Physician group mergers can have a profound impact on the business. However, too often practices view the merger itself as the strategic end game. Successful groups, however, understand that the deal is a means to an end and not an end in itself.
Merging with another practice can indeed be a powerful tool for your group to achieve growth and build long-term value. The process of merging physician groups can go off without a hitch, but this is not always the case. To avoid a transaction failure, practices need to think about integration through every step of the process.
Key merger mistakes to avoid
Here are a few key mistakes that are often made which could be avoided with more thoughtful reflection.
1. Failing to define a vision before the integration occurs
Crafting a vision that clearly spells out the opportunity inherent in the transformation ahead should start long before a deal is pursued. However, often this does not happen.
Drawing from an “expanded due diligence” process is key. It should include exploration of quantitative metrics, like physician group operations and financials, as well as an assessment of qualitative issues, such as understanding the people and culture of the soon-to-be-merged entity.
2. Leaders fail to build and communicate a vision of success
Leaders must build and communicate a vision of success that is understandable, tangible, and compelling to employees throughout the ranks of both practices.
Factoring in the value of the people, assets, and cultural elements of each practice will empower leadership to look beyond the basic additive advantages of the deal. It will also construct a more holistic vision for the opportunity ahead. That vision should draw its inspiration from both the head and the heart.
3. Forgetting to ask, “What more could we become together?”
The single biggest pitfall that derails successful transactions occurs during the actual integration process. Those involved in the merger often focus too heavily on ensuring the tactical aspects of the deal are covered, including technology integration, financial reporting, operations, and merging organizational structures.
The real power of any physician group merger comes from both practices challenging each other to ask, “What more could we become together?” How can each practice learn from the best of each respective practice and let go of old biases?
This will build the two parts into a better whole. Viewing the integration process through this lens will help build collective urgency and alignment around shared goals and generate excitement among employees for the new entity’s future.
4. Underutilizing your people to drive change.
Throughout the merger integration process, leaders at each practice should deliberately involve staff throughout the practice to help facilitate change.
The practices should empower employees at all organizational levels to join and lead a volunteer army to accelerate the transference of ideas. They should also aim to inspire the desired culture of the new combined practice.
With so many moving parts throughout the process, empowered employees working as informal networked groups can work with agility and adaptability to help the two physician groups gradually become one.
Root Cause Failures
One simple but effective way to ensure a successful merger is to study why others have failed. And then endeaver to do something different.
The most common reasons for failed group practice mergers
- Strategy: Poor strategic logic or fit. No strategy used to determine goals of integration.
- Synergy: Overestimation of potential synergies, or underestimation of synergy complexities or timetable to delivery.
- Culture: Fundamental incompatibilities (including each practice’s lack of self-awareness), ineffective integration, or squelching positive attributes of the other practice’s culture in name of uniformity.
- Leadership: Weak leadership, delays in appointing new leadership team, loss of key talent, insufficient participation in the transaction and integration process, ego clashes, or failure to deliver on pledges.
- Transaction parameters: Inappropriate deal structure or endless negotiations which bleed the practices dry.
- Due diligence: Insufficient investigation (especially little or no strategic and operational due diligence), or failure to translate findings into actions.
- Communications: Failure to communicate with sufficient transparency, awareness, depth or frequency, failure to take key messages to appropriate stakeholders, failure to address the concerns of each group with targeted yet strategically consistent messaging, or making empty promises.
- Key talent: Failure to identify key personnel or failure to act swift enough to retain them.
- Technology: Failure to identify fundamental incompatibilities (poor due diligence) or underestimating complexities or time required for system integration.
How to avoid these problems
Successful practices embrace the process of integration as the single-most powerful value creation tool available. They view their investment in integration as one of the elemental costs of doing a deal. And, they understand that integrating and operating are two different processes, with unique objectives and requiring separate attention and separate skills.
One of the most significant problems that can occur is the post-merger integration that must take place. Physician groups that combine their efforts and resources must learn to do so by bringing all of the constituent elements of their practices together. This is easier said than done.
Planning and Negotiating
The amount of planning and negotiating required to bring this about is fairly significant. It usually takes place during the merger process.
This integration planning is closely related to cultural issues. That is because it requires those involved in the planning process to determine what the resultant culture will look like after the merger.
Running a practice is an ongoing process aimed at optimizing an existing set of circumstances. Merging two physician groups is a temporary process aimed at changing those circumstances.
Running a practice is a recurring evolution. Merging is a finite revolution. The two have different objectives and require different approaches altogether.
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Mergers are a risky decision
A physician group merger is a difficult and risky strategic decision. Therefore, physician groups should fully challenge that decision before they moving ahead. This is especially true given the average performance of the returns and the risk associated with the potential outcomes.
Successful group practice mergers are not guaranteed even when there has been thoughtful planning and preparation, best practices and focus. Applying best practices, however, can enhance the chances of success and help to avoid catastrophic pitfalls.
Ideally, integration insight is woven into virtually every step of the merger process. It is incorporated into the strategic thinking and target identification, into the due diligence and the valuation process. It plays a huge role during the months before and after closing. And it carries on long after the deal is done and the bankers and lawyers have all gone home.
The bottom line
Thinking about integration at every step of the merger process helps physician groups avoid transaction failure.
More by this author: How to Determine the Financial Metrics of Medical Practices
Nick Hernandez, MBA, FACHE
Nick Hernandez, MBA, FACHE is the CEO and founder of ABISA, a consultancy specializing in strategic healthcare initiatives.
Since founding ABISA in 2007, his emphasis has been on developing and maintaining a strong relationship with physicians and identifying areas for business opportunity and support. The company’s client list includes physician groups, hospital systems, healthcare IT organizations, venture capitalists, private equity firms, and hedge fund managers.
Nick is a graduate of the United States Naval Academy and a former Captain in the U.S. Marine Corps. He holds MBA degrees in both Operations Management and Information Technology & E-Business Management from Wake Forest University. He is Board Certified in Healthcare Management and has been named a Fellow of the American College of Healthcare Executives.
He is a frequent guest lecturer and is often quoted in the national media. He has consulted with clients in multiple countries and has over 20 years of leadership and operations experience. Nick is a Subject Matter Expert in business strategy, practice management, telemedicine, health IT, and oncology.