The Medical Group Management Association’s most recent MGMA Stat poll asked healthcare leaders if their practice went through a merger or acquisition in the past year: 18% answered “yes,” while 82% answered “no.” Respondents who answered “yes” were then asked to specify what type of merger/acquisition their organization went through. More than four in 10 (42%) said they “acquired another practice,” 23% responded they were acquired, 20% specified their practice was merged with another practice and the remaining 15% stated “other.”
Respondents who answered “other” indicated:
- Formed a regional healthcare delivery system between two organizations.
- Capital investors.
- Unified nine hospitals under one tax ID number.
This poll was conducted on June 4, 2019, with 1,448 applicable responses.
There are several issues that cause physicians and their medical groups to consider merging with another organization or forming a combination of legal entities. If your practice is considering this change or has completed this transformation, take some time to explore the reasons that brought about that change. Even if you have already merged with another entity or sold the practice, you can always improve the relationship for the long-term success of the organization.
While this week’s MGMA Stat poll asked about experience over the past 12 months, it must be noted that for the past five years, medical groups have merged or formed some other combination at a steady pace. When looking to join another group or entity, consider the following factors:
Generational and personal issues
First, explore the generational differences of your provider workforce. Younger generations may hold different values and beliefs compared to previous generations when it comes to employment. Physicians in their 50s and older come from a generation that views independent physicians as small-business owners, and the physician-owned practice represents the tried-and-true model of ultimate success. Many of today’s physicians in their 30s and 40s have seen the lifestyle that their older mentors experienced and are choosing a different one — one that offers a better quality of life. They understand that this often means seeking employment with a system or hospital, and they are willing to make certain sacrifices, such as giving up autonomy, to ensure that they meet their lifestyle goals.
Economic issues
The economic reality of the past 10 years is that physician overhead — the cost of having a medical practice — has increased every year. In fact, overhead has increased much faster than reimbursement. Many physicians believe that the only way to survive in today’s environment is to merge with another practice and form a larger group (thus taking advantage of economies of scale), or to sell the practice to a hospital and become an employee.
Competitive issues
Can your practice survive in today's environment of transparency, measuring quality and patient satisfaction, tracking and reporting outcomes? Do you have the time, expertise, systems and investment in people and technology to keep up with today's demands? Many smaller groups believe that joining a hospital or becoming part of larger medical practices is the only way to have the resources to compete and survive.
Develop a culture of trust
Frequent communication is the only effective way to build trust. Physicians must hear what administrators are thinking, especially from the top. While physicians appreciate the communication, if messages do not come from or lack the support of the top administrator, doctors will quickly feel disenfranchised. This undermines what you’re trying to accomplish and also affects long-term strategy. Build a culture of trust and transparency with open and honest communication.
The next step is to make sure that those who have been assigned to communicate with the physician group or physicians are empowered to make decisions. Physicians must feel as though they not only have a forum to communicate but can get answers in a reasonable amount of time. Focusing on these strategies will help you develop a culture of trust and open a productive dialogue among physicians and hospitals.
For more information on how MGMA Consulting can assist you with these or other physician-hospital issues, please contact Nick Fabrizio at nfabrizio@mgma.com
Additional Resources
- “Executive Session: Gary Herschman on private equity investment in healthcare” (MGMA podcast)
- “Steps to a successful merger or acquisition“ (MGMA Member tool)
- “Owning it! Strategic planning, navigating M&A and staying independent in healthcare today” (MGMA insights podcast)
- “Physician practice mergers: The importance of due diligence and mutual trust” (MGMA Connection article)
- “Factors of a positive culture: behavior modeling, communication, engagement, & empowerment” (MGMA Research & Analysis report)
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