For eye care practices that wish to stay independent, large-scale consolidation in the industry is making it difficult to stay competitive. Is a merger the answer?
In a merger, two practices become one, with one tax ID, one provider number, and one governance body. There’s also full integration of finances, operations, overhead, revenue, and even ophthalmic EMR software. It’s a way to:
- increase market share
- increase revenue
- gain leverage with payers
- reap economies of scale for costs and resources.
A fully integrated merger is simple in concept—“Basically, everybody owns everything,” says Daniel M. Bernick, JD, MBA, principal of The Health Care Group and Health Care Law Associates—but it’s complicated in action. You must consider things like the compatibility of the practices, personalities, the amount of change required, and how to handle it. How will your ophthalmology practice management change?
3 Essentials for a Profitable Merger
“The end goal is a true group—not just a collection of sites, and for the physicians to identify more with the new group than with their pre-merger groups,” says Bernick. That’s much more difficult than physician-owners anticipate. In his presentation at a previous year’s AAO, Bernick shared these three important concepts:
1. Follow the Leader
Governance is a stumbling block in many mergers, Bernick warns. A medical practice’s identity is inseparable from its owners’ identities, so leadership selection is critical to the merger’s long-term success. The same sort of governance that worked when a practice had one or two physician-owners will likely not work as well when those numbers increase.
Leadership decisions can be tough on physicians, who are notoriously independent. When two practices merge, Bernick sometimes sees one physician continue as the de facto “practice leader,” while the others take on supporting roles. There is usually more bureaucracy involved in things like hiring, setting policies, or purchasing optometric business solutions. Physicians who used to make their own decisions may suddenly find themselves out of the loop.
Some newly merged practices try to create a shared leadership structure consisting of the heads of the merged practices. That sounds good in theory, but can easily lead to conflict, cautions Bernick. Differing physician interests can result in competing agendas, he says. Not only that, but simpler decisions that one physician could easily make now require the input of several physicians. That reduces efficiency and effectiveness.
A strategic and well-executed merger can mean the difference between boosting business—or going out of business.
2. Buying In, or Checking Out?
Getting buy-in from stakeholders is an important part of successful merger planning. Who is a stakeholder? Many physicians are surprised to find out it’s not just the owners. Stakeholders include the practice managers, administrators, and all staff members—not to mention other entities and partnerships each practice has an interest in or obligation to. This isn’t to say that every employee ‘gets a vote’ in whether or not the merger happens. But both practices’ leadership will want to craft a thoughtful, communicative, and educational process that includes everyone in the practice—not just those on the ‘merger committee.’
Staff will most likely be concerned with how their day-to-day experience will be affected by the merger. Bernick advises reviewing all job descriptions against the new business plan. Practices often fail to update job descriptions after a merger, even though staffing and duties have been reworked in order to benefit the new practice structure.
3. Irreconcilable Differences
Experts tend to equate mergers and marriages, and for good reason. Practice owners often spend more time with their business partners than with their families. And dissolving a partnership can be just as emotionally and financially devastating as a divorce. A common theme? Look before you leap and carefully assess the long-term compatibility. As a starting point, consider the following, advises Bernick:
Does one group value quality, while the other is only concerned with volume? Are the patient bases compatible? How does each group feel about co-management relationships, treatment styles, or the desire for the latest technology?
How does each group’s compensation and benefits compare? If there are differences, is there a middle ground? What is each group’s outlook on debt? What trends are shaping the financial futures of each group, and how will this trajectory change?
Do the groups have similar decision-making styles? Will all of the current shareholders continue to be on the board? If so, will they all have an equal vote?
Next up….The Eye Care Provider’s Merger Survival Guide