Tips for Successful Physician Practice Mergers

November 7, 2010

To download this article, click here: Physician Practice Mergers

The Urge to Merge – Things to Keep in Mind in the Beginning

Physicians today have many reasons to consolidate. Most are getting kicked around with
declining reimbursement. Practices also need the ability to add new revenue sources. With
revenue is getting squeezed and overhead rising, physician incomes are getting caught up in
the middle. The result – declining physician incomes. So good” reasons to merge may
include the following:

  • Managed care contracting;
  • Elimination of duplicate overhead
  • Reduction of overhead through the consolidation of costs by equipment, space, and personnel;
  • Adding ancillary services and other new revenue streams;
  • Recruitment of additional physicians; and even
  • Succession” planning for older physicians.

However, there are bad reasons to merge some of which might create legal and other regulatory
issues for the participating physicians. These include:

  • “Controlling the market” to increase negotiating leverage with managed care plans;
  • Create rewards for referral arrangements;
  • To fix fees for services of the group;
  • To make the (local) hospital give them more financial rewards such as in joint ventures and medical directorships;
  • To put other groups “out of business” or prohibit another physician from practicing in the area because the group won’t take call; etc.;
  • To allow older members to be bought out by younger members;
  • To be a “practice-without-walls” but not really share anything between the group(s) so they can all own ancillary services usually prohibited under Stark.
  • Making continued statements like, “This better not cost me any more money,” because that is not likely to happen.

So it is critical that you identify the real reasons for the merger up front or obtain independent
advice for the new group on its anticipated behavior and objectives. Once the physicians begin to
meet and a sense of the ability to organize takes place, they often become anxious to “announce”
their decisions to the hospital(s), insurance companies, and other physician colleagues long
before they should. So it is very important, during the early pre-merger phase, to remember the

  • Do not publicly announce your “merger” until it actually becomes a reality. Hospitals and insurance companies become very nervous when they hear this.
  • Discuss early, either through the practice managers or to the employees directly, that there are ongoing discussions about consolidating the practices. Employees will automatically believe they are all going to lose their jobs so unless you want all the employees leaving, assure them their jobs will be intact after the merger.
  • Engage a facilitator to work with the groups in the short-term to do due diligence and help consolidate the operations. It is usually very difficult to have one practice’s manager do this as all the other practices will think there is a certain bias in decision-making.
  • Have the physicians, early on establish a regular meeting schedule to decide issues.
  • Establish “committees” that will be needed so each physician has a job and will feel a part of the process (e.g., health insurance, retirement plan, governing documents, etc.).
  • Until you as a group are integrated and operational there cannot be an exchange of price/fee information and negotiations of such. This is one major reason why you need a facilitator.
  • Finally, you should not, at any time, either before or after the merger, act like the “800 pound gorilla in the room.”

Like it or not, a practice merger needs to be on your radar. Physicians worrying about their
independence need to “get over it.” There are just too many changes within the healthcare
environment right now and in to the future that sitting tight and doing nothing is a recipe for
disaster. Don’t let your medical practice fall victim to an uncertain future by failing to plan for
its future.

To download this article, click here: Physician Practice Mergers

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