How the Little Things Can Kill a Practice Merger
MANAGED CARE January 1996. ©1996 Stezzi Communications
Considering a practice merger to better attract managed care contracts? Heed this consultant's warning to inoculate your merger plan against a terminal case of "athlete's foot."
In the past five years I've been a consultant in seven situations where groups of physicians have tried to merge in response to changes in market conditions. Three have succeeded; three have failed, and one is still struggling to accomplish its objective. In every case the merger had great potential for success.
In retrospect, I can identify a common thread in the three merger failures, a thread the still-struggling group may yet trip over, too. What was the merger-killer in all these instances? For lack of a more elegant medical metaphor, I call it "athlete's foot."
Consider my file on a proposed merger of two groups of high-profile surgeons. At first, they approached the consolidation with the kind of single-mindedness and discipline they would apply to operating on a brain tumor. Letters, memoranda, telephone notes and minutes of meetings all testify that the surgeons knew the importance of their plan to merge and the necessity of cooperating to achieve their goal. This awareness characterized their approach to problems of tumor-like seriousness: choosing the location of a principal office, agreeing on a surgeon recruitment plan, designating the main hospitals to be served and deciding how to divide earnings in the merged practice.
Then it came time to make decisions that were more analogous to the athlete's foot level of medical seriousness. What would be the new group's name? How would it be listed in the Yellow Pages? Which group's office manager would be in charge? Which group's computer system would be adopted? And how would the assistance of nurses be shared?
Here, ironically, the high-profile surgeons fell asunder. Personality differences came to the fore. Emotions and tempers became almost uncontrollable. I tried to explain to these surgeons that they were, in a manner of speaking, letting athlete's foot kill a patient they had just miraculously saved from a brain tumor.
It was to no avail. The merger didn't go through. Worse, precious time and energy had been wasted.
Past battles forgotten?
Another proposed merger risked figurative heart failure. It would have brought together groups that had battled in the past. They'd been together and apart in several combinations and had regrouped with other partners. Now, a hospital they all served was pressuring them to consolidate their forces. They agreed to put aside their past differences to find strength in numbers to prepare for the dynamics of managed care.
Again, they overcame past recriminations to be able to say pleasant things to each other, and they reached agreement on chest pain-sized issues such as the location of the central office. But again, athlete's foot proved fatal.
A third merger failure involved radiologists in a Midwestern hospital. The radiology department had been divided and then subdivided with the hospital's cooperation; now the institution believed it was important to bring everyone together again for efficiency and economy.
All the doctors understood the need to address the concerns of the changing marketplace. In this case, the outbreak of athlete's foot came as a side effect to the more serious issues. Deciding how to maximize the benefits of advanced techniques developed by some of the radiologists became the merger's undoing, even though the big issues about the merged entity itself provoked no insoluble difficulty.
In the successful mergers I've seen as a consultant, the groups defined their problems and focused on the major matters to be resolved. Time and again the successful groups learned how to separate the big issues from the little issues and understood the relative importance of each.
If you're attempting to complete a merger, inoculate your plan against athlete's foot by applying the "three D's": Define carefully what are major issues and what are minor ones. Decide from the start among all parties that no relatively trivial matters will be permitted to be "deal breakers." Then delegate minor issues to a small committee that has the authority to solve those problems for the entire group. And once the issues are resolved, don't let their resolutions unravel.
Not long ago I was present for a merger discussion involving nine physicians, all of whom had been working in the same community for the same hospitals for a long time. As a stepping stone toward their consolidation it was proposed that a call program covering six practices involving ten physicians should be implemented within a short period of time. In so doing, it was suggested, the doctors could test their compatibility and true willingness to work together.
One of the younger doctors protested that the idea was risky, because the doctors didn't really know each other very well. A senior physician responded that he felt sure everyone really knew a lot about all of the others just because they served on the same medical staff, frequently crossed paths in the hospital and, in more cases than they realized, were exchanging patients.
In reality, in many situations the demographics can be skipped. Groups that have been competing are far more familiar with each other than are the consultants who come in to analyze the relationship. The physicians don't need massive data about their practices when they have been working together or in competition for many years. Almost always they know where their patients come from and where the patients are who use the services of their competitors. But they must heed this knowledge.
Focusing on the big picture
The central problem in making a merger successful is human nature. In the past, physicians who had difficulties working together often could split up their practices at will. Now working together has become, and will most likely remain, more of a requirement than an option. Many physicians now find it necessary to do something they've been rejecting throughout their careers: yield some control of decisions affecting their destiny. And this is true whether physicians have been practicing for five years, 10 years or 25 years.
The key to success is to see the big picture and not lose its focus. The lesser problems that have caused groups to break up in the past and prevent groups from merging successfully today can very often be characterized as athlete's foot. As some of the practices I've seen have learned the hard way, these problems need to be turned over to a "foot doctor" for diagnosis and treatment. Time wasted on those issues is time lost. Opportunities for success in the consolidation of practices should not be sacrificed through undue emphasis on issues that are clearly of secondary importance compared to the benefits promised by the merger.