Don’t Just Sit There Doctor — Start Merging

May 13, 2011

There is a myriad of strategic options for physicians who want to increase their capability to address and control what is occurring in today’s healthcare market. One “scared” option is to run towards hospital employment. But I believe a better option is to expand the size of your practice by merging with another practice and/or medical group. Physicians who merge their practices usually hope to gain a number of benefits. These often include many of the following:

  • Improved negotiating power with managed care organizations and hospitals;
  • Preservation of clinical autonomy;
  • Freedom from handling the “business aspects” of their practices;
  • Increased access to capital needed to expand services;
  • Access to human capital and management expertise to improve performance;
  • Increased opportunities to collaboratively manage patient care;
  • Enhanced lifestyle with better call coverage, scheduling, and support services; and
  • Improved opportunities to increase sources of revenue through expansion of services such as ancillaries and the use of physician extenders.

However, I find that market realities are typically the major impetus for most practice mergers. Physicians merge their practices to improve their position in a market that is changing or that they anticipate will be changing. Practice mergers generally improve the practices’ positions in the market by providing the size, geography, and infrastructure necessary to compete more effectively. The increased size and clout gained by a medical group as the result of a merger can also influence relations with hospitals and other organizations in the community. But even on a more basic level, a group is more likely to survive managed care’s continued shakedown on physician reimbursement simply because it has greater clinical, operational, and management capabilities than a solo practitioner or small group.

The technical and legal aspects of a medical practice merger, while not always easy to resolve, can often be worked out. My experiences have shown me that failed mergers resulted from an inattention to the “process” aspects of the merger – it must be done right and hard decisions need to be made. Paying attention to process ensures that expectations and input are appropriately managed and that sufficient time is taken to address the key issues associated with the merger.

If you are contemplating a merger with someone else, keep in mind that one of the major concerns in medical practice mergers is the management of physician expectations. The merger process is often hampered by a lack of knowledge on the part of physicians of the time and effort involved in such an enterprise. A serious concern in this regard is that physicians in the merging groups often do not take the time beforehand to get to know each other’s practice styles, values, personalities, philosophies, and guiding principles. This is particularly true when physicians are reacting to fear or market pressure rather than out of recognition of a shared opportunity.

There is often a delicate balance between taking enough time to work through some of the early issues in a merger and taking too long in attempting to address every conceivable concern that arises. Some physicians want to “cross every t and dot every i” before making a commitment to moving forward with a merger. This is unrealistic, since most mergers are works in progress that may take years to accomplish fully.

A medical practice merger is akin to a marriage. It takes time, commitment, and capital to work. A successful merger is the result of a convergence of factors: demonstrated physician leadership; management of process and expectations; consideration of customer-related issues; and recognition of a common vision and goals. Mergers can also provide opportunities for improving patient care by expanding services and expertise and by the development of “best practices.” When done for the right reasons, practice mergers can provide physicians with opportunities to gain efficiencies and market strength, positioning them to meet the competitive challenges that will continue to affect their futures in the years ahead.

So I end this article with a simple question for you: “What is your strategic vision for your medical practice?” Think about it.

Reed Tinsley, CPA is a Houston-based CPA, Certified Valuation Analyst, and Certified Healthcare Business Consultant. He works closely with physicians, medical groups, and other healthcare entities with managed care contracting issues, operational and financial management, strategic planning, and growth strategies. His entire practice is concentrated in the health care industry. Please visit www.rtacpa.com

Previous post:

Next post: