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AAOS Now

Published 1/1/2012
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Kenneth Hekman, MBA, FACMPE

Preserving Independence Through a Practice Merger

Five steps to completing a merger that maintains physician autonomy in an age of consolidation

Although healthcare reform, reimbursement changes, and continuing economic pressures are making hospital employment an attractive option, most surgeons still desire the autonomy of private practice. One option is to merge with other independent practices to create an organization with the scale and resources to thrive in today’s healthcare environment.

A well-designed merger can help orthopaedic surgeons achieve the following goals:

  • Increase their leverage within collaborative organizations—Creating a merged physician group that can manage orthopaedic patients across the continuum of care will position orthopaedic surgeons to be strong, independent participants within a collaborative care enterprise, even one led by a hospital.
  • Reduce their cost-per-case—Healthcare reform is driving reimbursement down. Lower administrative overhead and a better ability to manage patient pathways could allow merged practices to reduce cost-per-case and maintain profitability.
  • Make critical investments—Keeping up with technology will be key to thriving in the coming years. Orthopaedic surgeons who pool their resources in a merger will be better able to invest in electronic health records (EHR) systems, new imaging technology, and other capital-intensive upgrades.
  • Improve management of their business—A merged group with professional management resources can achieve better financial performance and better work-life balance.

Although the potential benefits are significant, undertaking a merger is difficult and not without risks. Cultural friction, poorly formulated goals, perceived inequities, and other problems can create fresh headaches.

The key to avoiding these risks is careful planning and execution. Following are five steps that will help orthopaedic surgeons negotiate a practice merger that preserves physician autonomy, increases professional satisfaction, and enables them to play an active role in the emerging medical economy.

Identify potential partners
When identifying and evaluating potential partners, orthopaedic surgeons should think in terms of creating a whole that is greater than the sum of its parts. The following are important considerations:

  • Specialty: Potential colleagues should have complementary skills. Aligning with physiatrists, pain management specialists, neurologists, neurosurgeons, podiatrists, or even family physicians with a sports medicine orientation could create a Neuromuscular Center. In larger markets, orthopaedic surgeons might consider becoming part of a multispecialty group.
  • Geography: What is the ideal geographic footprint of the merged practice? Strong potential partners may have existing locations that facilitate greater market penetration and accessibility.
  • Affiliations: What hospital affiliations do potential partners have? Do those facilities offer appropriate capabilities? Collaborating with strong, well-run hospitals will be critical to the financial well-being of orthopaedic groups.
  • Compatibility: Professional affinity may be hard to pin down, but it is critical to long-term success.

Do a merger feasibility study
A merger feasibility study will identify the strategic and operational benefits of combining practices, spotlight major obstacles, and evaluate the assets each party is bringing to the table.

An effective feasibility study will uncover both opportunities and risks. For example, the higher volumes of a merged organization might reduce the cost per patient of digital imaging and picture archiving and communication systems. The merger feasibility study would measure the impact of the improved efficiency on the profitability of the practice, building the business case for moving forward. On the other hand, one group might have an employee benefit plan that is significantly more generous than the other’s. An effective study would identify the imbalance and offer recommendations for equalization.

When the feasibility study is complete, all parties will be able to make an informed decision about whether or not to proceed with the proposed merger.

Form a joint planning group
Once the initial commitment is in place, an organizing or steering committee should be created to plan the merger and make high-level decisions. An effective Steering Committee will include the designated leaders (president, treasurer, or managing partner) of each group. Although specialist representation might also be needed, the committee should not exceed 4 to 7 people so it can remain flexible and decisive. The committee should meet about every 2 weeks for the first 3 to 6 months to assure continuity and timeliness.

One of the committee’s most important tasks is to work out the vision and strategy of the combined group. The following key questions should be answered:

  • What is our vision for clinical care?
  • What is our business model?
  • What short- and medium-term goals are critical to achieving the vision?

Decisions about aligning with hospitals and payers must also be made. Without a clear vision and strategy, physicians may act in their own interest rather than for the group.

Work out the nuts and bolts
Once the broad outline of the merged organization is in place, the steering committee should create a decision-making structure that includes the following:

  • A finance committee that is responsible for reviewing the fee schedule, negotiating with insurers, and structuring physician compensation
  • A standing committee to deal with employee issues such as benefits, compensation, work standards, and career development initiatives
  • Ad hoc committees to address short-term issues such as facility improvements or selection of a new practice management and EHR system
  • A management team, based on a clear understanding of the job requirements of the top administrative role; a successful leader of a larger organization often requires skills and competencies that are different from those of current managers.
  • Options to centralize operations and facilities, led by a team of managers and staff members on the front lines, with oversight by efficiency-minded physicians.
  • Physician compensation, often considered a foundational policy for recruiting and retaining physicians, might be deferred until there is a clear commitment to go forward with the merger on the basis of other business strategies.

Focus on building trust
Employees will pick up clues about the success of the merger from the behavior and attitudes of the physicians. If they see cohesiveness and collaboration, they are most likely to develop sound working relationships with their new colleagues. If they observe physicians protecting their own turf or refusing to comply with new policies, staff members will mirror those behaviors.

Continuous improvement, particularly in the early stages of a merger, requires constant attention to monitoring cohesiveness at all levels. The leadership team needs to model and inspire collaboration, but must also be able to confront divisive behaviors and attitudes.

A series of social events involving physicians, staff, and family members, so that people can mingle and build friendships in a nonbusiness environment, may be helpful. Trust comes from coworkers performing consistently on the job, enhanced by getting to know each other outside the workplace. People are motivated in part by the esteem they earn through social relationships with coworkers. These structured and nonstructured social events can be a good investment for newly merged groups.

A wise strategy
A merger is a big step, but the trends that are driving health reform could make it a wise strategy for many orthopaedic practices. A merger can help groups remain relevant in a rapidly changing market by reducing duplicated costs, expanding the continuum of care, and improving business processes. Just as important, merging with well-chosen colleagues and collaborators can help many orthopaedic practices remain independent.

Kenneth Hekman, MBA, FACMPE, is president of The Hekman Group (www.hekmangroup.com). He can be reached at ken@hekmangroup.com