Study Internal, External Factors in Practice Merger Decisions

The Doctor's Office , February 18, 2010

In December 2008, Trinity Medical Associates, a Knoxville, TN–based family physician practice, bucked a growing trend in American healthcare and politely declined a merger offer extended by colleagues and friends at the much larger Summit Medical Group.

"Our primary decision came down to the fact that we really just valued our independent culture that we had established," says Randy Pardue, MD, a family physician and one of five physician-owners at Trinity. "We did not conclude that joining [Summit] would destroy our culture by any means. It was one of those things that, having thought and prayed about it, we just thought getting into the bigger group could compromise what we had established. We really enjoy the culture that has been established here."

It was not a decision that the physicians at Trinity took lightly or made quickly. Summit is highly regarded and one of the largest physician groups in East Tennessee. Declining the merger offer meant that Trinity could not access the lucrative in-house ancillary services that Summit provides, such as lab, imaging, and other diagnostic services. Staying small and independent also meant having less bargaining clout with hospitals, insurance companies, and other payers.

The physicians at Trinity knew they were leaving money on the table. "We would have definitely seen an increase in income, but we just decided that wasn't the most important thing," Pardue says. "It's not that we would serve our patients less in the larger group. But we like the particular ways we are able to serve our patients in our own private group."

Marc D. Halley, MBA, president and CEO of Wester-ville, OH–based Halley Consulting Group, LLC, says several factors—many of which are beyond physicians' control—are threatening the financial viability of small, independent practices. "My personal opinion is that we are going to see an increase in the consolidation," Halley says. "The healthcare industry is maturing, and as industries mature, they consolidate. That is business 101. So it will continue to consolidate in urban, suburban, and rural settings."

That doesn't mean it's a lost cause, he says. But if your group intends to stay small and independent, you must realize that you will be swimming against a strong current.

"Can some groups remain in private practice, independent of others? Absolutely! But they have to be in the right setting with the right age mix," Halley says. "They have to be smart about how they do business, how they negotiate. And they have to be important enough to other players in the community to be left alone."

To make an informed decision about whether your practice can go it alone, Halley recommends a frank review of internal and external factors affecting your practice.

Internally, you should consider factors such as owner demographics. "If I have a small group practice, and the doctors are all 58 and they are saying, ‘We are tired of this. We've done our thing. We've been entrepreneurs,' then it might make sense for them to say, ‘We want to get out. We are having a hard time recruiting. We don't have the capital we need to recruit new doctors. We are afraid that if we don't join somebody we will be unable to negotiate with payers.' "

Another internal factor is practice performance, particularly as it relates to finances. "Am I able to fund my retirement plans and provide benefits? If I am able to do that still, I may be able to stay independent," Halley says.

Strategic capability also should be factored in. "That simply means that I am able to make decisions and remain independent because I have a specialty that is needed. I've got access to capital. My debt ratio is low enough so that I have access to all kinds of capital if I need it. So I have the resources to recruit and add equipment or diagnostics. Or I can't. I'm up to my eyeballs. I'm barely making payroll. I can't remain independent," says Halley.

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