Success Factors for Physician Practice Mergers

September 24, 2006

The only successful and long-term mergers are mergers which are properly planned with the appropriate due diligence.  Yes, sometimes poorly planned mergers work despite poor planning and lack of leadership; however, the physicians and individuals involved in these types of mergers will very quickly point out that it could have been much smoother, less stressful and definitely less expensive had it been properly planned and implemented.  Poorly planned mergers even when they work are more expensive and stressful than if the due diligence had been properly done on the front end.  Pay me now or pay me more later!  The following success factors come directly from my experience with mergers, as well as interviews with physicians and other health care consultants who have participated in poorly planned mergers, well planned mergers and very expensive demergers. Anyone actively involved in a merger or anticipating helping facilitate a merger of any size should frequently review this list of success factors.

1. Interview and/or survey all individuals in reference to the merger.  In order to get buy-in from everyone; each physician must feel that he or she participated in the process and that his or her concerns were adequately communicated to the merger committee and merger team.  Do not skip this process.

2. Identify the reasons why this is a sound business decision.  Make sure that the merger is not about emotions but that there are solid business reasons for the merger to take place.  Too many bad mergers/acquisitions have taken place because of fear, greed and lack of leadership.

3. Establish good communication protocol.  From physicians to receptionists, make sure that communication receives a high priority.  Each physician must feel that he or she is part of the process, and good communications will make everything go much smoother and faster.

4. Keep pressing forward.  The merger committee and merger team must maintain a sustained effort to resolve all issues before implementation of the merger.  Establish regular weekly meeting times to assist in keeping the maximum effort possible throughout the planning and due diligence process.

5. Use knowledgeable advisors.  The complexity of a medical practice merger and all its interrelated issues require the assistance of knowledgeable and experienced advisors.  Make sure your merger facilitator, attorney, and certified public accountant have the experience necessary to assist in the decision making process.

6. Invest adequate financial resources early in the process.  Adequate financial investment initially will allow acquisition of appropriate resources, minimize the required time and help avoid costly mistakes.

7. Delegate substantial authority to the new board of directors.  In today’s environment, decision-making authority must be placed in fewer hands so the medical practice can quickly respond to challenges.

8. Select and empower a capable administrator.  It is imperative that the new group has a strong administrator, which may require the hiring of someone outside of the merging groups.  The administrator should be authorized to carry out the merger plan and the medical practice operations. This person should answer directly to the board of directors. Individual physicians should stay out of day-to-day operations and management decisions.  Monitor and stress accountability but do not meddle.

9. Provide for individual physician autonomy.  Make sure that the organizational structure of the new group provides a level of autonomy for physicians, especially over their immediate staffs.

10. Centralize operations as soon as possible.  Do not fall into the trap of delaying centralization.  Give it high priority and allow the empowered administrator to oversee operations.

11. Prioritize accurate and timely distribution of financial information.  This is extremely crucial during the first year after the merger is consummated.  Financial performance will dictate physician commitment and that performance must be communicated as timely as possible.

12. Move slowly but steadfastly.  It is human nature to resist change and with every merger there will be individuals who will fight this change.  Make the changes slowly but always continue to move forward.

13. Be sensitive to your employees.  There will be a tremendous amount of stress from fear of change and loss of job security.  Be aware of this on a daily basis.

14. Quickly identify your merger killers.  The only way to successfully merge medical practices is to identify and deal with crucial issues on the front end.  Avoiding conflict in the early going usually means dealing with something much worse later on.

15. Stick to your timeline.  There will be many issues, which will not be substantive enough to warrant a delay in the merger process.  Utilize your timeline as a management tool to keep the merger process on target.

16. Proactively manage the expectations of immediate economies of scale. Unrealistic expectations of immediate cost savings can create discontent with the merger early in the process.  Educate physicians on the real projections for economies of scale and remember that it is almost always the second year before groups see any of these benefits.

17. Always develop a very detailed financial model that includes the new physician compensation model.   There is no shortcut for this part of the due diligence, which also provides the benchmark for the new groups to measure progressive financial performance.

18. Extricate the lone rangers. Medical practices today cannot afford to be held hostage by one or two lone rangers, even if they might be the largest producers in the group. Life is simply too short.

19. Beware of demerger provisions.  They are truly a double-edged sword and you must weigh the short-term benefits to be gained versus any long-term disadvantages.  If used: limit their availability as much as possible with short time lines, monetary penalties and specific conditions for activation.

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