Managing Your Practice

Merger options



The ongoing sea change in medicine has led to a substantial erosion of physician autonomy and to ever-increasing administrative burdens that hit small practices the hardest. Does this mean that the independent private physician practice model is doomed, as some predict? Absolutely not; but it will force many solo practitioners and small groups to join forces to protect themselves.

Those practices that offer unique services, or fill an unmet niche, may be able to remain small; but most smaller practices will need to consider a larger alternative. In my last column, I outlined the basics of arriving at a fair market value for a private practice; once that has been accomplished, you will be in a position to consider the various merger options that are available.

Dr. Joseph S. Eastern

Dr. Joseph S. Eastern

One attractive and relatively straightforward strategy is the formation of a cooperative group. In most areas, there are very likely several small practices in similar predicaments that might be receptive to discussing a collaboration on billing and purchasing. This allows each participant to maintain independence as a private practice, while pooling resources to ease the administrative burdens of all. Once that arrangement is in place, the group can consider more ambitious projects, such as the joint purchase of an integrated electronic health records (EHR) network, sharing personnel to lower staffing costs, and an integrated scheduling system. The latter will be particularly attractive to participants in later stages of their careers who are considering an intermediate option, somewhere between full-time work and complete retirement.

After a time, when the structure is stabilized and everyone agrees that his or her individual and shared interests and goals are being met, an outright merger can be contemplated. Obviously, projects of this scope require careful planning and implementation, and should not be undertaken without the help of competent legal counsel and an experienced business consultant.

A more complex but increasingly popular option is to join other small practices and providers in an independent practice association. An IPA is a legal entity, organized and directed by physicians for the purpose of negotiating contracts with insurance companies on their behalf. Because of its structure, an IPA is better positioned to enter into such financial arrangements and to counterbalance the leverage of insurers; but there are legal issues to consider. Many IPAs are vulnerable to antitrust charges because they include competing health care providers. You should check with legal counsel before signing on to an IPA, to make sure that it abides by antitrust and price fixing laws. IPAs have also been known to fail, particularly in states where they are not adequately regulated.

One proposed successor to the IPA is the accountable care organization (ACO), an entity born as a component of the Affordable Care Act. While the official definition remains nebulous, an ACO is basically a network of doctors and hospitals that shares financial and medical responsibility for providing coordinated and efficient care to patients. The goal of ACO participators is to limit unnecessary spending, both individually and collectively, according to criteria established by the Centers for Medicare & Medicaid Services (CMS), without compromising quality of care in the process. More than 600 ACOs had been approved by the CMS as of the beginning of 2014.

As the name implies, ACOs make providers jointly accountable for the health of their patients; they offer financial incentives to cooperate and to save money by avoiding unnecessary tests and procedures. A key component is the sharing of information. Providers that save money while also meeting quality targets are theoretically entitled to a portion of the savings.

As with IPAs, ACO ventures involve a measure of risk. ACOs that fail to meet the CMS performance and savings benchmarks can be stuck with the bill for investments made to improve care, such as equipment and computer purchases, and the hiring of mid-level providers and managers, and may be assessed monetary penalties as well. ACOs sponsored by physicians or rural providers, however, can apply to receive payments in advance to help finance infrastructure investments – a concession the Obama administration made after receiving complaints from rural hospitals. It is important to remember that the ACO model remains very much a work in progress.

Clearly, the price of remaining autonomous will be significant, and many private practitioners will be unwilling to pay it: Only 36% of physicians remained in independent practice at the end of the 2013, according to data from the American Medical Association – down from 57% in 2000; but those of us who remain committed to independence will find ways to preserve it, by mergers or other methods. In medicine, as in life, those most responsive to change will survive and flourish.


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