Merging? Issues to consider.

Physicians are continuing to consolidate, as predicted. Here are a few issues you should focus on when considering a merger with another medical practice:

1. Careful review of compensation differences.  You need to look at everything including salary.  Car allowances, coverage for insurance, meetings, disability, other personal fees covered by the practice, etc. typically differ by practices.
2. 401(k), profit sharing, and healthcare plans need to be looked at carefully and a plan for integration be established.
3. Practice Valuation Model - If you are merging in a similar practice this should be easy.  If you are merging in different disciplines like Gyn Onc or Rad Onc, the perspectives on a valuation model will likely differ significantly.
4. Salaries for staff are likely different and need to be carefully reviewed.  It may force you to cap some salaries if they differ from your standard ranges.
5. You will need to involve the lawyers but work to keep them out of detailed discussions.  They will end up costing you a lot of money if they are involved each step of the way.
6. Establish a timetable with some slack time but stick to the schedule.  It is easy in busy times to defer meetings and analysis but without a schedule, the process can drag on and on.
7. If there are going to be any staffing changes that result in the merger, get these agreed upon in writing before the merger is consummated.  This applies to other key items as noted above.  If you do not have agreement in writing that certain changes are going to happen, human nature will impact this process and you will have to continue to fight for some of the changes that were agreed upon as part of the merger in the first place.
8. Establish a post merger plan and timelines for integration of billing, IT, and other services before the merger is complete.  This way you have given those involved a expectation of the changes to come versus individuals interpretations.
9. Establish a compensation plan for after the merger.  You may have to establish new departments with their own cost centers that drives differing compensation if you become more multi-specialty.
10. The easy work is the merger and getting final agreements signed.  The hard work comes afterwards so be prepared for surprises.  You will need to assure your key leaders are involved and informed and hold the course.

Laundry list of merger issues

As predicted, more and more physician practices are exploring the merger option. Many have found a merger is a very viable strategic option for moving a practice in to the future. However, to be successful, a merger must be done right. Here is another laundry list of merger issues to consider if you are ever involved in merger discussions:

·         How will call be distributed

·         Treatment of part time physicians

·         Equalization of benefits

·         Treatment of nonphysician providers

·         Compensation for administrative duties

·         Distribution of ancillary income

·         Treatment of overhead

·         Treatment of owners vs. employed physicians

·         Inclusion of non-productivity incentives

Practice interaction with insurers costs $21B-$31B per year

This certainly doesn’t surprise me! A recent study has found that medical practices spend between $21 billion  and $31 billion annually dealing with insurers - or more than $68,000 per physician per year.  The study -- "The Costs to Physician Practices of Interactions with Health Insurance Plans" -- found that physicians spend three hours per week - or 43 minutes on average per workday - interacting with health insurance plans.

The research found that primary care physicians spend more time on these interactions than medical or surgical specialists. Nursing staff spend nearly four hours per physician per day interacting with plans, while clerical staff spends 7.2 hours per day. Solo practitioners and their staffs spend up to 50 percent more time interacting with health plans than physicians in larger practices. Non-physicians' staff time did not vary significantly by specialty.  For more, see Healthcare Finance News.

This is just further evidence on why smaller medical practices need to consider a merger – an opportunity to decrease administrative time and costs.

Physician practice mergers – a few things to think about

Medical practice mergers are continuing to take hold. This doesn’t surprise me since I’ve been preaching the need for mergers as a long term “strategy” for many practices for the last 2 years. If you are thinking about merging with other physicians, keep in mind the following:

·         Will the physicians and staff merging end up comfortable within the new “culture” of the merged group.

·         Will the physicians be able to agree on a compensation model.

·         Will the merger benefit both parties.

·         Make sure there is strict due diligence done on any commitments being assumed by the new group. 

·         What is the impact of malpractice record on your insurance rates.

·         Will you be merging into one facility and where and when will that be.

·         Make sure adequate time is devoted to the training of staff and physicians on merged group systems.

Finally, do not underestimate the uneasiness of both staffs.  Over communicate for several months.

When are physicians going to get it - merge your practices

Why are physician practices continuing to feel the pinch and pain associated with the business side of medicine without doing something about it? There is a lot of complaining out there but little action. If you are a consistent reader of this blog, you know how I feel about practice mergers - it's a necessity for smaller practices in today's ever changing healthcare environment. I could lament why physicians don't embrace practice merger but I would just be wasting my breath cause no one is listening!

I would rather let the marketplace doing the talking for me, like this recent physician practice merger as reported in the Cincinatti Business Journal:

Friday, August 8, 2008

Two surgical practices join forces for market strength

Business Courier of Cincinnati - by James Ritchie Staff Reporter

Cranley Surgical Associates has absorbed Northern Kentucky General and Vascular Surgeons, becoming a 15-doctor group in an era when medical practices are consolidating to develop market power. The combined group expects to have more clout in negotiating insurance reimbursement contracts, greater ability to buy technology and more efficiency in handling office administration.

Cranley, with locations in Monfort Heights and at St. Elizabeth Medical Center in Edgewood, had 11 surgeons focusing on general and vascular procedures. Three surgeons from Northern Kentucky General and Vascular Surgeons, practicing in Edgewood and Cold Spring, have joined.

The deal took place Aug. 1.

Rounding out the group is newcomer Dr. Daniel Kim, who completed his vascular surgery fellowship recently at Good Samaritan Hospital. “It’s an easy clinical fit,” said Karen Palatchi, Cranley’s executive director. “And for doctors to have a seat at the table in managed care, it seems they’re going to have to have a sufficient group size.”

The groups will keep their current locations and names for now. In time the smaller group’s name will be phased out in favor of the Cranley name. Both practices’ support staff will remain on board.

The smaller group had found that the administrative side of medicine was growing too complicated for a small practice to handle.Dr. Jim Bardgett of Northern Kentucky General and Vascular Surgeons said he was beginning to have to spend time negotiating with insurance companies. He’d just as soon stick with surgery.

“There were no business classes when I went to medical school and through residency,” he said. “At that time it wasn’t needed to the extent that it is today. I’m willing to admit I’m not a good business person. I need people to help with that, people that have been trained to do that.”

Another perk of joining Cranley: The group has an electronic medical records system. It’s more efficient for the smaller practice to plug into that system than install one itself.

Chicago hospital merger push driven by economics

This article was in a recent edition of the Chicago Tribune newspaper (http://www.chicagotribune.com/business/chi-thu_advocate1.17jan17,0,7364306.story).

The article says that a flurry of Chicago-area hospitals are discussing plans to merge or seek buyouts. The trend reflects a push by smaller hospitals to combine with larger providers to gain market share and clout with insurance companies who pay for the hospital's services, help fund expansions or deal with the rising number of uninsured patients. It's also easier to merge instead of going through regulatory and financial hurdles when building, analysts say.

My question to you is this – does this trend portend to physician practices also? Aren't physician practices feeling the same pain and are seeking the same benefits of a merger. YOU BET THEY ARE! But for some reason physicians just can't seem to get over the hurdle and decide a merger is in their best long term interests. I know they don't want to lose their independence and such, but I still don't see the economic viability of the small to medium practices when I look in to the future.

So why aren't we seeing more physician mergers? I know the pain is there and I'm about to see it confirmation of it when I prepare the 2007 individual income tax returns of these physicians. Guess what I'm going to see – a continued decline in physician income.

Physician practice mergers - let the process begin

Well it looks like the process is starting...........I'm getting more and more calls and inquiries from physicians that want to merge their practices together. I think physicians, especially the smaller medical practices, are finally waking up to the reality that they can't go it alone - the business practice of medicine today has just gotten too complicated and external forces are requiring physicians to rethink their current practice situation.

With third party payer reimbursement continuing to decline (do you think it'll ever go up??) and overhead continuing to rise, how are physicians going to maintain their collective bottom lines?? Older physicians - what is your transition strategy? I again think that physicians are realizing that if they don't at least explore merger opportunities, then their future practice may not end up too promising.

So dear reader - what do you think??

Smaller groups still dominate but....

According to a recent survey published by the American Medical Association, the following are medical groups by size, percentage of total, as of 9-30-05:

3 physicians: 22.4%

4 physicians: 17.5%

5-6 physicians: 22.4%

7-9 physicians: 15.4%

10-15 physicians: 10.4%

16+ physicians: 11.9%

I suspect, with reimbursement continuing to decline, physicians needing more of a collective voice over managed care, physicians needing access to capital, physicians needing a transition strategy, or simply physicians needing to prop up their bottom line, that you are going to see these numbers rise. I firmly believe there will be significant consolidation of physician practices in the next 5 years. The writing is just simply "on the wall".

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A Thought on Physician Practice Mergers

Last week I gave two speeches at Broad and Cassel's first annual physician seminar (www.broadandcassel.com). The theme of the seminar was physician practice mergers. I usually don't use this blog to pontificate but after networking with colleagues, physicians, and physician managers at this seminar, I believe now stronger than ever that there will be a significant physician consolidation trend in the next 3 years.

While I have always believed in the future of physician consolidation, I often wonder why physicians aren't merging at a more rapid pace. I understand all of the usual reasons of "why" but the current business marketplace continues to punish physician practices of all sizes, especially the smaller medical practices. Pure economics alone should push physicians to merge with one another.

Hopefully physicians will wake up sooner than later..........if not, expect a continued decline in physician earnings.