A growing trend ahead?

Taking another look at practice mergers

Many “new” trends in medicine and ophthalmology come at us full circle, from a prior time. Such trends are never truly new except to the youngest and least experienced members of the profession. To everyone else, everything old is new again.
Should we reform healthcare or not? Will we be harmed or helped?
Should we hang in there with drops or accelerate surgery for glaucoma care?
Should we merge our local practices into a super-group or stay independent?
Over the past 30 years I’ve written numerous columns and chapters about practice mergers, acquisitions and consolidation. It’s time for a refresher course. Why now? Because the external pressures now being applied to eye care, and the resulting apprehensions about the future, are taking us all back about 15 years when both corporate and private consolidation was on a rapid ascent. I believe we’re poised for more of the same.
While healthcare and payment reform remain a major driver for consolidation, the incentives are more varied today, and not just fear-based, but rooted in opportunities. These incentives include:
• Sharing under-used facilities or staff
• Sharing costly testing and treatment equipment
• Covering marketing costs which have risen sharply in recent years
• Providing more patients for subspecialists
• Pooling case volumes sufficient to support the development of an ambulatory surgical center (ASC)
• Adding a deeper bench of primary care providers to support each surgeon
• Responding to the formation by others of larger, competing groups
There are lots of incentives to merge or otherwise consolidate with others. Unfortunately, mergers and related transactions throw up a complex series of clinical, business and philosophical hurdles, each of which must be surmounted by doctors and management staff, who each likely already have a full time job, and who possess neither the time nor the expertise to lead the transaction process.

Questions, questions, questions

ÏIf you’re contemplating a practice consolidation, here’s a basic list of core issues you’ll have to discuss, resolve and memorialize in writing on the way to a final transaction. This “starter kit”—couched here for a slated merger transaction—will help prevent your overlooking the most important issues. Many of the same questions surface whether this is a merger between two peers, two dissimilar practices … or if you contemplate the frank acquisition of a local colleague’s practice.
Who will lead the process? Who will be the transaction manager? Ideally, one person should be in charge. This can be a doctor, a manager, or an outside facilitator.
What’s the broad, desired outcome? Try to write this down in 100 words or less before you get buried in the details.
What’s the deadline? Although you will quite likely overshoot whatever timeline you set, it’s helpful to commence with a schedule of events and a presumed endpoint in the calendar.
What are the details of the strategic plan; is there an agreed, common vision? Any unresolved, open issues should have closure in writing well before merging.
How will the fair market values of the merging practices be derived, so that dollars can pass back and forth to equalize ownership? Or alternately, will ownership even be equal post-transaction?
What will be the name of the new practice?
What will be the form of business (partnership, limited liability company, professional corporation, etc.)
What future conflict resolution procedures will be used, especially if the board is slated to have an even number of votes?
Who will be the initial managing partner or medical director? What will be his or her term of office? How much will they be paid? What will be their duties and authorities?
Who will be the administrator? Are they up to the job of running a larger company?
What will be the chain of command and what will the organization chart look like?
How will buy-in and buy-out provisions be crafted and calculated? How will insurance policies be usedto fund certain buy-outs?
How will ancillary business opportunities be secured and divided, including ASCs, laser centers, aesthetic/elective cosmetic services entities, optical shops, capital equipment leasing adjuncts, buildings and properties?
What owner and associate compensation methodology will be used initially; how will this be reviewed from time to time?
What’s the maximum allowable vacation and continuing education time off for owners? If excessive time is taken off by a partner, what censure does this trigger?
What termination procedures will be applied, with and without cause?
How will non-compete issues be handled? Will prohibitions be absolute or will we take a liquidated damages approach?
Who remains on the external advisory team, and who goes ... lawyers, accountants, billing/compliance advisors, business consultants, computer systems, marketing firms and the wider array of support.
What roles will the current lay staff play, and which staff if any should be dismissed to realize post-merger savings?
Will any facilities be redundant? If so, how and when will they be disposed?
Are there other local practices we should consider as subsequent consolidation targets?
For any doctors approaching retirement, what will be the timing and approach? Will such doctors stop altogether, or just taper surgery and slowly wind down?
What will be an individual partner’s spending authority without group approval?
How soon will we converge staff benefits, policies, uniforms, training, pay ranges, etc.?
What terms will be applied limiting the outside business activities of partners? (eg: in unaffiliated optical or ASC entities)
What will be the frequency and venue for board and management meeting? What will be the financial performance reporting depth and intervals?
Discussion and resolution of various “What if?” scenarios: disability, death, business interruption, major contract loss, fee reductions, competitive threats, outside purchase overtures, etc.
How will be resolve the core, organic conflict present in every business … that’s to say, will our conjoined practice put first priority on quality, market share, profitability or doctor lifestyle issues? And the second priority? And the third?
Merging ophthalmologists is indeed a bit like tying cats together by the tail. It’s rough on the cats and sometimes even rougher on the cat wranglers.
As you can imagine, addressing even this starter list of questions obliges hours and hours of meetings and negotiation. Taken together, thoughtful answers to these and scores of deeper questions can help to increase the odds of merger success. And, perhaps, even reduce the odds of feline distemper.

ABOUT THE AUTHOR

John B. Pinto is president of J. Pinto & Associates, Inc., an ophthalmic practice management consulting firm in San Diego. He can be contacted at 619-223-2233, pintoinc@aol.com, or www.pintoinc.com. John is the country’s most-published author on ophthalmology management topics. Six recent books, John Pinto’s Little Green Book of Ophthalmology (3rd Edition), Cash Flow: The Practical Art of Earning More From Your Ophthalmology Practice, Ten Practices: Benchmarks for Success, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, The Efficient Ophthalmologist, and The Women of Ophthalmology, written with Elizabeth A. Davis, M.D., are available from ASCRS•ASOA and may be ordered by calling 703-591-2220.