RBMA 2019 PaRADigm: Investor-owned management companies are buying, but should radiology practices be selling?

In 49 BC, Julius Caesar led his soldiers across the river Rubicon, defying the Roman Senate and setting up the civil war that led to his becoming dictator for life. Today, many leaders of radiology practices stand on the banks of their own Rubicon.

Should they cross, taking the extreme measure of selling the practice to a physician practice management company (PPMC) owned by investors?

The question was taken up by W. Kenneth Davis Jr, JD, a partner in the law firm of Katten Muchin Rosenman, at RBMA’s 2019 PaRADigm conference.

Stressing that he is “totally agnostic” as to whether or not any given practice should or shouldn’t make a deal with a PPMC, Davis said the decision must come down to how well a proposal suits the practice owners’ mid- to long-range objectives.

“These deals are complicated,” he said, adding that the attorney’s role is to help physician groups move in ways that are not only legal but also reasonable, appropriate and sensible within their respective markets.

Davis listed as leading examples of PPMCs Radiology Partners, US Radiology Specialists, Lucid, Envision and Mednax.

Universal thinking points

Those who start down the path of working out a deal with a PPMC will, at some point, see negotiations move past—or at least right up to—the point of no turning back. Hence the reference to Julius Caesar at that river.

“If you do this deal, you are selling your practice,” Davis said. “Do not lose sight of the fact that, when you sell your practice, it will never be the same again. You are selling your practice.”

With that, Davis said there are some things every radiology group should think about even if it is their intent never to sell their practice to a PPMC.

These include such points to ponder as:

1. Culture and priorities. What is the glue that holds your group together? What’s important? Is it control or is it economics? Is there specific infrastructure or resources that your group needs?

On the other hand, if you’re making the most of your current business partners, you know their infrastructures.

“Folks, down the hall there are world-class infrastructure providers—revenue cycle management companies, people who do amazing things for radiology groups,” Davis said. “Before you go off and do a deal with a PPMC, you’ve got to ask yourself if you’re making the most of the infrastructure that’s available to you.”

Also to consider under the category of culture is whether or not your group embraces change. “If it doesn’t, it’s not going to be impossible to do one of these deals,” Davis said, “but it is going to be more challenging.”

2. Complexion. How large and complex is your group? Do you own technical-component facilities? Are you joint-ventured? Do you plan on keeping the technical-component facilities in or out of the deal if you ever do sell to a PPMC?

“If you’re going to keep the technical component out of the transaction, you’ve got to recognize that you’re selling the professional business and holding onto the technical piece,” Davis said. “That’s going to create inherent conflicts of interest that you need to address.”

3. Corporate organizational structure. Is your house in order? How is your ownership structured? Is it simple? Do you have 35 equal owners? That’s simple. Do you have classes of owners that include incoming partners, that include outgoing partners and that involve all kinds of distributive mechanisms? That’s complicated.

“If there’s not perfect ownership overlap between the practice and any sister entities, such as technical-component businesses, management-services organizations, real-estate businesses,” Davis said, “are you ready to deal with the consequences of there not being perfect overlap of ownership? If there’s perfect overlap of ownership, everything [in a PPMC deal] can go lockstep. If there’s not, you may face more challenges when you try to do any kind of transaction.”

In fact, he added, not having perfect ownership overlap of those entities can frankly create problems that are wholly unrelated to making deals with PPMCs.

The moveable Rubicon

During the Q&A session following the talk, an attendee pointed out that Davis hadn’t specified how to recognize the line of demarcation he’d been referring to as the Rubicon.

Davis replied that there’s no pat answer because the line varies from deal to deal.

He told of one radiology group he know of that, right now, has “absolutely crossed the Rubicon. Totally. They’re going to sell. On the other hand, I know another group that’s under a letter of intent and, if they don’t get the deal they want, they will not do the deal.”

Those are the two extremes illustrating the movability of the Rubicon.

Meanwhile, the human factor usually looms large.

Doctors are human beings, Davis said. When they start hearing the numbers, if the numbers are big—as they often are—they’re not slow to say: “I’m out of here.”

That tends to be the case especially for the “silverback” members of the group, Davis said, referring to the older physicians who have been leading the practice.

“And that’s OK—I’m agnostic,” Davis reiterated. “I’m not trying to sell anyone on these transactions.”

Regardless, the suggestion seemed to be that, while the coordinates of the PPMC Rubicon vary from group to group, its manifestations at all stages are likely more widespread across private-practice radiology than is readily apparent.