Letter from the President

It’s 2022, or if you prefer, 2020 version 2. The Omicron variant of the COVID-19 virus has made its way through cities and towns across our country which prompted elected officials and business owners to maintain or re-institute various restrictions. Staff shortages abound. Burnout is on the rise. People are anxious for this to be over. Our patients want to be seen in-person by their doctor. With that bit of depressing news, comes some good news. The surge is on the decrease and officials can mull over the decision to lift restrictions and prepare to declare the pandemic finished. We can only hope!

As I begin my term as president, I want to thank Traci Evans, FACMPE who served the association for many years, including the last two years as president. Her dedication, leadership, and friendship provided a tough act to follow. I also want to extend warm wishes to two former directors who will soon enjoy retirement after many years of services to the Pennsylvania healthcare community and Pennsylvania MGMA. Pennsylvania MGMA president and the Director of EMSO Operations at Evangelical Health System, Holly Deiter, FACMPE, and Pennsylvania MGMA Director and the Practice Manager for Partners in Family Care, Patty Kessler, CMPE. These two wonderful ladies volunteered their time on committees and the board for many years. We are grateful to them and their efforts on behalf of all Pennsylvania MGMA members.

Throughout my many years with the Pennsylvania MGMA, I came to rely on the support from family, friends, co-workers and my peers on the Pennsylvania MGMA Board of Directors. During the pandemic, we shared our respective experiences to realize that we are not in this along. These dedicated healthcare professionals take time out of their day to put the association first, share their knowledge, and work through any set of obstacles, including the pandemic. I am honored and thankful to work alongside these individuals as I begin my two-year term as president and look forward to the day when we can gather in-person and celebrate our accomplishments.

Despite the easing of pandemic-related restrictions, we realize that many of us cannot yet leave the office, especially as we are short-staffed. Therefore, the Pennsylvania MGMA will host an event in April 2022, which you can attend virtually. Please watch your email for event and registration information. You will not be disappointed!

For now, I remind you to take advantage of all we offer – our newsletter, resources, networking, forums, and upcoming events. Let’s prepare ourselves for what we hope will be the end of this pandemic, and the beginning of a new future in healthcare and practice management.

Shelley Rine, CPC, COPC
President, Pennsylvania MGMA


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THE BEST WAY TO PREVENT AN OSHA INSPECTION

By: Debra Gordick

Most OSHA inspections in healthcare practices are brought about by employee complaints. You may think that disgruntled ex-employees are doing the reporting. That does happen frequently, but OSHA is aware of these kinds of retaliatory complaints and weighs that factor into their determination on whether to send you a letter or to show up for an inspection. However, OSHA will always give its attention to a current employee making the complaint. You may be surprised to learn that it is most often your best employee who makes the complaint that leads to an inspection.

Why would your good employees “stab you in the back” like that? Usually, it is because of one of these reasons:

  • The employee raised concerns to you but feels ignored and frustrated.
  • You have, perhaps unknowingly, created a closed-door atmosphere that discourages employees from raising concerns and offering recommendations.

What can you do to change this dynamic? Have a written policy on employee complaints and recommendations in your employee training manuals. Create an open-door culture in your practice. Let employees know this is important to you. Ensure that the policy aligns with any Human Resource policies you have with your company. Make sure you give everyone a copy including managers. Let them know it is important to you.

Most managers are uncomfortable with handling complaints, and this causes avoidance. Here are some recommendations gathered from consulting human resources professionals including a very good article at https://toughnickel.com/business/How-to-Address-Employee-Complaints.

1. Ask for something in writing.

2. Listen fully to the complaint, even if it seems like a frivolous issue.

3. Show respect. Don't belittle their complaint, question their veracity, or do anything to make them feel like you don't take the issue seriously.

4. Ask lots of questions.

  • Who - Who is this situation about? Who was involved? Who witnessed it?
  • What - What happened? What else was happening at the time of the incident? What caused the incident? What proof can be provided?
  • When - When did the incident take place? When else could this have happened?
  • Where - Where did this incident take place? Where else could this have happened? Where exactly were employees at the time of the incident?
  • Why - Why did it happen? Why did the employee come forward with this complaint? Why do they think the incident happened?
  • How - How are they feeling after this incident? How has this incident affected others? How can you help them? How can this problem be rectified?

5. Assure the individual that you will investigate and then take appropriate action as quickly as possible.

6. Take the appropriate action regarding the complaint. The action should as quick as possible so there won't be any future issues. consult a professional if you need advice like your human resources contact or your OSHA consultant depending on the issue.

7. Set a timeframe for communicating and notify all involved parties of any delays.

8. Refrain from quick disciplinary action against the complaining employee or any person they're complaining about. Take the time to find out what happened before you take any action.

9. Inform the complainant about resolution status but avoid details about other employees.

10. If the complaint was unfounded, turn the situation into a training opportunity.

11. Look for patterns of the same complaint from the same person or other employees. You may see another issue that needs to be addressed.

12. Document. Document. Document.

What NOT to Do When an Employee Complains:

  • Make jokes.
  • Allow distractions. Instead, turn off your phone and close your office door.
  • Make the complaint public.
  • Punish the complainant in ANY way. There are very stringent laws on protecting whistleblowers.

The very best thing you can do to prevent an OSHA inspection is to show your employees respect and listen to their concerns.

Visit https://totalmedicalcompliance.com/ for more information and a free quote.

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About the Author

Debra Gordick

Debra Gordick is the mediator/government liaison for Total Medical Compliance.

TMC is a private consulting company providing affordable programs and seminars for health care providers, allowing them to achieve and maintain compliance with government regulations such as HIPAA, OSHA and infection control. TMC services include on-site employee training, customized compliance manuals, office inspections, and ongoing client support through monthly newsletters and a fully staffed Client Service Center. For additional information call 888-862-6742 or email here.



About the Author

Peter McCann

Peter McCann is a Broker with CARR, working with healthcare tenants and buyers in the Pennsylvania area to achieve the most favorable terms on their commercial real estate purchase and lease transactions. Peter is also an active attorney and former real estate law professor.  Peter can be reached at peter.mccann@carr.us or 267.373.7366.

AVOIDING PITFALLS IN YOUR NEXT OFFICE LEASE NEGOTIATION

By: Peter McCann
CARR

Over 80% of healthcare practices lease their office space. The location and impression their office makes on patients is a huge determining factor in patient referrals and return visits, especially in a competitive market. Additionally, the cost of rent is typically a practice’s second-highest expense after payroll. For these reasons, it is imperative that practices achieve the best possible terms during new lease and renewal negotiations in order to maximize profitability.

There are three common pitfalls many practices fall into when negotiating on their office space.

Lack of market knowledge

To achieve the best possible terms, you must be familiar with all options that exist in your area. This market knowledge includes available vacancies, recently completed transactions, and future spaces that may be coming available soon. This is critical information that a local commercial real estate professional can provide to you at no charge.

Unawareness of less-common business points in a lease

Most healthcare professionals are familiar with the rental rate, length of term, and build out allowance provided by the landlord. Beyond these, there are many other important concessions available such as free or reduced rent periods, the right to transfer the lease to another practice owner in the future, options to renew the lease after the original term expires, death and disability termination options, exclusive uses and more. There are also landlord-friendly clauses such as relocation provisions, unusual expense pass-throughs, and electrical or mechanical requirements designed for general, non-healthcare users that can impair a practice’s ability to operate.

Failing to create a strong posture

The key to an effective negotiation posture is making the landlord understand that you have multiple options on the table and are willing to pursue those options. One of the first questions a landlord will ask its broker is whether the tenant has professional representation. If the answer is no, they will ask if the tenant appears to know the market and is educated on the business points they are seeking. It is also crucial to the posture to begin the negotiations at the proper time—ideally one year before the current lease expires.

Strong posture causes the negotiation to be more favorable than merely bartering with a landlord. Leveraging a local real estate professional’s expertise and then dictating favorable terms to a landlord yields consistently more favorable terms to a tenant than simply asking for a lower price.

CARR is the nation’s leading provider of commercial real estate services for healthcare tenants and buyers. Every year, thousands of healthcare practices trust CARR to achieve the most favorable terms on their lease and purchase negotiations. Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

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HEALTHCARE M&A: 10 QUESTIONS FOR PHYSICIANS NEGOTIATING THE SALE OF THEIR PRACTICE TO PRIVATE EQUITY

By: John R. Washlick, Shareholder, Healthcare, Buchanon Ingersoll & Rooney

Private equity (PE) may have dipped at the end of 2021, but early indications are that may be short-lived. In fact, 70% of healthcare execs predict more M&A activity in 2022.

Whether it’s a primary care office, oncology practice, anesthesiology group, or another healthcare provider, PE buyers love the consistent cash flows and growth potential these businesses provide. Despite the COVID-19 pandemic and a 14% decline in global PE volume, healthcare PE deals in 2021 actually jumped higher than they were in 2018 and 2019.

Selling to PE firms comes with unique benefits to the healthcare provider. It often removes administrative burden from physicians and allows them to focus on what they do best – practicing medicine. PE investment also gives practices the capital to modernize or upgrade, which benefits patients and can create economies of scale.

Here are 10 questions every practice owner must ask when negotiating a transaction:

What is the value of the business and how does it relate to purchase price?

PE firms tend to base their purchase price on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Depending on the practice’s specialty, there are typical industry standards when it comes to the multiples paid by buyers. However, PE firms are buying more than just the physical assets or a brand name – they’re purchasing future revenue prospects, contracts, and potential intellectual property or proprietary processes. The value of the business is far greater than its physical assets or current annual income.

What is included in the sale?

Even a relatively simple office-based practice may be comprised of several business units or asset classes. These can range from patient accounts receivable, medical office buildings, intangible assets and new business opportunities. Physicians must clearly outline what to include in the sale and what to retain.

Will the buyer acquire a controlling interest?

Normally, PE firms want a majority interest in the business to have the power to act decisively when managing their portfolio of companies. But not always. Some PE firms are satisfied with having a substantial, yet minority, stake in a business if that helps maintain original owners’ entrepreneurial spirit.

Will a representative from the PE firm serve on the board of directors?

A PE firm’s representation among the directors and officers depends on whether the investment is in the medical practice or a derivative thereof, such as a joint venture. If a new entity is formed to consolidate multiple practices or to form a new business, it is more likely the PE firm will require significant representation on the board and key officer positions.

Will existing management stay in place?

Existing leadership may be an important component of a practice’s business value, but there’s no guarantee the PE firm will leave management unchanged. Even if the PE firm has a minority position, it may demand “step-in” rights to allow it to take control of the business if it is performing poorly. Several scenarios can trigger such action, including breaches of financial covenants in financing arrangements, failure to meet specified financial thresholds, material breaches of the shareholders’ agreement, and more.

How will capital support from the PE firm be established?

PE firms are adept at determining a company’s “enterprise value,” which assumes how it will perform after the infusion of capital and management resources. They also determine how to make the deal “financeable,” by pricing in risk factors associated with increased borrowing. Knowing how capital support works is key.

Will physician compensation and benefits change?

A PE firm’s main goal is to grow the business. Any increased margins must be derived, not from diminishing physician compensation, but elsewhere. That said, compensation could be out of step with the current economic market, and a PE firm may suggest ways to redesign it.

How will distributions of newly generated profits be shared with physicians?

The source of profit distributions will vary depending upon the nature of the business unit in which the PE firm has invested and how that entity affects the profitability of the medical practice.

What do restrictive covenants and non-compete agreements look like?

Sellers should expect non-compete covenants separately in connection with the sale of the business and, if any of the sellers stay on, non-compete restrictions as part of individual employment agreements. Attention must be paid to the scope of covenants’ geographic restriction both during and after the term of the physician’s employment.

Should you negotiate exit rights?

PE firms typically expect to have restrictions on transfer, put and call options, drag-along rights, and tag-along rights within their buy-sell or shareholders’ agreement. For example, a tag-along right might vest gradually to keep the selling physicians actively engaged in the practice. However, if the PE firm were to sell its interests sooner than the physicians would otherwise qualify as 100% vested, selling physicians should negotiate that their interest becomes automatically wholly vested at any time the PE sells all, or part, of its interest.

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About the Author

John R. Washlick

John R. Washlick focuses his practice on healthcare transactions and corporate compliance. His background as a CPA affords him a unique perspective on mergers and acquisitions and their tax implications. His clients include hospitals, healthcare systems, physician practices, individual physicians, and entrepreneurs and investment-backed entities.

John is a recognized authority on federal income tax issues involving tax-exempt organizations and the Anti-Kickback Statute and the Stark Law. His guidance is often sought as his clients assess various arrangements with physicians, such as clinical joint ventures, co-management arrangements, integrated delivery systems, business joint ventures, physician recruitment, practice acquisitions, employment arrangements, hospital/physician integration planning and exclusive provider agreements. He also advises healthcare industry clients, including entrepreneurs and investment-backed entities on general corporate law and regulatory healthcare-related issues, such as the corporate practice of medicine and fee splitting laws. John partners with clients to arrive at strategic, yet practical, solutions to often cutting-edge issues and high-profile matters.

John has experience in structuring, negotiating and documenting a variety of complex business transactions, including mergers and acquisitions, joint operating agreements, joint ventures, clinical comanagement agreements, academic and clinical affiliations, and contractual relationships among providers and with third-party payors.

John is recognized among the leading healthcare lawyers in Pennsylvania by international legal research publisher Chambers USA, an honor based on an intensive research process incorporating client feedback. John has been listed in The Best Lawyers in America® since 2007 in the healthcare law area. He has also been recognized by Pennsylvania Super Lawyers® and has garnered an AV® Preeminent distinction, the highest available mark for professional excellence from Martindale-Hubbell’s® Peer Review Ratings.


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