In today’s market, your motto may as well be “if you’re not growing, you’re shrinking.” Luckily, there are multiple ways to grow your practice:
- expand into another location
- add more physicians
- acquire another practice
- merge practices with a like-minded physician
Merging your practice with another is a way to reap economies of scale, increase market share, gain leverage with payers, and build the value of the “new” practice. If you want to know the basics, check here. But if a merger is already part of your strategic plan, read on…
DOs and DON’Ts When Merging
DO take your time.
A merger is “a project to secure the future, and there will be some transitional costs and bumps,” says Daniel M. Bernick, JD, MBA, president of The Health Care Group. Both groups will have to invest some money to investigate whether a merger is feasible, commit some time for gathering and reviewing data, and hold regular discussions on every area that could impact the merger’s success. Bernick, in his presentation at a previous year’s AAO meeting, recommends allowing 12-24 months for merger planning and integration.
DON’T go it alone.
Some physicians hope that a merger can be achieved without the expense of attorneys, accountants and other consultants, especially if the parties include well-known colleagues. But independent experts are necessary to ensure that the merger’s terms are agreeable to both parties. The cost to engage consultants will pay for itself in both real dollars and in peace of mind. You’ll be better able to anticipate and avoid costly mistakes, and you’ll avoid putting valuable relationships in jeopardy due to misguided assumptions and the resulting resentment.
Tip: Don’t allow the prospect of a merger to become all-consuming, or your practice performance could falter. Enlist experienced M&A consultants to handle due diligence and merger mechanics while you continue to focus on running your practice.
DO have a strategy.
Mergers cost money and require uncomfortable changes (like choosing one mutual ophthalmology EMR), so both sides must be motivated to overcome those obstacles. That motivation usually comes in the form of a shared vision that both practices move towards, Bernick says. You’ll also need a new business plan. How will you increase business to cover the costs of merging? Will there be efficiencies or extra revenues to cover transitional costs? “No one is going to want to take a pay cut,” Bernick adds.
Use strategic planning to guide the formation of your business plan. For example, if your goal is to increase your practice’s geographic coverage, you probably won’t save any money by consolidating office space, since patients may not want to travel farther to see you.
DON’T focus only on the savings.
You’ve heard the saying “it takes money to make money,” right? Some doctors focus too much on the cost savings they anticipate after a merger. But to many doctors’ surprise, the new practice may have to take on additional financial burdens before any financial benefits are actually realized. For example:
- Organizations with 50 or more employees are subject to mandates that smaller organizations are exempt from (like FMLA). Financial projections must capture those costs, since many practices forget about them until a situation arises.
- Mergers can increase the opportunity to generate ancillary income from services like imaging, lab tests, or cosmetic procedures. The practice will need to consider investing in equipment and space planning to take advantage of these new sources of revenue.
DO look beyond the data.
Financial statements and legal documents provide valuable information, but they won’t tell you everything you need to know. When physicians focus on quantitative information and neglect everything else, they also tend to emphasize the benefits of a merger while minimizing the very real downsides. Bernick recommends that the practices spend some time observing each other and asking:
- Are the cultures compatible? The specifics of each practice’s culture don’t matter as much as whether or not the culture is similar for both practices.
- How does each organization practice medicine? Merging practices brings joint risk. Does the other practice operate in a way that makes you confident in assuming their potential liabilities?
- What are the goals of each practice? Many physicians are unclear on their own goals, let alone those of a new, larger practice. But it’s impossible to evaluate and negotiate a merger, and integrate afterwards, without being clear on each party’s goals.