If you operate a growing healthcare enterprise, starting your own management company can help optimize your expansion efforts. Here are four signs that it may be time to form a management company.
1) When cost allocations get out of control
Some health systems are providing management, billing, managed care services, human resources (HR), and information technology (IT) services to hundreds of community physicians and joint venture affiliates. The internal methodologies for allocating costs to dozens or hundreds of entities can become complex political issues in large organizations.
Privately-owned chains of imaging centers, labs, ASCs, and physician practices do not experience this extreme level of cost allocation. As a rule though, if you have to allocate an administrative employee’s salary more to four or more business affiliates, it is probably worth considering the creation of a management company that charges actual fees for the services it provides.
2) When you operate businesses with different ownership groups
ASCs, imaging, labs, and other capital intensive healthcare businesses are commonly founded with a general partner (GP) and limited partners (LPs). The LPs are typically passive investors, while the GP manages day-to-day operations.
It is fairly common for a GP to try to duplicate a successful business in a different geographic region with new investors. For example, when an ASC is successful for the founders, the founders may develop a second ASC with a slightly different ownership group in a different part of town or a different state.
In this example, rather than creating the perception that one ASC is loaning or leasing its administrative employees to a quasi-competitor, a more equitable solution for utilizing the same administrative staff at multiple businesses is to form third company dedicated to pure management services. The management company can provides services to both ASCs as a separate third party.
3) When you operate businesses in different states
Every state has its own requirements for licensure of medical professionals and healthcare services, as well as general business incorporation. Consequently, providing healthcare services in multiple states almost always requires you to setup new legal business entities in each state where you operate.
However, a single company providing bookkeeping, finance, billing, HR, and IT services to your various affiliates does not have to be licensed in every state. For example, you can setup one management company with administrative employees in Nebraska that can serve your offices in Nebraska, Iowa, Kansas, Oklahoma, and Texas without needing to be incorporated in each state.
4) When your billing, accounting, or IT department becomes a business
We sometimes see a physician practice that started providing billing services for its own ASC or imaging center, and then started billing for other healthcare businesses in the local community over time. When billing, bookkeeping, or IT becomes a business in itself, it may be time to spin the service out into a management company.
The perception that you are operating a side business in a back room can impede your growth. Sales and marketing efforts to grow your management or billing service are a little more convincing when you actually have a stand-alone business providing the service.
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HCTadvisor provides healthcare-focused business data. Contact HCTadvisor today at (303) 800-6444.