Power in Numbers: Medical Practice Finds Success in a Consortium

October 11, 2013

How one medical practiced saved more than $390,000 and got financially stable.

When Kyle Matthews joined CardioVascular Associates of Mesa (Ariz.) as CEO, the eight-physician practice had $1 million in short-term debt, bad IT contracts, a practice manager everyone was afraid of, an in-house consultant eating up $350,000 to $400,000 a year, and a larger, 12-physician practice down the road about to eat its lunch.

Matthews' solution: Make friends. He joined forces with the neighboring cardiology group and other cardiology practices in the area, starting with five, ultimately saving his practice nearly $400,000 in overhead and restoring fiscal sanity. If he can do it, anyone can, he promised, even if your group considers its neighbors fierce competitors. "When you boil it down to money, it's funny how fast doctors can forget the past," he joked. Everybody can find allies.

He explained the details at a session at the Medical Group Management Association Annual Conference.

It's not about unifying or revenue

The alliance Matthews created is officially an LLC that offers a level of shared decision-making and cooperation. It's sort of like a management services organization (MSO), but where most MSOs entail a lot of overhead with separate management teams, this LLC is a very casual affair, with administrators at each participating practice organizing meetings and cutting checks on a rotating basis. All other decisions are made together; there is not a separate team.

In addition, and crucially, the practices do not collaborate to negotiate with payers. Contracting is off the table, and a mere mention of a new contract during a meeting gets shut off immediately, Matthews explained. There is no need for the complexities involved in ensuring no collusion.

Rather, the LLC is all about shared savings.

Cardiologists have high supply costs with all those EKGs and nuclear supplies. The LLC's first move was to send out an RFP to vendors and buy in more volume for lower prices. Participation is required and uniformity in purchasing is encouraged, though practices can also order different supplies if they really need to. It was hard for some practices to "break up" with their long-time sales folk, but, in the end, his practice is saving $81,000 a year.

Similarly, the practices share an IT support vendor and even a CIO, who rotates among the practices. (They don't share an EHR, which seemed too hard.) That shaved $180,000 a year. They even share governance on a partly self-funded, employee health plan, deciding together what benefits to prioritize. Importantly, each practice does end up with separate plan documents and individual loss ratios to avoid complications relating to the dreaded multiple employer welfare (MEW) arrangements, which are illegal. Total savings: $105,000 a year. Even sending all their statements at the same time saved postage costs.

There are other benefits, too, like helping each other learn about ICD-10 in group sessions. "We can assign just one billing manager to answer a question everyone has," Matthews explained. There is no competitive advantage lost; everyone has to learn it.

Keys to success

The system did take some tweaking, and Matthews encouraged his audience to follow these rules:

• Require physician ownership: Every physician pays in around $1,000 to $2,000 that gets used to establish a line of credit.

• Set a management fee: Practices pay a "single-digit" percentage fee on everything they buy (like those supplies). The money goes to reimburse the practice that is using its administrator to orchestrate the LLC and for capital investments that everyone has to agree on. Because it is set as a percent fee, practices that spend more, also pay more into the system, keeping things fair.

• Equal representation: At birth, the coalition consisted of groups as big as 12 physicians and as small as two. Every group has the same voting power on collective decisions, regardless of size.

• Talk a lot: Matthews' organization holds one to two physician meetings month on top of even more regular administrator meetings. Open communication is the single biggest requirement, he stressed.

• Legal caution: When Matthews worked out his LLC, he had a high-power attorney review it and then had attorneys from each practice review it, too, for good measure. He said that having that many lawyers agree gave him a level of security.

These days, that teetering cardiology practice has zero short-term debt, good financial health, competitive staff compensation, and is looking into partnering with hospitals in the region on accountable care organization projects. Making friends surely didn't accomplish all of that, but $390,000 a year in savings sure didn't hurt.