Achieving Long-Term Success with Strategic Contract Negotiations
Drafting contracts that stand the test of time.
Challenge
A private single-specialty medical group of 24 physicians is concerned about the future regardless of their physicians’ career stage. Declining compensation, rising costs, and decreasing reimbursement from payers are front and center of concern.
Specific challenges facing the private medical group include:
- Different preferences depending on the physicians’ stage of career
- Economic concerns
- Preferring independence and autonomy
- Relinquishing governance and leadership responsibilities
- Selecting the right affiliation model for the group
- Regulatory and compliance requirements
Solution
The first part of the project was to consider all options while assessing the group’s situation, explaining the various alignment models with examples of limited, moderate, and full scenarios and the pros and cons of each for the group. As a result of these discussions, the practice chose to pursue a global payment professional services agreement (PSA).
We completed a comprehensive review of their current relationship with the hospital, including an on-call arrangement. We successfully determined the economic terms of the agreement, including the fair market value implications, through peer-to-peer discussions with the hospital’s advisors. Using this information, we drafted a letter of intent and continued negotiating the terms until both parties were satisfied with the outcome.
After executing the final contract between both parties, we validated that the terms of the agreement coincided with the letter of intent to ensure the practice was properly compensated.
Approach
- Phase 1Landscape Review & Consultation to Ascertain Viable Model(s)
We considered all possibilities, including employment, contractual (e.g., a PSA), co-management, limited forms such as medical directorships and call-pay, recruitment assistance, and joint equity transactions. We evaluated and consulted with the client on the pros and cons of each affiliation model and assisted in deciding the best-fit models. - Phase 2Financial Analysis to Develop the Requests
Completed peer-to-peer discussions with the hospital’s advisors and reviewed all pay components, including medical directorships, call pay, and a rate per wRVU, developing the requests of the potential partner. - Phase 3Letter of Intent & Negotiations to Document and Complete the Transaction
We drafted the letter of intent (LOI), negotiated the terms, and created a decision matrix to compare the hospital’s LOI to ours. Successfully negotiated items include a management services fee, a quality component, a signing bonus, and compensation for our advisory fees. - Phase 4Definitive Agreements to Memorialize Legal Terms with Counsel
Assisted legal counsel in drafting the definitive agreements with their hospital partner. We reviewed the final contracts to ensure the final terms were consistent with the LOI. - Phase 5Implementation – Execution Process
Validated the results of the final agreement to ensure the practice is paid according to the contract terms.
Conclusion
Education and first-hand customization of the selected affiliation model are essential to the deal's long-term success. We considered economic and non-economic terms relevant to the practice’s interests and needs, formulating these requests into a detailed financial analysis and letter of intent. Peer-to-peer discussions with the hospital’s advisors helped maintain compliance within the negotiations and final agreement.
We first completed the original deal and negotiations almost 15 years ago, which the practice has continued to renew with their hospital partner.
Significant Revenue Increase Post-Transaction
Results At a Glance
- $2.5MIncrease in revenue
- $100KAnnual compensation increase for each physician
- 100%Increase in management service fee
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