Here are six considerations for spine surgeons before deciding to go forward with a practice merger or acquisition.
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." Wayne J. Miller, Esq., a healthcare transaction and regulatory attorney and founding partner of the Los Angeles-based Compliance Law Group, 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. Promoting common goals helped with physician buy-in. It's important for physician partners in large orthopedic practices to have the same goals and share in each others' success. When Michael Schwartz, MD, board president of OrthoTexas, met with the other physician leaders to iron out the merger, it was important for everyone to understand that nobody was trying to take advantage of anybody else or profit from the other groups.
"If we all worked together, we would benefit," he says. "A big part of the growth process was getting used to that idea. We're looking at this as a merger; this is for the benefit of us all. The merger will allow us to exist in the new healthcare environment in a better way than any of us could have in our individual groups."
After the initial meetings about the merger, the lead representatives from each practice went back to their respective partners and talked about the discussions. It was through these channels that the leaders were able to share their ideas with their partners and create a culture of trust and togetherness.
3. 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."
The contract should also include detailed consequences if the goals aren't met, such as a cure period, pay reduction, demotion, buy-out or 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."
4. Discuss how the merger will impact existing contracts. As separate entities, each practice has its own managed care, payor and hospital contracts which will change after the merger. Both groups must understand their individual contracts and how the third party will view a potential merger. The third party could view the merger positively, because a bigger group will be more effective, or negatively because a larger group equals stiffer competition.
"If each group has contracts already, figure out which group has the best terms and determine how easy it will be to include the merged group into those contracts," says Mr. Miller. Sharing this information among former competitors sometimes makes group leaders squeamish, but will be necessary for the merger to succeed. Both groups can sign a confidentiality agreement before any information is exchanged, which serves to prevent any sensitive information from leaving the group.
5. Devise a management structure. In most organizations, one person becomes the elected leader of the group. There are practices with co-leaders — or one governing leader and one medical leader — but these can be difficult situations.
"Typically, I see one physician — the champion physician — who has the vision for a larger group and is a rainmaker among his fellow partners, becoming the driving force of the merger," says Dave Wold, CEO of Health Information Services, who played a critical role in eight successful mergers to grow Illinois Bone & Joint Institute. "This person is also likely to become the leader of the larger group. There is always one rainmaker who is respected, well-known and the catalyst of for moving forward."
When a leader or co-leaders are identified, the group should create a governing board with representation on each side. If the groups are of equal size, the board might be of equal size as well. However, if a group with 10 physicians merges with a group of five physicians, the larger group may have two people on the board to the smaller group's one.
"Even when you have a combined governing board, it can take a while to decide how the board will be structured," says Mr. Miller. "If you have both merging groups evenly represented, the board could be deadlocked on a controversial issue. One group may need to have more representatives so they can ultimately decide a disputed issue."
6. Bring operational systems together. Beyond just the culture, both groups must decide how to integrate billing systems, medical records and staff procedures. "One group's systems and methods may be better and will be used following merger, but in other cases the merged group may decide to purchase a whole new software or computer system," says Mr. Miller. "Don't expect major economy of scale savings right away if the merged group finds that it needs all new billing, EMR and computer systems. Further, all existing information must be transferred to the new systems and the group must decide how to store old records."
If one group does need to purchase all new systems, funding for those projects should be factored into the final agreement. This is one area where mergers could initially be an extra cost instead of a cost savings. However, there are other options as well.
"I see a lot of groups struggling to merge their billing departments decide to outsource the service all together," says Mr. Wold. "After outsourcing the billing department, the old offices can be converted into additional examination rooms or house ancillaries. In this situation, we typically see better overall collections because the group is able to afford a better level of business structure."
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