What You Should Know About Merging Your Practice
- Volume 18 - Issue 2 - February 2005
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Two podiatrists meet for dinner and one raises the possibility of merging their practices. “Why do we have two offices, two billing systems and two complete staffs?,” one may ask. “We each need another provider but not full time, and we each pay a different accountant to do the same thing. Is there something here that would make more sense?”
“Mergers and acquisitions.” That was the hot phrase we read about in the ‘80s and ‘90s. People often equated this phrase with larger market share, fewer expenses and more profit. Sometimes it was an accurate description.
Until the mid-‘80s, it was not necessary for medical practitioners to seriously consider merging their practices to capture a larger patient base. Until then, practitioners could bill and expect to receive 80 percent of charges based on UCR (usual, customary and reasonable) from the insurance company and 20 percent of the charge from the patient. Imagine getting paid what you charged.
Today practitioners can still charge what they want, but if they are “par” (participate) with the payers, they receive a reimbursement based on the payers’ fee schedule and the remaining amount is adjusted or written off. As a result, practitioners are looking for ways to maintain their income in the face of decreasing reimbursements and increasing expenses. One approach to maintaining income and creating security is merging with other practitioners.
Separating The Assumptions From The Realities
Unfortunately, practitioners often have unrealistic expectations or fantasies of what results they will see after merging their practices.
Here are some incorrect assumptions of what a merger will accomplish:
• more profit;
• more time off;
• a better negotiating stance with payers (depending on the practice’s size);
• fewer expenses;
• less time spent on administration (a merged practice may be able to hire professional management); and
• the notion that bigger is better.
Here are some correct assumptions of what a merger will accomplish:
• more, less or the same number of offices;
• more owners or partners;
• more security for the partners;
• a better chance for increasing your quality of life;
• one tax identification number to use for billing;
• usually one practice management system;
• one retirement plan;
• one fee schedule;
• one set of governance documents; and
• a new accountant and attorney (usually) for the practice.
Merging does not necessarily mean you have to change the way you practice, your office, your office and hospital schedules, vacations, holiday call schedule, clinical protocols, relationships with referring sources or office staff. A merger also does not necessitate a change in vacation or compensation and bonus formulas.
The Ins And Outs Of Operational Mergers
In an operational merger, two or more offices are consolidated into one or fewer offices. The new office can be one of the existing offices or, as is usually the case, a new, larger office is acquired.
For the purposes of this article, Dr. Able’s practice is a solo practice whereas Dr. Smith and Dr. Jones team up in another practice. Both practices are in the same town about two miles apart. The doctors are all in their 40s. They each earn different amounts ($160,000, $190,000 and $245,000). They have different practice management systems (PMS), different schedules and only one operates at the hospital. They have known each other for 10 years, trust each other and each is comfortable with the other’s level of clinical competency. These evaluations are the first and most important steps in the due diligence process.