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Mergers work. At least that’s the experience Jim Haught, MBA, regional vice president of Atlanta-based Ortholink has had. In less than two years, a merger strategy has grown the 12-physician Atlanta-based Resurgens practice into a 49-physician group with its own practice management company Ortholink and an eye to further expansion.
Haught says the journey began as Resurgens started planning for the future. "We had four managed care contracts with 480,000 capitated covered lives. But we knew we had to examine our opportunities for growth."
The physician leadership was aggressive about getting contracts but were tied to one hospital system. "There were 248 orthopedists in Atlanta," says Haught. "We knew we had to have 50 or 60 to compete. There were also five or six hospital systems."
The physicians were savvy enough to know that adding physicians and practices haphazardly was not a good strategy. "We had to have geographic access. We had to identify players who had a lightening rod capability, who were the physician equivalent of rainmakers. You have to add locations and product lines."
In early 1996, Resurgens added its first group a four-physician practice. It was something of a watershed. There were three segments in Resurgens, says Haught. There were the aggressive physicians who wanted to be leaders, there were those who hated any thought of change, and doctors who stayed in the middle. "We had to concentrate on those in the middle," he says. "It took four or five months to convince eight of the 12 physicians that we really had to make this change. This addition helped them to see it can be done."
Adding the practice was easy from the physician point of view but difficult administratively. "Everyone had a fiefdom. No one wanted to cede power," says Haught. There were promises made, which he says in hindsight were foolhardy.
"They said there would be no internal changes in the first year. That was a really bad move. We had this board of directors of all the physicians in Resurgens and a five-person executive committee. The new practice had no representation on this executive committee."
The lesson, he says, is that if you are merging to add market presence, you have to make room on the executive committee for at least one person from the other practice.
Haught says the promise of no changes also hurt administratively. "Business operations must coalesce. It became a we/they think and took eight months to eliminate some functions and make some changes to non-medical staff leadership."
The group grew to 20 physicians by mid-1996. It was evident that if the planned growth to 50 or 60 physicians was going to occur through a merger, there would have to be changes. "For eight or nine months, we were beating our heads against a wall. We had limited resources, and the physicians didn’t want to pay what was required."
Haught says they came up with a plan that has eased subsequent mergers. The group formed its own practice management group. "It controls and accelerates the merger process and eases the administrative transition," he says. "There is no question of how things will be when a practice management company is running the show."
Thus, Ortholink was born.
There were still problems, however. Other practices in the geographic area of interest viewed Resurgens and Ortholink as "the big dog eating up the small dogs," says Haught. This limited the interest of potential partners. "It was a real PR problem."
For a while, nothing happened. Ortholink wanted to concentrate on bigger cities, like St. Louis and Cleveland. One group Haught talked to, however, wanted to concentrate on smaller cities, such as Nashville. "Cities like that need only one group to be a driver."
But by the end of 1996, Haught realized that both strategies small and large cities were necessary to succeed. In April, Ortholink joined up with the other management company. Once that happened, the mergers came hard and fast. Five groups were added in Atlanta, bringing the practice in that city to 49 physicians. "And none of these were groups we thought we’d be adding when we started out," says Haught.
The mergers have worked for Ortholink. "We have an increase in our value from pre-merger to post-merger, but there are other ways to measure success, too," he says. The physicians are excited about the practice, new physicians have ownership, there are new product lines coming out, and the practice is a "resonant voice" in contract negotiations. "I know we have gotten better than market rates in some contract negotiations."
However, Haught says there still may be bumps in the road as the practices integrate.
(Editor’s note: Next month, Haught will share how Ortholink and Resurgens have battled those obstacles.)