Physician mergers booming

What to do interested doctors need to consider?

By Scott R. Townsend

There are numerous factors that are currently placing considerable stress on independent physicians and physician groups throughout the United States. Reimbursement rates continue to decline, as illustrated recently by the recent two percent reduction in
Medicare reimbursements in connection with the “sequester” implemented by The American Taxpayer Relief Act of 2012.

The American Recovery and Reinvestment Act of 2009 requires physicians to utilize certified electronic health record technology by 2015—which can be very expensive to obtain and implement –with failure to comply potentially resulting in additional cuts in Medicare reimbursement. Specific impacts like these, and more general uncertainty about the regulatory future in the healthcare marketplace, has many healthcare professionals wondering how much longer their operational status quo can continue without a substantial overhaul.

Practice Merger Benefits
To address these types of concerns, many physicians are considering mergers of their practice groups with others in their  communities and regions. These combinations can involve single specialties or multiple specialties, depending on the physicians and markets involved and the strengths and needs of  the possible participants. Some of the potential benefits in a practice merger
can include:

• Pooling of resources, especially for big-ticket items such as electronic health records and office or lab equipment.
• Improved attractiveness in recruiting new or lateral physicians.
• Decreased costs and expenses as the result of greater leverage with suppliers, hospitals, and payors, newly-created economies of scale and elimination of redundancies across practices.
• Deeper professional benches for staffing and call obligations, allowing better work-life balance for physicians.
• Retention of autonomy and control, at least to some degree beyond that of a mere employee.
• Enhancing services available to patients by affording the addition of such improvements as labs and imaging centers.

Careful Consideration
Physician mergers are certainly not without risk, however. Careful consideration should be given by the parties considering these types of transactions, including such factors as:

• Costs and expenses related to professional services required and time required of participating physician leadership.
• Antitrust  scrutiny and related interruption and expense, which can depend upon such factors as the size, specialties, and markets of the combining practices.
• Tax consequences to the participating groups and their physician-owners.
• Burdens related to the establishment of a “new” practice entity post-merger, such as cash flow concerns for the new entity and administrative obligations such as the acquisition of updated credentials and provider numbers.
• Dissenting physician-owners, both in terms of the disruptions or tensions that can result in the existing practices and the costs and expenses that can be associated upon the exercise by an owner of his dissenters’ rights under applicable state merger laws.

Due Diligence
Careful planning and the completion of a thorough, thoughtful due diligence  process can help mitigate many of these concerns. Frequent sources of tension and dispute can be avoided by:
• Openly communicating with owners and employees, as appropriate, to keep potentially affected individuals up-to-date and avoid chances for rumors and misinformation to spread.
• Involving skilled professional advisers in such important matters as entity selection, tax and accounting analysis, and evaluation of effects to retirement and other existing benefit plans.
• Planning in the merger documents for the event of an unwind, to reduce the possibility of a prolonged, expensive dispute in the event that one group decides to exit the merged group in the future.
• Honestly investigating the culture and personalities of the individuals involved, especially with respect to those individuals likely to emerge as the leaders of the merged practice.
• Conduct of the appropriate due diligence to mitigate the risk of surprise obligations and liabilities and the significant costs and expenses that can be associated with them.

Strive for Happy Outcome
Physician mergers can often address a number of the serious and legitimate concerns faced by physicians in today’s marketplace and can provide much desired stability and flexibility to the owners and employees involved.

However, they do not occur quickly or cheaply, often taking anywhere from six months to several years from initial discussions to final consummation and involving tiresome work and meaningful expense.

In the end, though, effective planning and thorough analysis can significantly decrease the potential risks and increase the likelihood that a merged practice results in a happy outcome for all involved.

Scott R. Townsend is an attorney with Stites & Harbison, PLLC, in Louisville, Ky.


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