Practice Acquisition in an Underserved Market: Planning, Implementation, and Challenges

Strategic planning is the platform for deliberately analyzing an identified problem or opportunity to help leaders address challenges and develop a roadmap for future growth.1 Acquisition planning involves defining the fundamentals to build a business plan:

• What is the need or impact?

• What is the scope of work?

• Who are the key stakeholders?

What is the Need or Impact?

Acquisition of the private cardiology practice under discussion was initiated due to the practice owner’s impending retirement as a means for ensuring access and continuity of care to the practice’s patients living in underserved communities. To assess the local cardiac need, an analysis of the incidence and prevalence of congenital heart disease (CHD) in the practice’s service area was developed and validated.

CHD is the most common birth defect, diagnosed in 8.14 of 1000 births.2 This prevalence rate and historical Kentucky birth rates indicate that about 526 new CHD patients in the Kentucky market each year require specialized heart care.3 More specifically, the counties in the practice service area are estimated to have 276 CHD births, or 50% of the Kentucky CHD births, annually. Additionally, the prevalence of CHD in these counties was found to be 13.11 per 1000 in children and 6.12 per 1000 in adults.4

Utilizing the Quebec CHD database, we developed a detailed prevalence model based on age, CHD severity, and geographic population for every Kentucky county.4 Based on total number of estimated CHD patients, four out of five of the practice locations ranked within the top 25% of counties for CHD prevalence in children and adults (Figure 1). Further, one clinic is in Jefferson County, recognized as the county with the greatest prevalence of CHD, accounting for 18% of the entire state’s CHD population. Findings from the analysis demonstrated a significant need for specialized heart care in the practice’s service areas.

Figure 1. Kentucky counties ranked by prevalence of pediatric congenital heart disease (PCHD), August 2017.

A competitor analysis was completed to examine the number of specialized pediatric and adult CHD providers in order to understand access in the market. Based on the competitor analysis and prevalence model, we found that half of all children estimated to have CHD and roughly 70% of adult CHD patients do not have access to a pediatric cardiologist or adult CHD specialist within their county of residence. Lastly, the current capture from the prospective market served as a baseline to assess growth potential. Out of the 30 Kentucky counties with the highest prevalence of CHD, the Heart Institute at Cincinnati Children’s Hospital Medical Center (CCHMC) was estimated to have only 15% of the market capture, allowing plenty of opportunity for growth.

What is the Scope of Work?

In 2018, CCHMC created a Growth Portfolio Committee (GPC), consisting of senior hospital leadership, as a platform for proposing unique ideas or initiatives requiring substantial hospital investment. The objective of the GPC is to help programs develop and to expand and accelerate growth ideas through institutional coordination, prioritization, and financial support. As a pilot of the new GPC process, the Heart Institute at CCHMC submitted a request for institutional funding and support to acquire the Kentucky cardiology practice.

The approval process involved two phases of proposals and a presentation to hospital leadership. A business case was built to outline the scope of work and organizational impact, including clinical impact, investment needs, risks, challenges, measurable outcomes, and a clearly defined approach with milestones. The investment request encompassed funding the five-site practice acquisition, a building purchase, facility renovations, EMR implementation,
technology improvements, retaining and hiring new personnel, and operating expenses. Initial proposals to the GPC were made in March of 2018. Approval was given in July of 2018, and the practice acquisition took place on December 1, 2018.

Who are the Key Stakeholders?

In addition to existing responsibilities managing a clinical division, the Heart Institute at CCHMC led the practice acquisition. Due to the breadth of the project, requiring collaboration with 26 departments (Figure 2), five members of the Heart Institute business team were assigned as implementation leads to various internal departments. The five leads then worked to bring these aspects together cohesively.

Figure 2. Cincinnati Children’s Hospital Medical Center departments involved in the acquisition planning and implementation.

Building the Business Case and Implementation

Following the competitor and market analysis, a business case was developed to demonstrate the potential impact to CCHMC. A comprehensive practice assessment was conducted, including the type of services provided, the clinic facilities, current referral patterns, the staffing model, outpatient volumes, growth opportunity in the market, and the strategic fit for CCHMC. In fact, the expansion of community-centered cardiology is a hospital-wide initiative. Recommended next steps included moving forward with the due diligence on the practice purchase.

Phase 1: Valuation

The valuation process took roughly three months to complete (Figure 3). As the first step, the CCHMC legal team initiated an exclusive 90-day confidentiality and nondisclosure agreement with the private practitioner. Upon execution of the nondisclosure agreement, a comprehensive data request of the practice was made by the fair market valuation (FMV) vendor contracted by CCHMC. In order to receive protected health information, CCHMC and the practice then entered into a business associates agreement. Because the practice operated in the state of Kentucky, the Certificate of Need (CON) and special licensing requirements were reviewed. CCHMC was not establishing a new healthcare facility or substantially changing health services, so obtaining a CON was not required. Next, a letter of engagement to begin the FMV was initiated. Three separate FMV studies were completed: the practice itself; building appraisal; and lease pricing. All valuations, once reviewed, drove the decision to acquire the practice, including all assets, and to purchase one of the buildings. Next, revenue and expense models were developed to create a comprehensive return-on-investment (ROI) analysis.

Figure 3. Practice Acquisition Phase 1: valuation of the practice, building, and leases.

Revenue

The practice’s patient volume and billed CPT codes were obtained as part of the valuation process, providing a baseline patient population and ratio of patients to clinic visits for use in the revenue model. The charge and payment data received from the valuation likewise were used to establish an average physician reimbursement rate specific to the practice. Internal CCHMC data served as the foundation for ratios of visits to diagnostic testing, such as echocardiogram, electrocardiogram, and Holter monitor, as well as downstream procedures of cardiothoracic surgery, cardiac catheterization, and electrophysiology procedures. Internal data also informed estimated charges, hospital reimbursement rate for downstream procedures, and a physician reimbursement rate specific to the Heart Institute. Applying the ratios, charges, and reimbursement rates derived from the practice valuation and internal data, a revenue model was built to estimate potential volumes, charges, and reimbursement per year.

Expense

The valuation process resulted in a fair market price for the purchase of the practice and one of the buildings. All assets such as diagnostic equipment, furniture, and information systems owned by the practice were valued to determine what new items would be needed as an initial outlay of expense. Current staffing model and salaries were compared to equivalent positions at CCHMC. The model was built with the goal of retaining all current staff, as well as hiring additional staff as clinic days and providers increased. Yearly operating expense was budgeted in accordance with other CCHMC outpatient satellite clinic locations.

Return on Investment

Eight versions of a 10-year ROI model were created to assess various scenarios of risk, patient capture, physician reimbursement, and purchasing options (Figure 4).

Figure 4. Eight return-on-investment (ROI) models built to assess acquisition of the practice and building. CCHMC, Cincinnati Children’s Hospital Medical Center; IRR, internal rate of return; NPV, net present value; YRS, years.

Options 1 through 4 examine reimbursement under CCHMC-negotiated payor contracts, whereas options 5 through 8 consider reimbursement under practice-negotiated payer contracts. Conservative capture rates of 25% and 50% of the existing patient panel were evaluated under each reimbursement model. Lastly, the analysis weighed purchasing both the practice and the building against purchasing only the practice. Following this sensitivity analysis, Option 4 was selected, in which CCHMC acquired both the practice and building, assumed a conservative 50% patient retention, and utilized existing CCHMC payor contracts.

Phase 2: Implementation of Purchase

When the practice valuation and ROI analysis proved to be favorable, the next step was implementation of the purchase, including contracts for hiring personnel, building and asset purchase, and review and execution of lease agreements (Figure 5). All items in the purchase phase occurred individually, but at the same time.

Figure 5. Practice Acquisition Phase 2: implementation of the practice purchase, building purchase, and lease execution. CCHMC, Cincinnati Children’s Hospital Medical Center; FMV, fair market value.

Personnel

The term sheet agreement was developed and executed, outlining the practice purchase, building purchase, employment terms, and retention of current staff. Additionally, an employment agreement, noncompete agreement, and faculty appointment were processed to hire the physician practice owner. Lastly, malpractice insurance tail coverage was initiated to cover the period before acquisition.

Asset Purchase

Concurrent to hiring personnel, valuation of the assets took place. All current asset leases were reviewed, including equipment, software, and the van utilized for clinic travel. The Asset Purchase Agreement was created and executed, including details of the purchase price, terms of agreement, and items included in the purchase. Finalizing the asset purchase involved the wire transfer of funds for escrow and closing and updating all business licenses under CCHMC.

Building Purchase

Two of the five clinic locations were physician-owned facilities and were available for purchase by CCHMC. Access agreements were obtained to conduct building inspections and environmental testing at both locations, including the structural report; mechanical, electric and plumbing (MEP) review; pest inspection; building plans; and all previous inspections records. right of entry agreements were signed to allow inspectors on the property. Building appraisals of both facilities were then conducted. Based on results from the FMV, it was determined to move forward with purchasing the larger facility with opportunity to expand to other subspecialties in the future. An added consideration was that the location is further south, in more rural and underserved communities of Kentucky. To initiate the building purchase, a review of deed was signed to transfer the property’s ownership rights to CCHMC. Upon mutual agreement, the building purchase and closing checklist were executed. A title commitment was made to ensure a title insurance policy for the property after closing.

Lease Agreements

Three of the five clinic locations are timeshares at off-site facilities. Existing landlords were notified of the practice purchase, including interim rent letters for the time period before the new lease commencement date. Current lease agreements were revised, signed, and executed under CCHMC. In partnership with the accounts payable division, landlords were entered in the system as new vendors, and the associated rent payments were set up.

Additional Operating Legal Requirements

Conversion of paper medical records was necessary to ensure a smooth transition to the EMR. To legally access the practice records prior to acquisition, a medical records access agreement was signed, permitting early creation of medical record numbers and initial scanning of records by CCHMC’s Information Services and Health Information Management teams.

Tax implications were considered, because the practice being acquired was privately owned and CCHMC is a 501(c)(3) organization. Consequently, the practice’s tax exemption status changed and was reported to the IRS. To conclude, for the full breadth of the project, outside counsel supplied a legal opinion of compliance stating that we paid fair market for the practice and followed through with all necessary steps to complete this acquisition.

Operating Plan: Measures of Success and Critical Milestones

An operating plan was established to define measures of success, including staff and patient retention, EMR integration, expansion, clinical outcomes, and patient and family experience.

Staff Retention

A top priority for care continuity was met by retaining the provider/practice owner and all seven staff as employees of CCHMC. Additionally, due to the high volume of Spanish-speaking patients in the practice, a goal was set for all four bilingual staff to obtain medical translator qualification within 1 year. All staff are pursuing qualification; of those, three have successfully completed level 2 and the fourth has completed level 1, based on the Kaiser Permanente Qualified Bilingual Staff model.5

Electronic Medical Record Integration

The practice was still using paper charts for documentation and, consequently, required EMR integration to align with CCHMC. Three consultants were hired to learn CCHMC workflows, develop training documents, and provide three months of on-site training and support, one for each of three groups: the medical provider; registration and scheduling; and clinical staff. The practice closed one week before go-live for focused training sessions with staff. To accommodate new workflows, the clinic templates were initially decreased to eight appointments per day, increasing gradually to 16 per day as staff became more adept with the use of the EMR.

The goal to transfer over 3200 patient files into EPIC is being met, as every scheduled patient’s record is scanned into EPIC prior to his or her appointment. All systems and technology are installed, and the practice has successfully been using CCHMC EPIC for scheduling, placing orders, and documentation since the date of acquisition.

Patient Retention

The purpose of the practice acquisition was to ensure continuity of care for existing patients at all five sites. Consequently, retention of at least 50% of the existing panel of patients was defined as a critical measure of success. In the first 12 consecutive months under CCHMC, 889 unique follow up patients, or 28% of the estimated 3200 patients from the practice, have been seen. Including new patient volumes, there has been a total of 2175 patient encounters, for 1854 unique patients.

Expansion

In addition to care continuity for existing patients, expanding the practice and increasing access to underserved communities is equally important. Within the first year, staffing increased from one provider with seven clinical and administrative staff to four providers with 17 clinical and administrative staff. The addition of new providers made it possible to better utilize existing facilities. Within six months, access increased across all five locations by 52%, as measured by total available appointments, with some locations doubling capacity. In parallel, the third next available appointment dropped from 54 days to 11 days, allowing new patients to be seen earlier. Next steps to continue growing the practice include adding a sixth clinic location, expanding services to include fetal echocardiology, and implementing telehealth capabilities.

Raising awareness that the world-renowned expertise of CCHMC has entered the Louisville market is critical to growth. Marketing and physician outreach efforts are ongoing endeavors to inform and educate the community. Efforts have been successful—as 988 of 1618 patients seen in the first 12 months were new to the practice. With a new visit to total visit ratio of 50%, CCHMC is providing much-needed access for patients with CHD. From the perspective of new market capture to CCHMC, outpatient volumes in the market grew by 407% in the first six months. Further, after one year of operating in the Louisville market, there has been an 11% increase in surgical cases generated from the region.

Clinical Outcomes

Representatives of Infectious Disease, Patient Safety, and Accreditation and Regulatory Affairs within CCHMC partnered with the clinical team to ensure the sites met organizational safety and regulatory standards, including physical space and clinic flow. Changes were made to ensure all PHI was protected and clinical equipment and furniture were updated to meet infection control standards.

Following the acquisition of a private practice by an academic medical center, it is important to align clinical practices to ensure standardization. For provider-to-provider consistency, outpatient standards were reviewed as per CCHMC’s new faculty Focused Professional Practice Evaluation (FPPE). After six months of operation under CCHMC, five random clinic notes were examined by the outpatient medical director for completeness and medical errors. Clinical judgment was evaluated to confirm the diagnosis and plan were in line with Heart Institute standards. Direct feedback was given to all four new providers, with no major findings.

For the two providers who also read echocardiograms, five random echocardiograms and reports were reviewed for completeness and measurement accuracy. Feedback was given to both the reading cardiologist and the sonographers. All providers are then involved in the biannual Ongoing Professional Practice Evaluation (OPPE), in which the previously described clinic letter evaluation process is completed for each provider semiannually, with areas for improvement shared with the faculty.

The long-term goal for improving outcomes involves multidisciplinary clinics and telehealth integration. Introducing these capabilities on site will allow patients to be seen close to home by a specialized provider. Patients will have a direct link to over 25 subspecialty cardiology services at the main hospital, the need to travel to Cincinnati for multiple appointments will be reduced. Both goals will be accomplished in the next 12 months upon completion of facility renovations.

Patient and Family Experience

Before this acquisition, the practice did not obtain feedback from patients to monitor experience. To gather baseline patient and family experience (PFE) data, patients or families were given standardized paper-based surveys during clinic one month before acquisition go-live. A bias could exist in these results, because the staff who were being evaluated were administering the survey in person, eliminating the opportunity for patient anonymity.

Patients were entered into CCHMC’s EMR and all providers were added to CCHMC’s PFE database. Since then, patients or families have received the same standardized survey following their appointment, which can be completed online or via phone after leaving clinic. Surveys are sent up to three times; however, patients or families can choose not to participate. All survey results are deidentified and sent directly to the providers, clinic leadership, and administration for review and continual PFE improvement.

Survey results indicate questions regarding fluctuation in communication, rating of provider, and recommending the office to others. As the staff continued to learn, and once patients became more familiar with the new physicians, scores begin to improve. Figures 6 and 7 display fluctuations in response to hiring new providers and staff and conducting a team retreat. Overall, satisfaction with access and timeliness has largely improved. Compared to pre-acquisition, scores dropped across all measures in February when the first PFE surveys were released and while staff were learning new technologies and workflows. Scores have since surged and now range consistently from 90% to 100%.

Figure 6. Patient–family experience (PFE) ratings, November 2018 –
October 2019. CCHMC, Cincinnati Children’s Hospital Medical Center.

Figure 7. Patient–family experience rating of providers, November 2018 – October 2019. CCHMC, Cincinnati Children’s Hospital Medical Center. 

Risks and Challenges

The acquisition was complex, involved over 75 employees, and was unchartered territory for the hospital. Significant risk was taken, and frequent adjustments were made to overcome unanticipated challenges.

Brand Loyalty

When entering a new market, particularly in a different state, there can be a sense of loyalty to local health systems. Just before the acquisition, intentional action was taken to drive awareness of the transition and to introduce CCHMC as a new provider in the market. Dedicated marketing and physician liaison effort is crucial for developing trust in the community and relationship building. In partnership with the private practitioner, communication focused on continuity of care for existing patients and expansion of services offered for all local CHD patients.

Facility Requirements

CCHMC has high standards for the facilities in which clinics operate. As previously mentioned, the acquisition involved purchasing a building, leasing a standalone facility, and initiating timeshares at three locations. Initially, standards for the main hospital facility were being applied to the new satellite and outreach clinics. This was quickly determined to be unrealistic due to physical space and differing services provided. A challenge still being examined by hospital leadership is clear delineation of standards for each type of clinic operation, including hospital, satellite, and outreach facilities.

Project Management

Because there was not a dedicated project manager in the Heart Institute and because the nature of the acquisition was large-scale and multifaceted, a team of individuals collectively provided project oversight. This structure proved to be difficult to work with, because it took time away from the team members’ other ongoing responsibilities and did not provide a single point of contact for other departments. Making major leadership shifts mid-project would have been disruptive, however, so recurring conference calls were set to align the project leads.

Clinical Operations

Implementing an EMR within the acquired practice was one of the biggest clinical challenges, and the infrastructure for operating a clinic completely shifted. Equipment and connectivity were replaced or merged, with permanent circuits installed at all locations for a direct connection to CCHMC. Due to the timelines involved in circuit installation, temporary connectivity was necessary and proved to be challenging for maintaining efficient clinic flow. Further, merging the existing clinic schedules with newly built clinic templates, creating medical record numbers, and transferring patient records across scheduling systems was time-consuming and required more than the allocated four-month window to complete.

Financial Predictability

As a result of a slow start to full clinic operations, outpatient visit volume, downstream procedures, and total charges fell short of the initial projections modeled for year 1. Failure to build in a ramp-up period into the ROI model was the root of this issue. Similarly, patient retention was not guaranteed, and the patient acuity and payer mix of the practice was not easily identifiable. Payer contracts also differed between the hospital and the acquired practice, resulting in re-negotiations, delays in adding providers to payer contracts under the hospital, and, ultimately, denials and write-offs. Following these challenges, the ROI required redevelopment to provide a more accurate depiction of growth and financial viability.

Conclusion and Lessons Learned

Effective Project Management

Multidepartmental projects are most successful with: (1) senior leader champion(s), because they can facilitate prioritization across departments and quickly obtain buy-in; and (2) a dedicated project manager who is a single point of contact and has the capacity to lead, assign tasks, track and report out progress, and flag at-risk items. Clearly defining leads and expectations creates accountability. Key division stakeholders should be engaged to develop clear timelines and deliverables to ensure all are working toward a common goal. In particular, the project manager should seek to understand department interdependencies for more accurate project timeline estimates and to reduce re-work in the future.

Project planning tools are effective for managing large-scale projects with multiple leads and should be determined in the initial phase (e.g., SharePoint, Microsoft Project or Excel, SmartSheet). Associated documents should be housed in a consistent location easily accessible to the project team. A plan to consistently provide status updates to keep all informed and held accountable must be established at the project’s inception. We found that weekly huddle calls had the most success.

A decision-making governance structure should be determined and should involve a multidisciplinary team of clinicians and administrators across the institution. Responsibilities should be clear. This can be accomplished using the RACI (Responsible, Accountable, Consulted, Informed) method. RACI is a matrix of all project activities associated with the responsible people or roles that is used to improve the chances of project success.6 However, it is important to ensure the governance structure provides meaningful support and quick decision-making rather than creating a bottleneck that interferes with project progression.

External Consultation

Support outside of the institution may be required in some circumstances. As CCHMC’s first acquisition in over 25 years and, consequently, without an existing roadmap or dedicated staff, using outside legal counsel with practice acquisition experience was valuable and expedited the legal phase. Additionally, EMR integration consultants were used, because training a staff of eight to transition from paper charting to EMR in two months was not feasible with the existing hospital EPIC support.

Clinic Operations

When transitioning from a small private practice to a large academic center model, many changes in clinical care are expected. For example, a simple task of ordering and billing for an add-on echocardiogram becomes a new multi-step process. Limiting clinic schedules for training and having EMR consultants onsite was critical in this transition. It also was important to have regular meetings with clinical stakeholders to identify unmet needs. Overall, the acquisition did not fall short of hurdles in clinic operations, but with the unwavering support of Heart Institute leadership and divergent thinking, action was always taken quickly to remedy any situation.

Developing a Roadmap

To evaluate project success, a strong business plan must be developed as the initial roadmap. Taking part in the internal GPC process proved to be effective in establishing a roadmap, because the proposal required defined measures of success, future growth projections, and goal setting. There was accountability to these measures and visibility to hospital leadership throughout the proposal phase and subsequent progress reports.

Navigating a complex project across departments led to identification of unforeseeable silos. A key takeaway following the acquisition was the need for an internal guide to drive future acquisitions. Six months after the acquisition, a guide was developed and distributed to executive leadership for visibility to department roles, interdependencies, and timelines. The guide was recently used and found to be successful in facilitating the second acquisition, driven by another area of the hospital. The acquisition is unintentionally breaking down silos and improving interdepartmental communication and collaboration.

References

1.    Porter ME. What is strategy? Harvard Business Review. 1996;74(6):61-78.

2.    Reller MD, Strickland MJ, Riehle-Colarusso T, Mahle WT, Correa A. Prevalence of congenital heart defects in metropolitan Atlanta, 1998-2005. J Pediatr. 2008;153:807-813. www.ncbi.nlm.nih.gov/pubmed/18657826?dopt=Abstract.

3.    Congenital Heart Consortium (2019). State-by-State Information. American Academy of Pediatrics. www.aap.org/en-us/advocacy-and-policy/aap-health-initiatives/chphc/Pages/state-by-state-information.aspx.

4.    Marelli AJ, Ionescu-Ittu R, Mackie AS, Guo L, Dendukuri N, Kaouache M. (2014, August 26). Lifetime prevalence of congenital heart disease in the general population from 2000 to 2010. Circulation. 2014;130:749-756.
https://ahajournals.org/doi/full/10.1161/circulationaha.113.008396#sec-9. Accessed December 6, 2019.

5.    Kaiser Permanente’s Qualified Bilingual Staff Model. Kaiser Permanente Policy Story. 2014;3(2). www.kpihp.org/wp-content/uploads/2019/03/KP-Story-3.2_Bilingual-Staff-model.pdf. Accessed December 4, 2019.

6. Kantor B. The RACI matrix: your blueprint for project success. CIO. January 30, 2018.
www.cio.com/article/2395825/project-management-how-to-design-a-successful-raci-project-plan.html. Accessed December 4, 2019.