Showing posts with label physician practice mergers. Show all posts
Showing posts with label physician practice mergers. Show all posts

Thursday, November 3, 2022

Considerations for physician practice mergers

In recent years, there has been noticeable increase in practice mergers among physician groups. Undoubtedly with the ever-evolving reform of the U.S. healthcare industry, there is a lot of uncertainty for private practice physicians. Some practices are content with no organizational changes and some have decided to be acquired by hospitals. Others have gone the route (or are pondering) of merging with another private practice (either same specialty or different specialty). The decision to buy, sell, or merge a medical practice is more complicated than ever, and determining a medical practice's worth is just one element crucial to this process. For those that are considering merging with another private practice entity, there are many things to strategize about and that's assuming there will be a windfall of benefits by consummating a merger.

Physician owners must have a clear rationale for a transaction or truly understand a deal's impact on their practice's long-term financial future. Too often, however, there's a misguided sense of why the merger should take place at all, and there's far too little time spent defining how the merger enables them to beat competitors and increase organizational value. Those that fail to take this into account contribute to the failure rate of physician group mergers.

For many physician groups, the link between strategy and a transaction is broken during due diligence. By focusing strictly on financial, legal, tax, and operations issues, the typical due diligence around a proposed merger fails to test whether the strategic vision for the deal is valid. To do so, physician groups should bolster the usual financial due diligence with strategic due diligence. They should test conceptual rationale for a deal against more detailed information available to them after signing the letter of intent. They should also see if their vision of the future operating model is actually achievable.


A strategic diligence should explicitly confirm the assets, capabilities, and relationships that make a buyer the best owner of a specific target acquisition. It should bolster the physician owners' confidence that they are truly an "advantaged buyer" of an asset. Advantaged buyers are typically better than others at applying their established skills to a target's clinical and business operations. They also employ their privileged assets or management skillset to build on things like a target's practice reputation, patient experience, or relationships with referring physicians. Naturally, they also turn to their special or unique relationships with vendors and the community to improve performance, leading to advanced synergies that go beyond what's normal.

When change comes suddenly, it can turn strengths into weaknesses and sweep away dreams of success.The aim of a merger should be to achieve mutually reinforcing advantages.Michael Porter wrote that competitive advantages stem from how "activities fit and reinforce one another. . . . creating a chain that is as strong as its strongest link."By undertaking strategic diligence, physician owners will be able to not only define their main objectives, but also gain greater control over the desired direction of the new entity after the merger is consummated.
Some of the strategic diligence questions to ponder include:What are the strengths of each practice?
  • What could our practice be doing better?
  • What opportunities exist as a result of this merger?
  • What threats do we face by completing this merger?
  • What is the current culture of each practice?

It is critical for physician owners to be honest and thorough when assessing their advantages. Ideally, they develop a fact-based point of view on their beliefs — testing them with anyone responsible for delivering value from the deal, including physicians, physician extenders, clinical staff, and front and back office personnel.Above all, when it comes to the merger of two physician groups, culture is a key decision criteria.Culture should be evaluated and discussed prior to any financial considerations. In my experience this is of paramount importance for practice-to-practice mergers and is meticulously examined only through strategic diligence.


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Thursday, April 28, 2022

5 Key components for effective physician practice mergers

There are numerous reasons you may want to merge your medical practice with another. Perhaps you want to expand your practice to new geographic markets or maybe it is a financial necessity, or you simply believe that the practically instantaneous growth produced by a merger or acquisition will help your medical practice achieve new heights and fulfill your goals. Whatever your motivation, you cannot simply pick any random practice out of a hat and try to make it work—you have to find the right match. Mergers or acquisitions are no easy task, and the larger your medical practice the more complex it will be.

Mergers and acquisitions life cycle


The mergers and acquisitions (M&A) life cycle is broken down into three phases: Strategy, Execution, and Integration.For the purposes of this article, I am only going to address the strategy phase.

Strategy


Strategic planning helps protect you from M&A failures. Just because you want to buy a medical practice doesn’t mean you should buy that practice. There are several questions you should ask yourself when researching target physician practices.
  • Why do you want to acquire, or merge with, another practice?
  • What is your business objective?
  • Do the target practice’s clinical services fit with your objectives?
  • What value will the deal bring you?
  • What is the value of the target practice?
  • Does the culture of the other medical practice fit with yours?

These types of questions can help you narrow your choices as you screen the medical practice you are interested in, determine target practice valuations, structure deals, and analyze how your business decisions will give you an advantage in the current market.

Importance of synergy


Synergy is a combined action or operation. Many medical practices decide to merge with or acquire another practice based on potential synergies that can come from combining similar clinical services and technologies. The following are some benefits that synergy can bring when physician practices merge:
  • Combine workforces—Identify and eliminate redundancies and restructure workflows to increase efficiency and to accommodate increased business volume.
  • Combine technologies—Combining similar technologies can help a practice to achieve strategic advantages in your market.
  • Reduce costs—Consolidation can improve your purchasing power and decrease costs as you negotiate better terms with vendors based on the need for more materials because of increased output.
  • Market expansion—There is potential that combining medical practices will create an advantage in a particular market, or enter into a market that was not previously available to you.

Here are five key components required for a strong and effective merger.

1) Communication


As in most aspects of business, communication is a vital key to ensuring your merger or acquisition goes smoothly and is the right move for both medical practices. You need to have completely open and direct lines of communication with the key players from the practice with which you want to merge. This is one situation where you absolutely cannot afford to have lines get crossed or have a misunderstanding about each other’s expectations. Be clear and forthright about what you want and expect, and build your new relationship on a foundation of complete honesty.

2) Win-Win


The merger or acquisition needs to be a win-win for both medical practices. For your merger to be effective, both sides of the transaction need to be improving their situation in some way. One-sided M&As will leave at least one of the critical parties unhappy with the outcome, which does not bode well for your future together. Think of your merger as a relationship—both sides need to bring something to the table that makes the other party better.

3) Shared vision/new identity


Early in the process you need to establish with your counterparts in the “target” medical practice what your soon-to-be combined practice’s new identity will be. You might not be able to practically maintain the identities of both practices. Likewise, it may be practically difficult to completely integrate one group’s identity into the other. What will your vision be for your new medical practice? If you and your counterparts do not agree on a vision for the practice’s future, then the merger/acquisition may not be successful post-closing. Your vision and new identity should be very clearly defined and planned before moving forward.

4) Well-planned


Speaking of planning, this is another vital component of any merger or acquisition. You cannot just leap into the merger and expect things to work themselves out. Quite frankly, you need to clearly plan out many of the critical details of the transition. Whether you are the buyer, seller, or another major player in the transaction, an experienced transaction consultant can help you plan and execute every step of your transaction.

5) Integration


You may need to establish an integration team entirely dedicated to executing and implementing the merger. There will be many major changes for the employees from both practices, and you need a strong and well-executed integration plan to ensure the transition goes smoothly. There is a great deal to think about with regard to how you will integrate your new identity and culture and you need managers who can focus on this while others focus on continuing the normal focus of your business.Do not execute any closing documents until you have first prepared an integration plan.

When properly planned and executed, a strong merger and acquisition can take the involved companies to heights they never dreamed of. But the M&A process doesn’t happen overnight or even in a couple of weeks. It is a long, complex, and detailed process that requires patience, diplomacy, compassion, and compromise. The ideas and best practices outlined above can help you to remain focused, pay attention to detail, and get the deal done right.


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