By Nick Partridge
Practice transitions are incredibly involved. The process is emotional, oftentimes exhausting. Yet, adding a strong new dental practice to your group is incredibly rewarding. From courting through execution of the asset purchase agreement, this delicate dance is fraught with challenges.
However, executing the purchase is merely a milestone in a dynamic project involving many team members and trusted advisors.
Having supported nearly 1,000 practice transitions as it relates to dental insurance, we noticed that at a certain point in the acquisition process, the focus turns sharply to cash flow.
Planning for and protecting cash flow is critically important to every business. However, insurance company processes and timelines don’t universally allow for a smooth transition. Further, a payer’s recruitment focus, goals or policies may now materially impact the financials of your new practice.
What could be worse than buying a practice and alienating patients and staff because you didn’t plan appropriately for how to transition insurance contracts? Additionally, what if you discovered that the practice will be significantly less profitable based on dental network changes?
As a result, you must investigate, plan and execute to minimize disruption.
Given that the majority of Americans have a dental benefit, a significant percentage of practice revenue comes from insurance (whether in-network or not). So, it makes sense to allocate time and resources to conduct adequate due diligence and a game plan for transitioning insurance during the acquisition process.
Do your homework
Every acquisition is a little different and the amount of information provided by the seller varies accordingly. We’ve seen transitions where the seller provides a few reports and notes from the office manager. In other instances, we’ve seen transitions where the seller allows full access to staff, records and the practice management system. Regardless of the information provided, when devising your plan, here is what you need to know: How is each provider contracted?
Many years ago, when my company was just getting started, we completed a credentialing project for a transition in which the seller was retiring and therefore no longer intending to practice. The seller provided the buyer with an email list of the networks in which he believed he was contracted. That list was forwarded to us with the instructions to credential the buying doctor into these same networks. We happily completed the work and the provider was successfully credentialed according to the list.
Approximately six months later, we received a call from a very frustrated office manager. It turns out that the previous owner was contracted very uniquely. The previous owner was enrolled in an exclusive invite-only network for one of the payers, was contracted in Ameritas through Principal and was in both the PPO and DMO for another network. While we were able to correct the contracting, this forever changed our workflow in a transition. Start with contracting! How is each provider contracted in-network and what fee schedule is the provider reimbursed from?
Know the potential risks
Understanding how each provider is contracted allows you to assess competitive advantages, risks and costs. With this information, you can begin to develop your transition plan for insurance.
Recently, we worked with a large DSO who came to us as a result of trying to diagnose a problem. The group had some very confused and unhappy doctors who were experiencing significant decreases in reimbursements and were in some cases in-network unexpectedly.
After our own due diligence, we kicked off a project to collect contracting status. With this information, we were able to diagnose that one of the newly acquired practices was participating in a network that contracts by tax identification number (TIN). Thus, when the DSO updated the TIN after the ownership change, every other practice and provider was automatically available to become in-network. The DSO had one tax ID number for the entire state. Needless to say, this was extraordinarily costly and not the desired result given their PPO participation strategy. Thankfully, we were able to work with them, analyze the impact and retool the strategy to achieve the optimal outcome.
While not an exhaustive list, other common examples of potential risks include:
1. Payer does not allow the buyer to retain the previous owner’s financial arrangement (i.e., fee schedule, plan election, capitation agreement). These scenarios are hard to account for in the purchase price because often they are not finalized until long after the ownership change has taken place.
2. Payer does not allow the buyer to carry over prevailing fee schedule(s) from nearby offices to maintain consistency. There is tremendous value for groups in the process of scaling to achieve a common fee schedule in a market. At the right inflection point, the collective value outweighs the appropriateness for each individual location.
3. New providers cannot replicate previous contracting. This is most notably experienced when providers are forced to participate in both Delta Premier and PPO instead of the previous Delta Premier only. While this example is more commonly known, there are other scenarios like this that must be considered.
There are many nuances to payer contracts and these nuances continue to evolve over time. Therefore, include time in your plan to collect contracting status for each provider and use it to plan to minimize disruption in your next acquisition.
While there are inherent risks associated with a new acquisition, there are also scenarios in which the newly acquired practice may present competitive advantages.
Such scenarios can include:
1. Unique participation yielding substantial patient volume. A few years ago, we worked with a practice that had a unique arrangement with a plan. As a result, they treated over 1,500 patients annually from that plan arrangement.
2. The practice may have legacy pricing or access to networks that when maintained present a competitive financial advantage.
3. Experience with a PPO participation strategy that differs and may allow you to reconsider your approach. Because insurance is such a significant driver in most practices today, it is time to go beyond typically available due diligence information. Running a collections by payer report doesn’t tell the full story and isn’t sufficient alone to facilitate development of an insurance transition plan. Researching contracting status and analyzing and applying network rules is the best practice for a successful insurance transition plan as part of the integration for your newly