Forming the perfect marriage with another physician practice

How to make a merger work once it’s happened

More physician practices are joining forces in an attempt to increase their bargaining clout in contract negotiations with managed care organizations and hospitals, as evidenced by the decreasing number of practices with 10 or fewer physicians.

According to a report by the Medical Group Management Association (MGMA) in Englewood, CO, the number of member practices with 11 to 50 physicians increased by almost 1% between 1995 and 1996, from 1,588 to 1,629. The number of practices with 51 or more physicians increased by 0.6%, from 396 in 1995 to 435 in 1996.

But while these mergers are great for the bottom line, practices need to take care when implementing reorganization strategies or risk plummeting employee morale and unwanted staff departures.

While some of the growth can be attributed to practices recruiting more physicians, and although the MGMA and other industry groups contacted by Physician’s Marketing & Management do not have data specific on mergers, anecdotal evidence suggests that an increasing number of practices are merging or being acquired.

The intent of a merger is to benefit all parties. But the results can be nightmarish to staff and to administrators who try to orchestrate the mergers, says Robert Bohlmann, FACMPE, a senior consultant with MGMA Consulting Service. "People think this will all be a piece of cake, but the reality is transition from two groups to one can take anywhere from six months to two years," he says.

Bohlmann, who often works with practices that are having post-merger difficulties, says the best way to avoid problems is to anticipate them. But he admits that people are human and don’t always think far enough ahead. "In the classic situation, you get groups who come together for the right reason but they don’t think through what a merger means. You get a group of naysayers involved. They hit at morale, and management is put in a very defensive position. They spend the next year putting out all these fires that never should have started to begin with."

What can you do in such a situation? Bohlmann suggests starting merger communications from scratch with the staff. "Hold meetings where you talk about why the two groups have come together," he says, and look for opportunities for the two groups to work together. "You need to give them a method of buying into the change, of setting good, concrete goals on which they can concentrate."

Form a transition team

Barbara Watson, FACMPE, executive director at Charlotte (NC) Orthopedic Specialists, has taken such an approach to mergers.

Her 26-physician practice is a product of five mergers — the largest occurred in 1991 and the most recent in May.

"We formed teams of people from both groups to look at key areas," Watson explains. For example, the records team determine if the records system could handle a merger, or if one or both of the practice’s systems are too full and would have to be scrapped for a completely new one. They look at how records can best be transferred and what potential problems will arise during the transfer.

The teams were made up of six to eight people from both practices — usually from the supervisory level, although Watson says she made it a point to include those who were the primary users of the systems involved. She had the following teams:

• records and X-ray;

• telephones;

• computer systems;

• human resources;

• marketing;

• accounting;

• business office policies;

• facility operations;

• fee schedules.

While most of the teams started working about three months prior to the completion of the merger, the last team didn’t start meeting until after the merger papers were signed. "You don’t want to show your fee schedules to someone until after you are sure of the deal," Watson says. Their work continued for a period of time after the merger, so that issues such as training staff on new systems and communicating new policies could be dealt with.

All of the transition groups reported to Watson, who became administrator for the merged practice, and to her counterpart at the other organization, who was to head up the operations side of the merged entity.

Effective communication is key

The process has two benefits: First, Watson says people are very objective when they know a change is not being rammed down their throats. "They come up with good decisions," she says. Second, Watson says it gives an early opportunity for the two staffs to get to know each other and work positively towards a specific end.

Like Bohlmann, Watson says the hardest part of a merger involves effective communication. "I remember reading in 1990, before our big merger, that something like 30% to 70% of merger failures were due to the human factor," she says. "People feel a real sense of loss of what is familiar and a fear of change; this is normal. But it means you are going to run into a lot of resistance."

No matter how hard management tries to communicate the reasons for the merger and how it will directly impact employees, Watson says it will never be enough. "They want to know more, and they want to know it before you do," she says.

Bohlmann says that no matter what you say or how you say it, people will still be surprised — and miffed — by some of the shifting responsibilities and organizational changes. "Just keep telling them what is going on and why. Eventually, everyone gets used to it," he says.

Prepare managers for all possibilities

Watson spends a lot of time trying to prepare managers for possible problems. "They have to understand the anger that will arise. I tell them to encourage questions and be upfront," she says.

She also recommends making use of physicians to help convey messages. Often, says Watson, they are as distraught over the change as support staff. "They joined a group because it had a certain culture or fit," she says. "They are losing something, too." Physicians’ empathy can be soothing if they are approached with questions and are willing to answer them.

"There are no tricks to internal sales," warns Watson. "You just have to make sure you use the people who are most excited about the possibilities of the merger," she says. "If you try to use people who aren’t excited to sell, you’re going to lose a lot more people than you would otherwise."

She is adamant that the people who communicate with staff shouldn’t make promises. "Limit what you say. Don’t let a physician tell the staff that nothing will change. That isn’t true. Everything will change. Know that what you communicate is the truth, and you will have as smooth a transition as is possible."

Watson always asks staff what could be done next time to make the transition easier. Sometimes, the suggestions are about training in new functions. Other times, they refer to how much time the two organizations spend getting to know each other.

Currently, Watson tries to allow a month of interaction at the new site so that staff can get to know each other. "But sometimes mergers move faster than that, and you don’t have that luxury."

Regardless, the staff appreciates being part of the process, and Watson says that can assuage some of the bad feelings that are bound to arise.

Layoffs are rare occurrence

Some of the problems which face other businesses that merge don’t occur with medical practice mergers. For example, layoffs rarely occur on a large scale. "Mergers in medicine are not like other businesses," Bohlmann says. "They don’t usually result in a significant cost savings." This is largely because most mergers don’t result in a facility closing. A common rationale for merging is to give a practice access to a new market.

Usually, if there is a duplication of positions, it occurs only at the very top. In most cases, a reassignment of responsibilities handles the problem — as when the administrator of one of the Charlotte practices took on the role of director of operations while Watson remained administrator of the new practice.

In most cases, says Bohlmann, any surplus staff you have are likely to either leave prior to the merger or just after when they realize the culture of the organization has changed.

Both Bohlmann and Watson say a major source of information is the MGMA. Its Library Resource Center can put together a packet of information that includes articles and names of practices which have gone through mergers for less than $100. Watson also recommends practices entering a merger situation pick up Transforming the Delivery of Health Care, by Keith M. Korenchuk ($55 retail) and Managing the Shock Waves: After the Merger, by Price Pritchett ($45 retail).

• To contact the MGMA Library Resource Center for an information packet, call: (303) 799-1111.

Barbara Watson, FACMPE, executive director, Charlotte Orthopedics Specialists, Charlotte, NC. Telephone: (704) 339-1030.

Medical Group Management Association, Survey Department, Englewood, CO. Telephone: (303) 397-7895.

Robert Bohlmann, FACMPE, senior consultant, MGMA Consulting Service, Englewood, CO. Telephone: (303) 397-7877.