When considering joining or merging with a medical practice, you need to perform a due diligence investigation into the operations of the practice, as well as the finances.

For information about financial due diligence, click here to read our previous article, "An Astute Look at Medical Firm Finances."

Much of the due diligence you perform in checking into a practice's finances will overlap with the operations due diligence. For operations information, it's important to interview current and former practice employees. It's not uncommon for many of the policies of a practice to be unwritten. The more aspects of the agreement you understand and can incorporate into a written document, the better. At the very least, you want to know the situation you're getting into. For example, here are some considerations:

    Growth History. If you compile the data relevant to the practice, such as the number of patients, demographics, fees, revenues, earnings, overhead, capital expenditures and number of personnel, you can pinpoint trends in the operation. Is the practice making more money than it used to make? Is it losing money because its overhead is increasing at a higher rate than its revenue? Identifying these trends can help you see the future financial and personal climate of the practice.

    Coverage Patterns. Newly hired physicians are often eager to take on as much call as necessary while they're building their practices. Still, it's a good idea to know what's expected at the beginning of the relationship and later on. Make sure it's clear how members of the practice share in call coverage, particularly on weekends and, if relevant, in the emergency room.

    Charting Protocols. This involves the acceptable time between a consultation or procedure and dictation of the related chart notes. Charting protocols also take into account any standards the practice has established for legibility and thoroughness. If charts are not complete and up-to-date, reimbursement can be delayed and revenues affected. An established policy on charting can avoid problems in the future.

    Hospital Responsibilities. Across the country, hospitals are facing financial difficulties. Try to find out as much as possible about the hospitals that a practice group has relationships with. Mergers, insolvency and low occupancy rates in these hospitals can affect your practice.

    Systems. To manage the day-to-day operations of a practice and give you the opportunity to treat patients professionally, many systems need to be working smoothly. Take some time to understand the data processing, reimbursement, telephone, appointment scheduling and financial control systems. They will tell you a great deal about whether a practice is run in an efficient and sophisticated manner, ultimately allowing you to provide a high level of care.

    Hospital Contracts. Some practices have contracts with hospitals to underwrite or guarantee the initial productivity or expenses of a new physician. Other practices have contracts outlining joint ventures with hospitals for related projects like ambulatory surgery centers. All such contracts need to be reviewed for legal and regulatory exposure.

    Managed Care Plans. Ask for information on managed care plans a practice has joined that generate a substantial number of patients. More importantly, find out under what circumstances you can get out of the plan and what rights you have if fees are lowered.

When you're investigating the operations of a practice and using the information to negotiate an employment agreement, remember that you're looking into a relationship, as well as a transaction. Consult with professional advisers about the best way to get a good deal and a positive employment relationship without antagonizing your employer or future partners.


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