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Practice Mergers

April 2011, Vol 1, No 1

Long gone are the uncomplicated days of private oncology practice operations. Privately practicing physicians now face major decisions about the structure within which they will practice medicine.

Mergers are an opportunity to create the critical mass needed for the now larger practice to leverage operating costs properly and maintain competitive physician compensation levels for physician owners who do not see hospital employment as a viable option.

Market share is a primary driver for investigating practice mergers. Physicians of all specialties need market share for a flourishing private practice. Market share provides for access to more patients, which is the foundation for growth and financial success.

The Challenge
Mergers are challenging because there is no single template for ensuring the process is a success. Many experts will tell you, “If you’ve seen one merger, then you’ve seen one merger.” The legal, accounting, tax, and financial aspects of a merger are comparatively easy to negotiate by the professionals engaged to get the deal done. The challenging aspects of a merger are subjective and rely more on physician involvement and leadership than the technical prowess of accountants, lawyers, and consultants.

With the proper physician leadership in place, the advantages of merging are clear and plenty.

  • Control one’s destiny
  • Capture, retain, or build market share
  • Create and maintain leverage on different levels with payers and hospital systems
  • Build or expand service lines or new ancillary services
  • Subspecialize
  • Address and solve common private practice problems: staffing allocation, recruiting, management, and IT/electronic medical record issues
  • Leverage with economies of scale
  • In administration—ability to hire the “best of the best” in practice management, billing and coding, and IT
  • In clinical services
  • In ancillary services • In use of space and in rent costs
  • Establish high quality-of-care standards and best practices
  • Create assets: real estate (owned office space), captive insurance company as a tax-advantaged savings- and risk-management vehicle.

Physician practice mergers can maintain a private practice model while creating a true professionally run business. If done properly, it will give you all the perceived advantages of hospital employment while retaining your independence and opportunities to make more money— not to mention the ability to stay in control of your destiny.

Factors of Success
A practice merger will only succeed if it involves physician members of like mind, common purpose, and aligned vision. It must have one or more champions for the cause or the deal will die an early death from fatigue or lack of direction. Mergers succeed and fail for a variety of reasons, all unrelated to the strength or weakness of professional advisors. These are mostly process-driven and subjective factors (Table).

If practice merger is the road of choice, recognize it is the road less traveled. But in the end, if successfully done, it can make all the difference in providing the highest level of professional job satisfaction possible.

Stephen F. Schulz is a partner at Mountjoy Chilton Medley, where he provides broad-based practice management consulting services for physician practices.

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