Mergers can be complicated and drawn out, says Wayne J. Miller, Esq., a healthcare transaction and regulatory attorney and founding partner of the Los Angeles-based Compliance Law Group. Mr. Miller has extensive experience in practice mergers and has insight on practical ways for physicians to evaluate and move forward with a merger in a manner that addresses physician interests.
Here are Mr. Miller's five steps for individual or group orthopedic practices to take both during and after a practice merger.
1. Be prepared to combine more than just practice methods. Merging offices may require combining two or more sets of practice guidelines, policies and procedures, but it also means merging the practice philosophy and personalities of each set of professionals and each practice’s “culture”. Mr. Miller encourages practices considering a merger to form an exploratory committee tasked with deciding how well the practices will fit.
The committee should "not only work out the technical details of a merger, but should also examine how each practice makes decisions, interacts with staff and the like and try to anticipate if the two cultures will work together well if they combine," he says.
Only move on to the actual business and legal terms of a merger once you are persuaded the two cultures will function successfully together and have common goals for the merger.
2. Get Help. Mr. Miller recommends early in the process bringing in lawyers and consultants who are familiar with mergers and with issues such as tax and regulatory healthcare. Such professionals can facilitate the process, make sure the parties don’t stray into anticompetitive or other illegal discussions, and can suggest merger structures that are compliant with Medicare and Medicaid and other federal and state law standards.
These professionals can address certain merger structures which can be helpful or detrimental from a tax perspective. They can look at payor, vendor and other contracts that may need to be assigned or renegotiated. Knowledgeable lawyers will also be well-versed with the due diligence and the other steps that the merger partners will need to complete.
Often in mergers, the parties may want to hire one lawyer to hash out the contract terms, but Mr. Miller suggests each party to the merger having its own counsel. "Ethically, each attorney will be required to represent the interests of his client and will be able to advise you on the impact it will have on you personally," he says.
3. Know what you're getting into. Take full advantage of the due diligence process before entering into a merger or risk being blindsided by a practice's hidden business, payment, legal or clinical issues.
"Probably the biggest mistake for a merger party is to not pay enough attention to the possible skeletons in the closest," Mr. Miller says. "For example, a practice may desire a merger to rid itself of a huge [electronic medical record] debt obligation or a nasty lawsuit or an audit issue with Medicare. It's important to understand the problems and their potential impact because that may be the underlying reason a party wants to merge."
The merged practice may end up saddled with the participants’ financial burdens, so look thoroughly at a potential partner's history and financial records to be satisfied for potential red flags. Fully looking at a practice's background can also help you feel more confident with the merger and trusting of your new partner.
4. Decide on clear merger terms. A number of operational issues need to be addressed concerning your merger agreement. Clearly outline the initial leadership structure of the group as merged. For example, it may be necessary for a new board to include only some of the doctors from each group. Ownership interests must be detailed. For example, partners may have equal or unequal equity interests. Facility and staffing changes should be detailed. Including both professionals and staff in the consolidation process may help enable a smooth transition when the combination is completed.
Mr. Miller suggests that concerns of each participant be addressed while drawing up the agreement, such as:
• Does the valuation of each merger partner justify equal or unequal ownership among the parties?
• What methods will be used to evaluate each practice, and who will perform that evaluation?
• Will the combined group have the same or different level of staffing in each office?
• Will there be a new single centralized management, or will each merger partner continue to operate their shop?
Neglecting to address these logistical matters could lead to negative consequences for physicians and staff members.
"Mergers are often seen as a situation where there’s ultimately a 'winner' and a 'loser,'" Mr. Miller says. "When you have two groups you typically end up with one entity controlled by the bigger or more powerful party. But it doesn’t necessarily have to end that way. A group being integrated into another may include contract provisions to ensure that its physicians are not left out of operational and management decisions."
5. Set performance standards. Practices often merge to become more successful through additional expertise and resources. It's imperative to be clear about performance expectations and time frames for meeting goals to get the most out of the merger.
Often the incoming practice physicians will be asked to do more marketing or increase their patient load. Be up front about what is expected from all partners to avoid future complications.
"Sometimes expectations will be greater within a merged group," Mr. Miller says. "Each participant should understand what the new performance, quality and other standards will be and whether they can live up to them. Further, if productivity improvements are expected, the parties should detail time frames and goals for each participant's physicians and staff to meet."
"At the same time," he adds, "the contract should detail the consequences if goals aren’t met. For example, will there be a cure period, a reduction in pay, a demotion or a buy out and separation?"
Dismantling the merger is always a last resort, he says, but terms of separation need to be included in initial agreements as a safeguard. "The merger might not work out operationally, or an undisclosed huge liability might arise. In these situations, the agreement typically outlines the unwinding procedure," Mr. Miller says. "That would be the worst case scenario."
It's also wise to include provisions for settling disputes that arise either during or after the merger. This could include formal arbitration or informal mediation or both, or resort to the traditional court system.
More Articles on Mergers:
ASC Roundtable: Outlook for Investment and M&A Activity in the ASC Sector
Bundled Payments, Narrow Networks & Acquisitions: 5 ASC Reimbursement Trends to Expect in 2013
Medtronic Looking for M&A Deals in China
5 Steps for Orthopedic Practices to Protect Themselves During Mergers FeaturedWritten by Heather Linder | September 14, 2012
Many orthopedic physician practices are looking at possible mergers with other practices or integration with hospital or other healthcare business operations to survive in the market and increase growth and patient resources.
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