hospitals, ambulatory care, surgery, and emer-
gency centers, other professionals and payors,
such as HMOs and insurance companies; and
■Breadth and nature of managed care contracts
and relationships.
Leadership
Standard & Poor’s meets with physician and non-
physician leadership during the rating process. It is
important to understand the strategic goals of the
physicians and administration to ensure that they
are compatible. Standard & Poor’s looks for strong
leadership from the board of trustees and prefers
governance to be community oriented and not con-
sisting solely of physician group members.
Management should be appropriately creden-
tialed, with ample experience in the management of
physician group practices. In areas with high man-
aged care penetration, a professional devoted to
contracting practices and monitoring adds strength.
The review includes:
■Management tenure and qualifications;
■Review and discussion of strategic planning issues;
■Compensation, financial, and operating policies;
■Finances and operations of other subsidiary or
sister corporations; and
■Influence of university management and policies
on faculty practice plans.
Institutional relationships
Group practices have many opportunities to coop-
erate, join, and contract with hospitals, universities,
insurance companies, and other payors. In addition,
partners ranging from hospitals to large for-profit
specialty companies are joint venturing with physi-
cians in a variety of projects from ambulatory cen-
ters to specialty hospitals. Standard & Poor’s
examines formal and informal relationships that
exist with other institutions.
For stand-alone group practices Standard &
Poor’s reviews:
■Operational relationship with primary admitting
hospitals;
■Financial contracts and/or joint ventures to share
costs, revenues, or overhead; and
■Managed care contracting practices.
When evaluating faculty practice plans, issues sur-
rounding university and medical school finances as
well as the dean’s tax are explored. To the extent that
the university hospital has forged alliances with other
community providers, the relationship between the
faculty group and local physicians will be discussed.
Information systems
To manage a health care enterprise efficiently and
profitably, integrated information systems are nec-
essary. Standard & Poor’s will review the medical
group’s plans for development of an electronic med-
ical record either on its own or in conjunction with
local partners such as nearby hospitals. In addition
Standard & Poor’s will assess the group’s ability to
meet and monitor any required quality metrics as
part of its reimbursement agreements. Standard &
Poor’s will also look for the group’s ability to gen-
erate certain key reports from its information sys-
tems such as:
■Managed care members profile, benefit plan, uti-
lization, and cost per member per month;
■Encounters per full time equivalent (FTE) physi-
cian by new and existing patients;
■Hospital inpatient use rate and cost per patient
per month versus regional averages;
■Revenue and expense by physician, payor, and
service;
■Analysis of clinical outliers and out-of-area uti-
lization; and
■Physician profiling reports including any reports
needed to meet pay for performance targets.
Finances
Standard & Poor’s will review five years of audits
based on the accrual method of accounting as a
starting point in the financial analysis. Although
accrual-based accounting is preferred, Standard &
Poor’s recognizes that it may not be available for
some faculty practice plans, based on their financial
integration with universities. Management letters,
reimbursement issues, research commitment, fund
raising, working capital needs, and future financing
plans also are explored. The revenue and expense
components of the income statement are examined
to assess overhead levels and allocation, physician
compensation, sources of revenue from outside pay-
ors, and sources of revenue from clinical depart-
ments and research. Questions concerning the
balance sheet include trends in accounts receivable
and collection rates, adequacy of malpractice
reserves, level of cash reserves and restricted funds
for research and capital investment, strategic and
routine capital needs, and other liabilities.
Information requested includes:
■Five years of financial statements, most recent
interim statements, and if available, projections,
including flow of funds to and from associated
university or medical school, if applicable;
■Utilization information—patient visits, new
patient growth, covered lives, and encounters per
physician;
■Payor mix as a percentage of revenues;
■Research grants, expenses, and subsidies;
■Joint-venture documents;Physician Groups And Faculty Practice Planshttp://www.standardandpoors.com 171