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July 12, 2013

The Affordable Care Act: Impact On Provider Relationships

The Affordable Care Act ("ACA"), consisting of some 2,700 pages of legislation and 10,000+ pages of regulation, is a law with potential sea-change implications. There has been significant speculation regarding the impact of this law, particularly as the law's implementation does not commence until 2014, with provisions being implemented through 2019. Given the magnitude of the law and the stepped implementation, it is difficult to predict the complete impact on healthcare providers and the industry at large. However, one impact already seems clear, i.e., an unprecedented consolidation in the healthcare industry as both physicians and hospitals conclude that the best path to survival in the post-ACA world is to team with other providers.

The adoption of the ACA has lead to many concerns on the part of physician practices, including reimbursement uncertainty, concern about the continued ability to exercise independent clinical judgment and frustration with the regulatory environment. These concerns have lead many to conclude that to survive in the post-ACA world, physician practices either have to go "in-house" with a hospital or combine with another practice.

The American Hospital Association estimates that hospitals currently employ about 20% of practicing physicians. It is expected that this percentage will increase greatly in the coming years. Those physician practices that are not considering being acquired by hospitals are exploring other options such as combining with other practices in order to increase their presence in the community and bargaining position with payors. The trend towards hospital employment of physicians and/or the combination of practices in a formal or non-formal way will likely continue and greatly accelerate as a result of the ACA.

The creation of a hospital/physician employment relationship or practice combination creates unique challenges to both parties. The acquiring or combining parties will certainly be concerned, in the first instance, with potential liabilities, both from a professional standpoint and Medicare/Medicaid audit perspective. The combining parties will often seek contractual assurances regarding physician productivity (studies have demonstrated that employed physicians work fewer hours and see fewer patients than their private practice counterparts), termination provisions, medical staff membership and restrictive covenants. When a practice acquisition or combination is envisioned, it is important that a thorough "due diligence" be conducted by both parties.

Physicians, on the other hand, often are, in the first instance, at a disadvantage when dealing with hospitals. Hospitals may have template contracts and may not be willing to consider the unique qualities that a physician's specialty or practice experience may bring to the table. Physicians will have concerns about compensation and benefits, term and termination, restrictive covenants, medical staff privileges and perhaps governance and clinical independence issues.

Physicians considering a combination with another physician group may want different alternatives for structures that allow an opportunity to "unravel" the relationship for a certain period of time if either party finds it unworkable and will have concerns regarding credentialing, restrictive covenants, compensation, productivity and liability issues.

It is more important than ever that these combinations are perceived as a win/win by both parties. The relationship between the parties is symbiotic and a "partnership" approach is critical as the pay for performance, quality measures and other aspects of the ACA are implemented. In addition, health care combinations often require a thorough review of antitrust considerations, which often also require providers to take an honest look at how other providers in the community will view the proposed combination.

Hiscock & Barclay has substantial experience in these areas, representing numerous parties pursuing these goals from both sides of the table. Should you have questions regarding any of these matters, please contact Melissa M. Zambri, Chair of the firm's Health Care & Human Services Practice Area at (518) 429-4229 or; James J. Canfield, Co-Chair of the firm's Corporate Practice Area at (315) 425-2763 or; James D. Horwitz at (518) 429-4283 or, or any member of the Health Care & Human Services Practice Area.


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