How to Ensure a Successful Medical Merger
In the past decade medical groups have watched the United States health care industry undergo a level of change no other professional field has experienced.
Years ago the medical profession’s attention was focused on physicians looking to create new private practices. However, new laws, regulations and technology relevant to health care have made it increasingly difficult for doctors to form private practices. As a result, medical professionals have started creating integrated health systems, which are now becoming a necessity to the industry.
The “mega-group” mergers represent hundreds of millions, and sometimes even billions of dollars. The importance of making these mergers successful cannot be stressed enough. If multiple mergers were to fail, the country could potentially face a situation similar to the banking industries collapse of 2008.
The roadmap that follows, which has been tested and proven successful for many large scale mergers provides a step-by-step series of “decision points” that parties interested in mega-mergers need to consider.
Medical Merger Roadmap:
- Understand the benefit of the merger.
Mergers are attractive because of the reduction in risk, but that cannot be the only reason. You must understand what you stand to gain from a merger. Will your medical group surpass rising competition, gain technological benefits, decrease overall expenses, attract more business, etc.?
- Will the merging practices cultures and philosophies mesh?
A recent study by Booz & Co. showed that over the last decade, 41 percent of hospital and health care system mergers did financially worse than when they were single entities; leading to the assumption that a majority of those companies did not plan appropriately. Conversely, the larger 59 percent of hospital and health care system mergers increased their profits. While numerous possibilities factor into their percent’s success, practices with similar philosophies and cultures will surely reduce the chances of a merger failing.
- Determine the new internal structure of the practice.
This is almost an endless list of decisions. First, will it be a partnership or corporation? Where will the new offices be; and how many will exist? Who will be the Practice Administrators and Managing Physicians? Once those items are taken care of, simpler issues, such as call schedules, office forms, insurance, retirement plans, and marketing strategy, still need to be sorted through and decided on.
- How will the new merger’s governance work?
This is the most difficult and crucial part of a successful merger. It relates closely to step two because whatever the governance structure becomes, it will eventually shape the philosophy and culture of the practice. In that respect, important issues new mergers need to consider are: how major decisions will be voted on (majority vs. unanimous approval), what physician fringe benefits will the practice have, policy on voting in and buying out partners, and in the case of failure, the dissolution of the practice.
Health care is an essential aspect of every American’s life. As the medical profession continues to experience larger mega-mergers, practices must carefully consider every possibility to avoid catastrophe. However, despite every decision point listed above, there are countless more not listed that are still essential to the success of mergers. With so many factors at play, it’s imperative to bring on experienced, knowledgeable counsel to give these mergers the greatest likelihood of success.