Selling or Merging Your Practice: What You Need to Know Before Taking the Plunge
Tuesday, September 27, 2011
In the current health care environment, many physicians are looking to sell or merge their practices with equally sized or larger groups. A physician’s decision to sell or merge a practice can seem daunting.
Photo: Hal S. Katz
However, when done properly, a merger can bring about a number of major, long-term benefits. Strengthened negotiating positions, greater efficiencies and increased market share are just a few of the advantages gained from a well-constructed merger. If done improperly, however, a merger can result in miserable physicians, potentially higher taxes and exposure to greater liabilities.
Many factors must be considered before selling or merging practices, or “taking the plunge.” It is important to evaluate advantages and disadvantages. Determining compatibility with other physicians, along with legal and business issues, must be done to ensure success. This examination of physicians’ existing situations will be used to structure the merger. When done properly and precisely — with the aid of experts — a physician merger can bring about incredible wins for everyone involved.
Currently, physicians trying to achieve a thriving practice face tremendous obstacles. Increasing costs and competition are forcing physicians to seek alliances through mergers. Physicians face flat or decreasing reimbursement rates along with increasing capital requirements for offering new services. Third-party payor contracting pressures are another concern. Additionally, the regulatory environment for physicians has become increasingly complex. This all adds up to lower profits and decreased satisfaction, which has led many physicians to consider merging practices.
Many advantages exist to selling or merging physician practices. Physicians hope to strengthen their negotiating positions with hospitals, employers, payors, suppliers and others. However, it is important to avoid becoming “too big” and appearing anticompetitive.
Certain cost savings can be achieved by being a part of a larger practice. Economies of scale are created by grouping common purchases such as supplies, hard assets and insurance. Selling or merging is an opportunity to eliminate duplicate services. For instance, personnel, billing, office management, and legal and accounting services can be consolidated. This may also allow physicians to focus more on the clinical aspects of their practices. Physicians must be realistic and willing to give up some of their own staffs, facilities and other assets to maximize benefits.
Larger group practices may also benefit from greater access to capital. They can potentially offer a fuller spectrum of services and better continuity of care. This can lead to greater opportunities for cross-referral of patients and capture of ancillary revenues. The larger practice may appear more attractive when recruiting physicians and other personnel. A group practice can create more viable exit strategies for physicians nearing retirement.
Disadvantages also exist when affiliating with other physicians. Many physicians fear a loss of control and autonomy. The potential for incompatibility and disagreement among physicians and personnel. Some physicians are concerned about the increased bureaucracy a larger practice creates. However, many of these issues can be addressed in the transaction documents.
Formation of a group practice is a major undertaking and is not to be taken lightly. Physicians should be aware of opportunities and risks in order to maintain a competitive advantage in the current health care environment. Selling or merging a practice takes time, effort, commitment and money to be successful. However, the results can be extremely beneficial and have a lasting effect. It is important to approach the process in an organized, business-like fashion. A number of issues must be addressed to ensure success. Experts with experience should be retained to ensure a successful merger. This includes a practice consultant, attorney, CPA, benefits consultant and valuation consultant. Other important steps include the execution of a confidentiality agreement and term sheet. A strong, focused commitment to the practice merger will result in a group practice that is ready to face today’s health care challenges.
Hal Katz is an attorney in the Health Care Practice Group at Brown McCarroll. If you have any questions or would like more information, he can be reached at hkatz@brownmccarroll.com or (512) 703-5715.
Brown McCarroll, LLP was founded in 1938 and is a multidisciplinary law firm with offices located in Austin, Dallas and Houston. Brown McCarroll delivers results for a variety of clients who have needs for regional representation throughout the state of Texas and the Southwest. More information can be found at www.brownmccarroll.com.