Read your ACO provider agreement very closely

My friend Mark Weiss at the Advisory Law Group ( posted a great blog article on the possible impact of ACO's on physician medical practices. It's a perfect follow up to my blog post last week about ACO's continuing to contract with commercial payers. With permission, here is Mark's post:

Lost In Translation: Why Sell The Cow When You Can Give Away The Milk?

Chances are you're familiar with the expression, "why buy the cow when you can get the milk for free?"

Unfortunately, for many physicians and medical groups, it's as if something were lost in translation, as if the aphorism were instead, "why sell the cow when you can give away the milk?"

Consider, for example, a medical group whose physicians practice exclusively at one hospital, let's call it Community Memorial St. Mark's Hospital. Up until now, they've been billing and collecting, and contracting with third-party payers, completely separately from the hospital.

Now, along comes Community Memorial which induces the group to participate in its Accountable Care Organization. Although initially focused on Medicare payments, the provisions of the ACO documents are broad enough to enable the ACO to serve as the funnel through which all types of third-party payer reimbursement will eventually flow. Those in control of the ACO, that is, Community Memorial, now have discretion as to amount of dollars that will flow back to our prototypical medical group.

Taking into account the fact that not too many patients actually come into the office with open check books or sacks of cash, the medical group has effectively transferred the destiny of its cash flow to the hospital controlled ACO. What value, then, is left in its practice?

If you owned Community Memorial wouldn't you like to get the medical group's cash flow without having to purchase the medical group's practice: why buy the cow when you can get the milk for free?

As if to add insult to injury, the owners of the cow no longer have the milk but they still have the obligation to feed the cow: they are stuck with the overhead of running their group.

Although similar situations arise in the context of other physician transactions, from exclusive contracts to employment agreements, the ACO situation threatens to become the most egregious example of this milking.

The situation will only increase in scope and intensity, as pressure from hospitals to align physicians through ACO structures will grow as Obamacare clicks completely into gear.

Physicians still have time to exert some level of control over how ACOs will function. Even if you believe your facility is years away from considering an ACO, it's time now to begin working to protect your interests.

And, once ACO formation is a certainty for your group, you need to approach contracting with your eyes wide open to its economic realities.

Consider that for some groups, the fear of being left out in the cold – not included in an ACO's network – may be overblown when the alternative is the loss of the financial engine which is your practice's business, all the while being left with the obligations of your practice's overhead.

Have questions? I’m here to help.