Choosing Autonomy: Returning to Private Practice

Making the decision to unbundle a hospital relationship and return to private practice requires careful analysis and planning.

Initial Steps

One of the biggest mistakes in returning to private practice is reaching the decision hastily and taking insufficient time to develop a plan that identifies and takes into account past lessons. Returning to private practice properly requires an investment of both time and money. Trying to go down this road without an objective and trusted advisor to help you work through the steps in a deliberate manner is the biggest mistake you can make.

This might mean going along and getting along in your current, and perhaps untenable, situation for longer than you’d prefer. Even if you are independently wealthy and can afford to throw money at an emotional snap decision to reestablish private practice out of anger (or even disdain) for your hospital employer, moving too quickly will likely sow the seeds for difficulties that could have been avoided.

Figure 1 describes the major steps you will need to take as you consider leaving hospital employment and reestablishing yourself in private practice.

Figure 1. Major considerations when reestablishing private practice

These steps include:

• Initial considerations: An examination of your motivations, whom you will practice with, how to get started, and how long it might take.

• Legal considerations: An examination of the critical legal issues surrounding a potential separation, including whether the hospital will let you go, restrictive covenants, etc.

• Feasibility and financing: An objective (and crucial) examination of the financial feasibility of reestablishing private practice, including estimates of startup costs and examination of financing options and availability.

• Management: Assuming the decision is made to proceed, the critical steps of identifying and hiring a practice manager and other key staff who will complete, in conjunction with your other advisors, the operational implementation of the new group.

These steps need to be examined in detail:

• Is the separation possible legally?

• Does it make sense financially?

• Will the hospital be supportive or resist?

You may have already answered some of these questions, but verbal discussions don’t always translate into legal agreements. In addition, you should consider whether all participants are on the same page with respect to what is driving the group formation. Can they reach a fundamental understanding and consensus on the basic financials, cash flow, and strategy that form the group’s basis for the group’s business plan? Do they understand what the group formation will mean for and require of the individual physician participants?

The first three considerations will require some initial level of financial investment by interested physicians, although the hospital may be willing to fund the initial feasibility in some situations. However, the willingness of potential participants to write a personal check to get started will provide insight into who is really serious. These steps will ultimately lead to a go/no-go decision on moving forward.

Unfolding the Process

Here is a brief overview of how the entire process of separating from a hospital and reestablishing private practice typically unfolds.

Figure 2 provides an overview of the typical process; steps are described briefly below.

Figure 2. Process of separating from hospital and establishing private practice

The initial discussions with the hospital will answer the question of whether separation is possible. If it is, proceed with the feasibility phase, which will lead to a go/no-go decision. The end result of these two initiatives is typically a letter of intent (LOI) with the hospital and a commitment or LOI among the physicians to form the group.

The next steps from a legal standpoint are twofold: proceed with formalizing the separation agreement with the hospital and proceed with forming the group’s legal entity and formalizing the group’s agreements between the physicians.

While these legal agreements are being drafted and negotiated, the group arranges financing, hires a practice manager, and proceeds with operational planning. This includes provider number transfers, payer contracting, credentialing, staffing, and other tasks necessary to ready the group for a future go-live date on which the physicians commence practicing as an independent group.

How Long Will It Take?

When you sold your practice and became an employee of the hospital, any cash flow issues arising from payer contracting and credentialing and other billing issues likely didn’t impact you financially. The opposite is true this time around. While there is always a drive to get the deal done, especially after the decision to divorce has been made, caution is in order.

The biggest financial risk you have here concerns the revenue cycle: provider number transfers, payer contracting, credentialing, and the systems that ensure claims are filed and that accounts receivable are collected on a timely basis.

Once the decision has been made to separate, the hospital likely will want you gone as soon as possible. They may be experiencing significant financial losses and want those losses off the books sooner rather than later. This puts their financial interests directly at odds with your need to have sufficient time to ensure you are fully prepared and everything is in place.

In addition, the hospital’s desire for your quick departure usually is not matched by any kind of expediency from their legal counsel. Most large hospital systems use in-house counsel, and in-house counsel often lacks decision-making ability. The separation agreements generally require a lot of negotiation and are not typically a standard agreement their counsel has a lot of experience in drafting. These factors conspire to prolong the process.

When estimating how long it will take to reestablish private practice, start with a minimum of six months after you have made the decision to move forward upon completion of the feasibility study; nine months is more realistic. You cannot put your financial future at risk to meet someone else’s artificial timetable. You should also recognize, however, that the longer the process draws out, the higher your startup costs become, because legal consulting and other preoperational expenses continue until you reach the go-live date and start to generate charges that ultimately lead to cash flow.

Excerpted from Choosing Autonomy: The Physician’s Guide to Returning to Private Practice by Randy Bauman.