceded to the central board of directors and maintained in the divisions.  If too much authority is maintained at the divisional level, there is a risk that a “failed merger” will have taken place.  If a failed merger is found, the individual providers or divisions will be considered to be independent and capable of conspiring in violation of antitrust laws.

Divisional mergers raise a host of additional legal and business issues.  A divisional model group must be structured to comply with Stark Law and Anti-Kickback prohibitions.  Generally, the group and its financial structure must comply with applicable Stark Law exceptions and must be structured as a qualifying “group practice.”  An issue that arises in virtually all divisional model structures involves the treatment of ancillary revenues; in particular, “designated health service” revenues under the Stark Law.  Although primary care practices tend not to generate as much DHS revenue as specialty practices, clinical laboratory and diagnostic revenues are common.

A divisional merger will be subject to all of the same transactional and due diligence issues that apply to any other type of merger or acquisition.  Each participant will need to assess the risk associated with merging under one entity with other participants.  This involves a lengthy process of due diligence and addressing issues that are raised through the process.  Oftentimes, numerous sets of legal counsel are involved in the structural and transactional issues.


In the end, assuming that the divisional merger is properly structured, the combined entity can create significant benefits to primary care participants.

Physician Integration – Some Things Never Change

Tuesday, December 11th, 2012

Physician integration has been around since the early 1990s; at least I have been working on integration transactions since then.  There was a ground swell of integration transactions in the mid 1990s during the “great Clinton health care reform scare.”  I have a post coming soon that will bring back some memories for some of you from those early days of integration.   I was recently reflecting on how physician integration has transformed over the years.  There are some new laws out there and we have more to go on for legal guidance when structuring provider organizations.  On the other hand, a lot of what lies at the core of physician integration, the part where the “rubber meets the road,” has stayed fundementally the same.  Those physicians and groups who have not already thrown the towel in with a major health care system are looking for ways to stay independent.  In many cases, their best bet is to integrate with other independent providers.

Here are a few insights from a health care attorney that has been involved with physician integration for longer than he cares to mention:

  1. Federal and state antitrust laws are still the primary laws governing the structure of these organizations.  Without antitrust laws, physicians would stay in separate groups and just band together informally to contract with managed care plans.
  2. You still need to be clinically or financiallly integrated in order to pass the antitrust “sniff test.”
  3. There is more definition regarding what it takes to become clinically integrated than there was “back in the day.”  That is the good news.  The bad news is that it is probably more difficult to clinically integrate than we thought it would be back in the 1990s.
  4.  Group practices without walls are now called “divisional models” groups and come in all shapes, sizes and forms.  They are still the same thing; but someone thought it would be “cooler” to call them “divisional mergers.”
  5. My guess is that a lot of the “divisional mergers” are actually “failed mergers” waiting to be called out because they have only a very minimal amount of actual integration.  A lot of people are trying to slice the pie to thin and we might just see some of these models be put to the test in the near future.  Some of the new divisional model groups are integrated on a shoestring and the FTC is beginning to look at their structure to determine whether they are truly a “single actor” for antitrust purposes.
  6. The Stark Law has expanded to govern treatment of designated health services in integration transactions.  Back in the day, when we first started doing these transactions, the Stark Law was new and only applied to one line of service, clinical laboratory service; that is unless you were lucky enough to be in a state like Florida that had its own anti-referral law.
  7. Compliance issues have come to the forefront as a significant part of these integration transactions.
  8. Just like back in the olden days, there are plenty of people out there who will tell you exactly what you want to hear.  They usually have something to gain from you moving forward into a combined group; even if the combination is on a shoestring.  I am tempted now to go into a “you might just have an antitrust issue” tirade at this point.  But I will hold off on that for a later post.


John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
500 First Street, Suite 8000
P.O. Box 8050
Wausau, WI 54402-8050

Tel 715.845.4336
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