Before a merger can even come to the negotiating table, extensive research and preparation must be done by all parties involved. Here are some tips from Dennis Beck, MD, FACEP, Medical Director of CarePoint, an emergency medicine practice group, and President and CEO of Beacon Medical Services, both based in Denver, CO.
Find the right partner. The first thing that must be established, even before the financials are considered, is whether or not the different organizations have "cultural compatibility."
"You hear one group is all boarded, residency-trained emergency physicians, with a strong commitment to quality and risk management," says Beck. "Another group may be more of an independent contractor, they are boarded, but they are not necessarily emergency medicne boarded, or they were a primary care physician. You will hear groups say things like, I could never affiliate with the doctors at Smith’s Memorial.’"
This cultural compatibility (or lack of it) is the first key factor that needs to be considered, he says. "If you can feel there is some common ground, then you need to go ahead and do your data acquisition."
Get the information. Once you’ve found a "compatible" partner, you need a lot of information, says Beck.
You’ll want to know the number of visits per year, the average per patient charges, collection ratios, number of contracts at different facilities, what are the clinical capabilities of the different facilities, whether or not they have any existing billing relationships, and how they do risk management at one hospital vs. another, he explains.
"It’s sort of a best practice scenario," he says. "You sort of look and see whose got what."
Other areas of needed information are demographic data, information about the payer mixwho has a population that is mostly indemnity, who is mostly managed, who has a large Medicaid population, and what the collection rates are from one group to another.
"Large discrepancies will present greater challenges in terms of how you come together," he says.
Define the level of integration. How much of a full merger will it be vs. an affiliation? Though it won’t make much of a difference in the day-to-day practice, for the leaders of the individual groups it is essential to decide this matter early on.
"It is important that there is an understanding of what you are trying to achieve with it (the merger)," says Beck. "You need to be proactive and willing to recognize and take advantage of the added size and clout you might have instead of just doing it as a defensive posture to sort of allow for further longevity in your contract."
Consider legal liabilities and tax consequences. While these issues don’t immediately spring to mind, it is important to get expert advice on anti-trust considerations if you are considering a network vs. a fully integrated practice, Beck notes.
The groups must also consider their previous legal exposures.
"It might be an HCFA audit or you had a subsequent Medicare audit, you could bring that liability forward," says Beck.
Another example could be a malpractice claim, says Beck. If one of the groups has a malpractice claim and that group carries over funds from some of its old assets when it merges with another group, the new organization may carry some liability.
When five emergency groups in the Denver area merged, they wound down their old organizations and set a specific start date for the new corporation. The disadvantage is that they had no cash flow or revenue on day 1.
"You would need to get a lot of credit and that could be a significant amount of money," he says.
Communication. Finally, the people responsible for negotiating the merging must be diligent in communicating developments to the other people who work for the group and getting their opinion.
"You don’t want to go up to the altar with some sort of preconceived notion of what you are doing and then get voted down by the shareholders who say, I don’t like this deal," says Beck. "Communication is important so that the everyday ED doc practicing in the emergency room knows what is going on."
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