You Need to Know When to Hold ’em and Know When to Merge ’em

With uncertainty in the health care markets and the growing demands on medical practice infrastructure, many physicians are thinking that merging their practice with another might be a worthwhile idea. A merger might be advisable under some circumstances, problematic in other cases, and potentially illegal in certain instances. We will leave the legal issues to the attorneys, but if you are talking with the only other practice of your specialty in your city, I recommend getting some legal advice.

When physicians initiate merger discussions, they often begin with an assumption that they can share the overhead of one group and all enjoy a dramatic increase in personal income. Based on the enthusiasm generated by this monetary issue, a plan to pursue merger begins. However, there are other matters which should come before the optimistic expectation of financial gain.

Do Your Homework

The most basic consideration is whether the physicians in both groups are clinically compatible. Medical training and various academies afford latitude in clinical decision making, a medical choice at one end of that range of latitude can be questionable in the mind of an M.D. on the opposite end. Making certain your groups are clinically compatible is the first step in a successful merger. Compatibility also includes practice patterns, treatment protocols and utilization issues.

If you are a good fit clinically, look next at cultural issues. This includes the manner in which the physicians relate to their patients, the staff and to one another. Many groups will not tolerate a physician who is rude to patients, hostile to staff and abrasive with other doctors in the group or in the medical community. This behavior may have been accepted in one group, but it will be toxic in the merged practice. In my experience working to help keep practices together, cultural differences are the most common areas of disagreement and are also the most difficult problems to solve.

Devising a Plan

If the groups are deemed to be clinically and culturally compatible, the hard part is complete. Now you are ready to address any differences in work ethic. I place this third because if there are differences, they can be mitigated with a well-designed physician compensation formula. There are times when one physician’s pursuit of appropriate work-life balance might result in choices which appear to another M.D. as neglect of the practice, but those are part of the cultural difference resolution. Differences in work ethic must be accommodated in the practice of medicine, and bonus differentials are designed to do exactly that.

Finally, it is time to assess the monetary matters. Overhead can be shared and, perhaps, reduced. The practice management, billing and EMR systems needed for one practice might be able to handle two groups with little increase in costs. Ancillary activities may be more profitable with additional physicians referring to them. The best practice behaviors of each group can be shared to improve patient scheduling, procedure mix, payer mix and revenue cycle processes.

Bet or Fold

The process of determining clinical, behavioral, work ethic and financial compatibility needs an outside facilitator to keep it on track and to ensure the difficult parts of the dialogue are addressed and moving forward, rather than stalling out. A merger may be in the cards for your group, but keep in mind that one done poorly can cause many years of pain which could have been avoided.

Article contributed by Sae Evans, Maddox Casey and Jim Stroud, Members, Warren Averett Healthcare Consulting Group. Warren Averett is an official Gold Partner with the Medical Association.