5 Tips for Navigating a Group Merger/Acquisition

The evolution that is occurring in how we finance and deliver health care is resulting in consolidation throughout the industry. This, in turn, has put pressure on independent, private practitioners in all specialties, including ours. More than two-thirds of cardiothoracic surgeons have at least some type of financial arrangement with a hospital, university, or health system. The majority of these arrangements have led to an acquisition and employment model. In this column, Dr. Russell Vester summarizes some of the lessons he has learned as his practice has gone through the acquisition process.

Frank L. Fazzalari, MD, MBA, Chair, Workforce on Practice Management

S. Russell Vester, MD | Chairman, CVTS, Inc. | Chief of Surgery, The Jewish Hospital, Cincinnati, OH

The surgical group I belong to is in the process of formalizing a relationship with a large hospital system in our city. Although the talks are now finally reaching a conclusion, we’ve been in discussions for more than a year. Our experience has been that events move far more slowly than we would like.

In the course of our dealings, several things have come to the fore as being critical to the positive evolution of such a business engagement. I want to share these with those of you who might be contemplating similar moves in the future.

First and foremost, be as transparent as possible regarding all events and discussions related to your negotiations—no matter how small. This type of merger or acquisition can be very anxiety-provoking for everyone in your group. Suspicion or mistrust about what is being discussed and with whom can be very destructive. Being transparent can be cumbersome and time-consuming, but it is work well worth doing unless you want to deal with the merger or sale of your group at the same time it is falling to pieces. Make the phone calls. Have the extra meetings. I can’t emphasize this enough.

Second, get your advisors lined up in advance. You will need reliable advice on the legal boundaries imposed by Stark and anti-kickback legislation on whatever type of deal you create. Your suitor will have its own legal advice about this, and it will not be favorable to you. Count on that. Additionally, you will need a valuation consultant, who you can typically find at a CPA firm that emphasizes expertise in the medical practice world. Before you begin formal talks of any kind, get these two advisors lined up or you will be showing up out of touch and unprepared.

Third, get familiar with physician compensation data sources, such as Sullivan-Cotter, American Medical Group Association, and Medical Group Management Association. These are the data sources that hospital administrators will be using. You need to learn what each offers and what their data collection methods are. Your valuation consultant can be a big help here. No single data source is ideal.

Fourth, know your own business—top to bottom. You must know your monthly and yearly revenues. You must know the components of your overhead expense. You must know your Relative Value Units and on-call/ standby burden. You must clearly understand your position in your local market for your services, and you must know what your best alternative position is if the deal you are trying to create doesn’t come through (i.e., will you have to move and find work in some other city or talk to the hospital on the other side of town?).

Finally, set the groundwork for the future. Anybody can get a sweetheart 2-year deal. One of your main goals should be long-term security. I personally wouldn’t settle for anything less than a 5-year deal. Look to the future and create tolerable parameters for the following 5 years. Your greatest leverage is always with your first contract. Don’t give away the future for the present.