Strategies for Gaining Strength of Size . . . The MSO Model
Now it’s time to talk about the ‘elephant in the room’ – Consolidation – and how practice owners can truly integrate without selling their practices, avoid giving up all control of their businesses, and prevent losing the culture they so strongly value. And if you are an aspiring entrepreneur who wants to open your own practice, you can see how you can do so and position your business for long term success.
Consolidation. What Does it Really Mean?
Consolidation. Everyone is getting bigger in health care. Have you noticed it in your market? Hospitals acquiring or merging with other hospitals? Hospital systems acquiring primary care practices or even some specialty groups? How about the physical therapy space? Are corporate physical therapy organizations moving in down the street from you?
So what’s your consolidation plan?
Seeing other health care organizations around you get bigger and watching corporate PT groups move into your market are certainly cause for concern, but they shouldn’t make you panic.
Let’s start with a simple definition. A business consolidation is when two or more business entities organize under a single tax ID number (TIN) with an agreed upon purpose and direction, defined leadership with decision-making authority, and accountability.
A horizontal network of the same provider types and independent practice associations (IPAs) are not consolidations; they are loosely knit, fragmented, and unstable groups of independent practices. They lack decision-making governance and accountability, and they add little to no value to health plans or ACOs.
Moving forward in our changing healthcare market, independent therapy practice owners essentially have one of 4 options:
- Stay the Course. Keep doing business as usual and hope for the best as other providers integrate and get bigger all around you. Or maybe you want to consider becoming an out of network practice and not have to worry about the demands of health plans and ACOs.
- Grow Your Own. If you have access to a lot of capital and possess the business acumen to open multiple clinics and acquire other private practices, you can get big on your own.
- Time to Sell. Maybe the time has come to sell your business. You may be ready to move on to another opportunity or to another phase of life. Or maybe it’s just ‘the easiest thing to do’.
- Get Big but Stay Small. The MSO model provides value to member practices and to payors. It is an excellent way for practices to gain strength of size while maintaining independent ownership.
Let’s look at the MSO – its structure, the services it provides, it’s challenges, the benefits it delivers, and an example of how Therapy Partners MSO has engaged in a highly successful value based model with a large health plan.
The Physical Therapy MSO Model and Keys to Success
An MSO is business model that integrates independent practices as a consolidated team under a single TIN for the purposes of contracting with health plans and other payors. The practices maintain their ownership, brand identity, and their own TIN for tax and other legal purposes. The MSO provides centralized administrative services including revenue cycle management, payment processing, credentialing, and other tactical activities. The MSO brings value to payors and member practices.
While there are a number of factors that influence success or failure of an MSO, 5 are absolutely critical:
- Trust. Member practice owners and their teams must highly trust each other and the MSO team.
- Leadership. The MSO leaders and the owners of member practices must provide big picture leadership, and everyone must share the vision and direction of the MSO.
- Teamwork. The MSO team must work ‘hand in glove’ with each practice, and the practice owners and their teams must see every other practice as an ally and their employees as teammates.
- Accountability. The MSO must have someone who has the power to hold each practice owner and their teams accountable for achieving expected outcomes and performance standards.
- Disciplined Workflows. The MSO provides centralized billing and payment processing for members. Workflows must be defined, team members disciplined, and results accurately managed.
MSO Organization and Leadership – It’s a Team Sport
The MSO must employ a leadership team and staff. The leadership team includes these positions involving 1-3 people:
- CEO. This person provides direction, drives change, and grows the MSO business. This is a full time position that takes full time focus.
- COO. This leader runs the operations, helps the owners and managers with practice management, and holds practices accountable for delivering expected outcomes and achieving benchmarks.
- CFO. Depending on the size and financial status of the MSO, a CFO may be hired to be responsible for managing financials, analyzing data, and creating care models for risk-sharing contracts.
Depending on the breadth and depth of services provided to the member practices, the MSO employs:
- CMO. A Chief Marketing Officer who provides marketing services for the practices.
HR Professional. The MSO can provide HR management including benefits like health insurance.
- Compliance Officer. The ACA places greater regulatory demands on providers. The MSO can provide a high-level compliance expert to provide this vital responsibility for all practices.
- Client Relations Manager. This person works closely with practice owners and staff, health plans’ contracting team, revenue cycle management providers, and other vendors and clients.
- Business Support Manager. This manager oversees and participates in the activities related to processing and distributing payments to the practices.
- Payment Processing Team. All payments for services provided by member practices come to the MSO and are processed, reconciled, posted, deposited, and distributed by the payment processing team. They depend on well-defined work-flows with checks and balances at each step. Payment reconciliation must balance ‘to the penny’ every day. Practice owners know how much has been collected for them daily since everyone is on the same billing system with integrated EMR. Payments are wired to the practices weekly with daily and weekly reports of all collections.
- Revenue Cycle Management (RCM). Although the MSO can perform RCM internally, we strongly advocate outsourcing this complex process.
As you can tell by now, the MSO truly is a team sport, and all practices must have input. Much of the decision-making is done through collaborative efforts. Examples of MSO work groups are:
- BOD or Advisory Group. The MSO must create a strategic decision-making team comprised of some of the practice owners, MSO executives, and possibly an outside member.
- Owners Tactical Group. Practice owners collaborate and problem solve on day-to-day, tactical issues. This group offers all owners a chance to work together and collaborate for best of practices.
- Other Work Groups. Organizing various work groups not only creates consistent processes across practices, it creates buy-in from employees of the member practices and helps them build trusting relationships. Examples of such work groups are clinic office support group, professional development, clinical study groups, reimbursement, and practice management.
In its most comprehensive structure, an MSO should provide all the services a practice needs other than basic front desk tasks related to patient care and patient care services:
The Benefits of an MSO to Members
Here are my Top 10 Benefits to members of Therapy Partners’ MSO:
- Size gets your foot in the door. Consolidated size gets the attention of the health plans, and we have negotiated rates advantageous to our members. Additionally, the leaders of health plans place high value on the MSO’s ability to simplify processes involved with contracting, communication, care management, claims processing, and payments.
- Value keeps you there. The mission of Therapy Partners’ MSO is to deliver Triple Aim value, and we have created a culture that supports that mission. We promote our commitment to the Triple Aim, our FOTO outcomes, and our willingness to share financial risk. Through value delivery, we have become not only a source for physical therapy but a valuable resource for Triple Aim solutions. Value delivery ensures a long term ‘seat at the table’ with the decision makers in your market.
- The Proof is in the Pudding. Through a commitment to achieving high level FOTO outcomes, a value-based contract with a local health plan, and well-defined FOTO training and management processes, TPI practices have achieved highly impressive outcomes used to promote the practices with health plans, ACOs, referral sources, existing patients, and their communities.
- We Got Big but Stayed Small. The Therapy Partners MSO has allowed member practice owners to maintain control of their businesses while they have become part of a large, integrated organization, well–positioned for long-term stability.
- Culture Eats Strategy for Breakfast. Every member of TPI has maintained the culture the owners and employees value, and the culture of TPI is well aligned with the cultures of the practices.
- Economies of Scale. The MSO’s centralized business office functions have reduced the members’ operational costs.
- Value through Technology. BMS, TPI’s outsourced billing ‘partner’, provides their effective billing and EMR technology to TPI’s member practices.
- Sharing and Caring. TPI’s team works closely with practice owners to measure productivity, teamwork, leadership, clinical outcomes, and change management indicators. Practice owners and managers share and compare results with each other to create best of practice clinical and productivity benchmarks.
- The ‘Edge’ is Leadership. Through TPI’s 10-Session leadership and team development program – called The Leadership Edge – team members in all positions are learning and growing as leaders who see themselves as valuable contributors. This high-level employee engagement is leading to greater success and growth of the practices in a challenging market.
- The Power of Focus. By centralizing many front and back office functions through the MSO, practice owners can focus on improving their care, developing new services, building stronger community relationships, and growing their practices.
The Challenges of an MSO
While there are definite benefits of the MSO, there are also obstacles to overcome:
- A Common Billing System. All members of the MSO must use the same billing system. This creates efficiencies and transparency, but it requires at least some practices to let go of their old system.
- Integrated EMR. For efficiencies and simplicity, members of the MSO must use an EMR that is integrated with the billing system. This may require practices get out of their EMR comfort zone.
- Practices Must Give Up Health Plan Contracts Under Their Name and TIN. The MSO rolls up all contracts under their name and TIN. Some practice owners may not be comfortable giving up their contract status with health plans.
- Letting Employees Go. One of the big advantages of an MSO for a start up practice is that the owners do not have to hire as many employees. Existing practices that join an MSO will likely have staff members they no longer need because the MSO is providing services the practice once did. Eliminating positions and letting people go can be emotionally painful.
- Outcome Measures Are Critical. One of the major responsibilities of the MSO is to seek value-based contracts with health plans, ACOs, and other payors. In doing so, every member practice bears financial risk as a team, and all must measure and manage their outcomes effectively. In becoming a member of an MSO, you must be willing to use their chosen outcomes tool.
- Giving Up Some Control. When you become a member of an MSO, you are part of an integrated team. Consequently, you will have to compromise at times, do what is best for the team, and follow some of the marching orders from the MSO.
- Change is Hard. We are talking about a new business model. Let’s face it, many people simply do not like change, and working through the challenges of change is difficult. But as Jack Welch, former CEO of GE once said, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”
While forming or becoming part of an MSO involves some significant challenges, the benefits it brings make the effort well worth it. The threat of not changing is a much greater risk than the threat of consolidating in this way.
Therapy Partners Value Based Model with a Large Health Plan
Therapy Partners has directly experienced the benefits of MSO size and value. In 2009, TPI’s leadership approached the medical director and contracting team of HealthPartners health plan with a proposal to implement a value-based payment model using FOTO outcomes. HealthPartners (HP) covers 1.3 million lives and is an innovator in value-based payment models. The TPI-HP proposed model was based on a per diem payment rate with a percentage of the rate withheld and a potential to earn the withhold amount plus an additional bonus for achieving FOTO outcomes benchmarks.
HP initially turned down the proposal, but after 8 months of discussions and counter-proposals, they agreed to a value-based pilot. FOTO’s leadership team of the late Dennis Hart and Al Amato created a 9-Cell FOTO outcomes value matrix based on two determinants – predicted number of PT visits and predicted patient functional score change (FSC). Based on the FSC and visits utilized, each patient was placed in one of 9 cells – 3 are considered “Higher than Expected” outcomes; 3 are “Expected” outcomes; and 3 are “Lower than Expected” outcomes. HP, TPI, and FOTO established benchmarks for each of the 3 categories of FOTO outcomes. HP agreed to pay from 0% to 100% of the withhold and bonus based on TPI’s levels of outcomes achieved.
The one-year pilot in 2010 was truly a collaborative effort between HP, TPI, and FOTO. FOTO provided quarterly outcomes results, and the TPI-HP pilot team members held quarterly meetings to discuss the results. In the end, HP and TPI felt the original benchmarks were unrealistic and agreed to reduce them slightly. As a result, TPI received 100% of the withhold-bonus payment for its member practices. HP felt so strongly about the benefit of FOTO outcomes, they eliminated their prior authorization model for TPI practices. They also stated they had a much better understanding of the physical therapy care process and expected patient functional and cost outcomes. HP rewarded TPI practices financially for the effort and excellent clinical care of the member providers. Just as importantly, HP and TPI have created a long-term trusted relationship. TPI received HealthPartners’ 2011 Excellent in Innovation Award.
TPI and HP have engaged in a value-based contract model every year since the successful 2010 pilot. HP has rewarded TPI with between 84-100% of the withhold-bonus payment each year. TPI received 100% payout 4 years, 96% 1 year, and 84% one year. The model has proven to be a ‘win-win-win’ for HP, TPI, and patients. TPI and HP continue to work on fine-tuning this value-based model to include a total cost of care component.
We were able to initially gain the attention of HP in 2009 for 4 reasons:
- TPI’s large number of clinics
- All TPI physical therapists were using the FOTO process with patients
- TPI had a large database of outcomes and
- TPI leadership expressed a willingness to share financial risk with HP
Since that time we have been able to maintain the model and grow our relationship with HP leaders based on our continued focus on improving the value of our care through a sincere commitment to the Triple Aim – measurable quality, an exceptional patient experience, and lower total cost of care. This model is an example of how payors and providers can work collaboratively to develop new payment models better aligned with value rather than volume of services.
Leadership and High Performance Teamwork Are Critical During Times of Change
Change is never easy. William Bridges, in his book Managing Transitions, states that 5-10% of any group will hate change so much they try to make it fail. Another 15-20% will resist the change. 30-40% will ‘go with the flow’ but need lots of help fully engaging in the change. Wow! Over half of your organization will need lots of time, attention, and support to make your change work. 20-30% of your team will be excited about this change and must become the ‘Change Champions’ of these efforts.
Great leaders engage their ‘Supporters’ and ‘Champions’ to help them lead and manage through the challenges of change until that change becomes part of the culture of the organization.
Designing, implementing, and selling value-based models require innovative thinking, engagement of all team members, and high performance teamwork. That requires great leadership. As you start to plan to build value-based models, don’t fail to prepare to lead these change efforts and fully inspire and engage your team members. It will be well worth it. Selling our real value and building meaningful relationships with health plans is what we’ve sought for years.
The current health care environment creates outstanding opportunities for independent physical therapy practices that meet market demands. The physical therapists who succeed will first understand the key factors related to health care reform and recognized that nearly all revolve around 2 central requirements – consolidation and value delivery. They will create and effectively lead strategies that deliver tangible value to the decision makers within health plans and ACOs and will be willing to share financial risk. The MSO model is an excellent consolidation solution for practice owners who want to maintain ownership of their businesses.
If you would like more information, please contact Jim Hoyme at Jhoym[email protected] and follow us on twitter @TherapyPartners.
Upward & Onward!
Jim Hoyme, PT, MBA
Jim is one of the principal owners of OSI Physical Therapy in Stillwater, Minnesota, a 9-clinic practice started in 1979. He is also one of the principal owners of Therapy Partners, Inc. (TPI), a management services organization (MSO) for 16 independent physical therapy practices with 32 clinics in Minnesota and Wisconsin.
Since 1999, TPI’s MOS has provided its clients with health plan contracting, revenue cycle management, and many other administrative services for members under a single tax ID number. TPI brings its members lower operational costs, improved payment per visit, and practice management services. They have engaged in a highly successful, value-based contract using FOTO outcomes with a large health plan since 2010.
TPI is positioned to expand its MSO services to practices in other states and is an excellent partner for start up practices.