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Click here to read “TeamHealth Agrees to $60 Million Settlement”
When an emergency medicine contract management group pays a fine of $60 million and gets bought by private equity investors for over $6 billion, it usually gets the attention of everyone in the field. “How did they get to be worth so much?” and “what went wrong?” are but two of the questions being asked. In order to understand the story behind the story, we went to the source. Here’s what Dr. Massingale had to say.
Interview by Mark Plaster, MD
EPM: Obviously TeamHealth has been a major leader in emergency medicine for decades. Give us a really brief history of TeamHealth and help us understand how that small group in Tennessee became a billion dollar company.
Lynn Massingale: The short version is that a couple of doctors got our first contract in 1980 – two contracts in Tennessee, which we’re proud to say we still have. We grew locally within the region, literally a two-hour circle in the car for ten years and got one or two contracts a year. Then we drew a two-hour circle in a 40-year-old single engine airplane that I flew and we grew a little faster for the next five years. And then we decided to try to create a national group. We visited with what I thought were some of the best groups in the country. The goal was if we could bring those groups together and share each other’s best practices and administrative practices, that we would get better, smarter, faster than if we continued to go it alone. That resulted in the creation of TeamHealth in the mid-90’s. Throughout our history [we’ve experienced] double-digit growth. We’ve had a couple different capital structures. We’ve had private equity investment once before and we have that again now, as you know, with Blackstone. And then we were public for seven years, ending literally a week ago this past Monday.
EPM: Tell me about TeamHealth’s expanded scope of practice.
Massingale: We started as an emergency physician group until a local hospital said “we have an increasing number of ER unattached patients. We have a declining number of primary care medical staff members willing to take care of those patients when they need admission. Would you please create a group to admit those hospitalized patients and take care of them and then send them back into the community to some community-based physician for outpatient follow-up?” The administrator didn’t know the word hospitalist. So we now have a very big presence in hospital medicine through the IPC acquisition. On a much more limited basis we provide some general surgery, some trauma surgery, some orthopedic surgery, all hospital-based and a fair number of laborists. We have a pretty sizeable division that provides healthcare employees to the military, active duty military bases and clinics. And then we have a number of Urgent Care clinics and a nurse call center. But the biggest piece – 75 or 80 percent – is still emergency medicine. The second biggest piece is hospital medicine.
EPM: Let’s talk a bit about money. Frankly, a $60 million fine blows a lot of people’s minds. But before we get to that, tell me about the role of investors and cash flow.
Massingale: We like to say that TeamHealth is a terrific medical group married to a good business model. We believe all healthcare organizations need good business practices. And good to us means effective, efficient, compliant, competent, ethical, appropriate – good business practices. It doesn’t mean just: How much can you earn this month? We are pleased to have good business practices. And all the things that we do that give us the ability to ecruit and retain the very best clinicians. That obviously also requires growth and capital and profitability. We’re not apologetic about the fact that we have good business practices. The second piece is that we have had a couple different capital structures. We’ve had private equity investors. We’ve had public investors. Those investments help us in a number of ways. They do help us with our capital commitments. They do help us with growth. We generate profitability and we use that profitability to reinvest into things like technology and acquisitions. But if we have big acquisitions that require extra capital, those capital partners also provide additional capital to help us do those acquisitions.
EPM: Some of our readers will automatically have some animosity toward the idea of a physician group being tied to outside investors. Does that in fact change the focus or the intent of the group?
Massingale: I guess it’s foolish to say that there’s no impact of outside investors. But I don’t think the impact in our world is different than the impact in anybody else’s world. The final measure we think is this: If we can’t recruit and retain good doctors through the things that we do and if we can’t satisfy the hospital in the face of the relationship we have with investors, we will fail. So just like an independent group that has one hospital in a town with five hospitals, we have to be competitive on compensation and benefits. We have to meet the needs of the hospital. We live and die every day maintaining these contracts. And so I would say that whatever aspects are brought to bear by the investors, I think they’re invisible to the clinicians.
EPM: Let’s talk about TeamHealth’s acquisition of IPC and the $60 million fine. I know that IPC was a mega hospitalist group and not in the field of EM, but why did TeamHealth buy IPC? Was IPC pressuring their doctors to do things that were fraudulent? That’s a big concern for EPs working for a big corporation.
Massingale: First, as you know, IPC had been out there for a long time providing hospital medicine services – acquiring local groups and then over the last few years they’ve broadened into post-acute services in a big, big, big way; contracts with over a thousand facilities in fact. So, the short version is that we became interested in IPC as we saw payment models moving more and more and more toward, in our opinion, a continuum of care. We’re in a position now if our hospital client wants us to be involved anywhere or everywhere in that continuum of care we wanted to be able to do that with an integrated offering.
Second, the claim that was filed against them on this issue that we just settled was filed in 2009. It wasn’t something that they hid and we unearthed one day in a dark room. We were aware of it before we made our offer for IPC. Our goal was to figure it out, evaluate it, settle it if it needed to be settled; fight it if we thought that was the right answer, but get it behind us one way or the other and move on toward the bigger objectives.
EPM: Were you blindsided by the $60 million fine?
Massingale: Unequivocally we were not blindsided by it. We, the management team, our board and later Blackstone were fully aware of the range that we had assigned to this thing. And we actually view this as a very favorable result.
EPM: What do you say about that accusation that the doctors [at IPC]were encouraged to commit fraud?
Massingale: We don’t know what anybody’s motivation was back in those days. Some of the leadership that was there at the time has not been there since the closing. So we don’t know what was in their hearts and minds and what they said to people. This claim was actually about “a” physician, first of all, not about the gazillion physicians.
So, I think the straight answer to your question is I don’t know if IPC physicians were encouraged to commit fraud or not. We believe the IPC physicians are a group of very good doctors. They’re very good people. We just can’t speculate as to what IPC did somewhere back prior to 2009.
EPM: Can you comment on the government’s assumption that groups are committing fraud when their billing practices improve leading to higher billable charges?
Massingale: There are a lot of good organizations out there, good companies – billing companies, physician practice management companies and others – that are providing services to physician groups. They show the doctors how to document better. They improve the coding. And those groups wind up with greater revenue than they did before.
But we’re taxpayers, just like you are. We don’t think the government ought to pay for fraudulent services. We think the government ought to be diligent about its investigation of fraud in healthcare. Our position simply is that we believe that you ought to get paid properly for what you do. It wasn’t about emergency medicine. It wasn’t about the post-acute business. And so I do want to be clear about that.
But to the point you’re making, E&M coding is nuanced. And it’s not perfect. It’s not black or white. But I do think the government is aggressive and some commercial payers are aggressive in their views of what is and isn’t proper documentation and coding. It’d be unfair for me to speculate as to their motives.
EPM: What does it say about TeamHealth’s future that Blackstone would be willing to invest over $6 billion to acquire?
Massingale: I think what I learned about Blackstone years ago when I talked to CEOs at several public companies was that Blackstone tends to pick industries that they think have a bright future. They pick management teams that they have conviction in and they get behind those teams. I think they view healthcare as a place that’s very dynamic and a place of a lot of opportunity. And frankly, I think it says that they view physician services to be an important part of the market.