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Healthcare Practice Strategies - Winter 2014 - Why Mergers Fail

Feb 7, 2014

No doubt, combining forces often gives physicians the tools they need to adapt to an increasingly complex healthcare marketplace. Yet, there are plenty of reasons that practice mergers and acquisitions fail. Chief among them are:

  • Incompatible partners – Successful mergers generally occur between physicians or groups with similar values and work ethics (e.g., having balanced lives vs. making as much money as possible). The key is to sync up goals and visions, and make sure they are shared by all.
  • Poor governance – There needs to be clear agreement on who will manage the merged practice and how group decisions will be made. Majority usually rules, but some issues should require unanimous approval, such as taking on bank debt or the sale of the merged practice.
  • Failure to integrate – To nip territorial behavior in the bud, establish a clear expectation of the changes to come by creating a post-merger integration plan and timeline — before the merger is complete. Establish consistent, standardized policies and procedures for everything from charting and refills to lunch hours and vacation days.
  • Improperly allocated practice expenses – Compensation models that hold each physician accountable for his or her own resource use (i.e., each physician is a cost accounting center) promote good operational behavior. Under a traditional model based on equal sharing of expenses, individual physicians have no financial incentive to decrease expenses. Ill will can breed quickly if physicians from one practice use more and different resources than the others.
  • Failure to find a workable compensation model – Review all components of compensation carefully and establish a plan for integration. In addition to salary issues, practices typically differ markedly in how they compensate for car allowances, insurance coverage, professional fees, etc. Ditto for 401(k), profit sharing and healthcare plans, so it’s important to work out the details early.

Healthcare Practice Strategies - Winter 2014

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