|
Romance isn't the only area of life that can lead to a wedding. In
business, groups with compatible goals and interests often decide to
wed.
In other words, they merge.
Physician practices are no exception to this rule. Although
physician practice merger activity has slowed slightly over the past
few years, physician practices accounted for 19% of all merger and
acquisition activity in the health care industry last year, according
to Irving Levin Associates Inc.'s Physician Medical Group Acquisition Report.
But before two or more physician groups begin the lengthy and costly
merger process, it's important for the groups to determine if a merger
is really in their best interests, stress experts on physician practice
mergers.
The more research that the physician groups do before starting the
formal merger process, the more likely it is that the groups will make
the right decision on whether to merge and avoid a painful, costly
breakup a few years down the road.
"The No. 1 thing is that the groups have to have a clear, absolute
understanding of why they want to do it. They need to test that and ask
if their expectations are appropriate and can they achieve them [by
merging]," said Darrell Schryver, a managing principal with the Medical
Group Management Assn.
Physicians, especially ones who work in small practices, often want
to merge their groups because they think it will help them achieve more
leverage in their negotiations with managed care plans, said Reed
Tinsley, a CPA with Reed Tinsley and Associates in Houston and
co-author of the AMA Press book Physician Practice Mergers.
While larger groups often do have more negotiating leverage than
smaller ones, that shouldn't be the only reason for the merger, he said.
Small groups also consider merging with other groups to achieve
economies of scale and cut overhead, said Joey D. Havens, a shareholder
with the Horne CPA Group in Hattiesburg, Miss., and co-author of Physician Practice Mergers.
However, he noted that groups that merge should not expect to achieve
those cost savings immediately because the groups first have to recoup
their merger costs.
Groups also are attracted to merging because larger groups offer a
better balance of work and personal life than small practices, Havens
said.
"If you've got more partners to do call coverage, you are going to have a better lifestyle," Havens pointed out.
Small physician groups also are attracted to merging because bigger
groups can invest in more sophisticated medical equipment, such as CT
scanners, Tinsley said.
But even though there are several advantages to merging with another
physician group, there are several disadvantages, too, experts say.
They stress that any group that is considering a merger should go
through a thorough due-diligence process to discuss all issues involved
in the merger.
"Due diligence is the fact-finding process that establishes the
framework of the merger itself. It is all about getting to know each
other and evaluate the operational issues and to identify the
deal-killers on the front end because a merger is so expensive," Havens
said.
According to Physician Practice Mergers, a few of the many
questions that the physicians in the groups considering a merger must
address in the due-diligence process include:
- What is the primary benefit of this merger?
- How would this merger benefit patients?
- What are the short-term and long-term goals of the groups?
- How compatible are the work hours and patterns of the groups?
- Are there major differences in compensation methods among the groups and how will differences be worked out?
- Who will lead the group during the merger process and after the merger?
During the due-diligence process, which can take anywhere from a few
months to a year, the interested groups should answer these questions
and others, as well as identify any potential deal-breakers.
In many cases, it is helpful to hire an objective third party to facilitate the due-diligence process, experts say.
Issues that can break a merger deal, the experts say, included
unresolvable differences over who will lead the merged group, conflicts
regarding which staff will take on which responsibilities in the new
group, "lone rangers" in the group who clearly want to go their own
way, and disputes over physician compensation and retirement benefits.
For example, Schryver said, he recently worked on a merger deal that
fizzled because one of the two groups couldn't compromise on the issue
of who would lead the group.
A merger deal also can fall apart if the physicians in the two
groups aren't both equally committed to the merger, Tinsley said.
"People say they want to merge, but they want to stick their toes in
the water, instead of diving in the pool. ... Everybody has to commit"
for the merger to succeed.
"Go signals" for mergers include "common goals and visions," Havens said, "plus synergy between the physicians."
If the physician groups decide to go ahead with the merger, Tinsley
said, the next step is to draw up the contracts and proceed with the
regulatory and legal issues of closing the merger.
Julie A. Jacob
Julie Jacob is a staff writer covering managed care issues.
Other resources
AMA Press, to order Physician Practice Mergers (http://www.amapress.org/)
Irving Levin Associates,
to order "The Physician Medical Group Acquisition Report"
(http://www.levinassociates.com/publications/par/pardescription.htm) |
