4 Steps to a Successful Integration Process

In order to be successful, a merger must be followed up with a detailed course of action. Here are several specific places where physician groups routinely stub their toes when merging. But, if you get them right, your success rate will soar.

  1. People

Mergers succeed or fail based on the quality and dedication of the people who execute them. Start with your leadership team. Determine the composition of the new management team as far ahead of time as possible. This helps mutually ensure physician owners that the integration process is beginning to unfold both smoothly and sensibly.  Then, identify those individuals (and occasionally teams) who are outside the leadership realm but still essential to retain. Develop specific strategies to keep them engaged during the transition.

Be proactive and make opportunities. If your strategic intent calls for headcount reductions, do not rely on “natural attrition.” That is just abdication in the name of kindheartedness. Similarly, even if reductions are not a big part of your plan, people expect them. Use the acquisition as a time to do a little constructive pruning if need be and consider the possibility of offering severance packages.

  1. Patients

Attention to patients should seem like a priority at all times, but it is particularly true during periods of change and uncertainty. Because mergers are times of great internally-focused thinking and activity, an outward focus on patients can suffer during this time. Competitors will seize any open opportunity to lure your patients away, and practice upheaval is one such door. They may spread misinformation and regale your key referring physicians with the dangers of your merger and the glory of their own practice. Do not let that happen.

Be proactive and convincing. Take the show on the road. All physicians must actively outreach and proactively engage referring physicians. Keep them in the loop with frequent communication. Walk them through what you are doing, if and how it will benefit them, and state clearly how they can get in contact with any questions or concerns throughout the process. In addition, provide physician liaisons clear language about what they can (and cannot) say to referring physician practices.

Keep referring physicians informed and make sure to spend time listening to their concerns. This might even be a good time to probe what they like and don’t like about your existing relationship or services you offer. If there is a weakness in their mind, it’s better to open that door proactively with an eye toward solving it in the integration/transition process than let a competitor open the door with an eye toward leveraging it.

  1. Culture

Culture is woven into the fabric of a workplace over time. That makes it difficult to see and even more difficult to change. The list of deals that have famously failed because of mismatched cultures is epic. The first, and perhaps most important, rule in dealing with culture during a post-merger integration is to compare the existing cultures and see how they will be combined. Do not downplay the culture as something that will work itself out. It won’t. Here are some questions to ask yourself:

  • How are decisions made within your practice, unilaterally at the top or based on data and recommendations from employees? Are they made on the spot or only after thorough consideration?
  • Is senior management dictatorial or consultative? Is junior management jaded or motivated?
  • Is innovation a catchy tagline or a true religion? (Ditto collaboration.)
  • Is success seen as a team effort or the result of a few star performers?
  • Is the practice’s technology investment driven more by opportunity or obsolescence?

The second rule in merging cultures is to know thyself. It is not possible to integrate two cultures based on an understanding of only one of them. Culture assessment should begin way before staring down the path of a merger—and well before the demands of a deal set in.

  1. Communication

In medical practice mergers, good communication is by far the simplest and cheapest way of reducing uncertainty and stress—two of the biggest causes of dysfunctional deals. Good communication can:

  • ease or shorten the inevitable periods of reduced productivity;
  • build trust with stakeholders;
  • prevent the loss of key staff, patients, and valued referring physicians;
  • clarify objectives and unify focus;
  • ensure preparedness for expected changes; and
  • preempt or deflate competitive rumors and disinformation.

Start by being up-front and direct about the rationale behind the deal. Don’t assume that its logic and benefits are self-evident to employees or others. To the greatest extent possible, have clear and concise answers to the one question at the top of everyone’s mind:

“All that sounds fine, but how will the merger affect me?”

Here are some hints and guidelines for how to proceed with compassion and respect:

  • Do not be an information cheapskate. Be open and transparent. Share more than you are comfortable sharing.
  • Communicate the extent to which the practices will be integrated and how that will affect employees’ jobs, benefits, reporting lines, information flows, and culture. If integration issues or actions have yet to be decided, be clear about an expected timeline for when they will be.
  • Tailor your communications to different audiences. However, make sure all your messages are consistent by tying them back to the overall strategic intent of the deal.
  • If there is no news to report, report that there is no news.
  • Manage expectations and mood. Listen for concerns and questions, then address them straight on.
  • As responsibility for communication trickles down the hierarchy, be very clear about what people should say and not say. “I don’t know, but I’ll find out” is always a better option than just winging it.
  • Identify and engage staffers who can exert positive influence over others. Conversely, if there is a person or group who proves to be the source of recurring rumors or discontent, resolve their issue or get rid of them.
  • Do not hide or shy away from bad news. Identify problems as they occur and seek to rectify them.
  • Do what you say you will do. Nothing crushes morale and erodes productivity like a stream of empty promises.

The phases prior to a merger, e.g., strategic planning and due diligence, are indeed essential, but the integration that occurs post-merger is by far more important to the deal’s overall success—or failure.


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Getting Your Practice Back

As the owner of a physician practice, you work hard and sacrifice a great deal of time to make your business successful.  As the practice grows, so does your workload. You start on the front lines driving clinical treatments and referrals, then move to the back office supervising daily operational tasks, often obligatory, just to keep the practice afloat. You know you’re needed to keep the business running, but you want to make sure it continues to operate efficiently if you aren’t around. Here are four things you can do replace yourself in your practice and bring back some time to yourself:

Delegate Responsibilities

Responsibilities can really weigh you down as they become more detailed and more time consuming. When responsibilities start to detract from the things you love, it’s probably time to consider delegating some of those responsibilities. Being a successful leader means learning to prioritize your duties and assign those tasks to someone who you can trust to perform well.  Be aware that finding the right individuals to delegate responsibilities to can be time consuming. You need to be sure whoever is assuming those duties can perform at your own level of expertise. If you have a management team in place, reach out to your best employees and teach them how to do the tasks that take up a lot of your time. Alternatively, or in addition to training staff, considering finding a partner who can complement your business.

Outsource Help

Some tasks may be better completed by outsourcing rather than hiring and training new employees. Back office assignments, such as billing and collections, can be sourced out if you aren’t in need of full-time help. It is more important to free up your time for those heavyweight projects. If your time is spent on resubmitting denied claims rather than long-term planning, you could miss out on taking your practice to the next level of its potential.  Keep in mind if you choose this route that it can get costly, especially if a lot of duties are being replaced by outsourcing. Additionally, quality is a concern to consider as well if you choose this route. Will the quality be to your standard and will your practice be a priority for the vendor like it is for you?

Consider Bringing on a Partner

Perhaps you want to take a bigger step back than just simply passing off some tasks to someone else. You want to grow your practice, but you don’t want to do it alone. You can see the bigger picture, and you know a partner is necessary.  A physician partner can help you get to the next level by bringing a complimentary skill set to the table. Having a physician partner will allow you to spend more time doing the things you love outside the practice and focus on the things you have a passion for within the practice. A good physician partner will want to see the practice succeed because of the synergistic elements you two bring to the practice. If you do decide to add a physician partner, there are many things to consider, which I have addressed in previous articles.

Consider a Gradual Complete Exit

Maybe your aim is to retire completely from your practice. Maybe you love your practice, but you’re drained and need to get out or move on. Maybe your priorities in life have shifted but you don’t have a way to step back. This is the road to succession planning. A new owner could be your best bet. Whether that’s a physician partner or another acquiring entity, you can work to create a transitional period after the sale. Your practice is a financial investment for some buyers, so you if you can illustrate the value your employees bring to your business, you can advocate for their continued employment. After all, if you are going to leave your practice, you want to make sure you leave your employees in a good atmosphere. When it’s time to replace yourself, it’s important that you provide a secure environment for those you leave behind. Additionally, a gradual transition out of your practice will give everyone who works with you a chance to get used to the changes, and it will retain their respect for you.

Planning ahead allows you to focus on the best fit for the practice, first and foremost. Once you find the best fit that will respect the legacy of the practice and your employees, then it is very likely you will also find the greatest value.


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Thinking of buying or selling a medical practice?

Medical practice acquisitions represent a challenging and risky strategic decision. There are three main legal structures for acquiring a medical practice: asset purchase, stock purchase, or merger. All three of these structures are different types of acquisitions. A merger is a type of acquisition that has a particular legal meaning.

The decision to buy, sell, or merge a medical practice is more complicated than ever, and physician owners must have a clear understanding of the legal structure of the potential transaction. Here are some of the advantages, disadvantages, and considerations for these legal structures.

Asset Purchase

In an asset purchase, the buyer purchases specific assets of the target practice that are listed within the transaction documents. Buyers may prefer an asset purchase because they can avoid buying unneeded or unwanted assets and liabilities. Generally, no liabilities are assumed unless specifically transferred under the transaction documents. Because the liabilities remain within the selling practice, buyers can eliminate or reduce the risk of assuming unknown liabilities.

Further, buyers typically receive better tax treatment when purchasing assets as opposed to stock. Buyers may also be able to reduce their taxable gain or increase their loss when they later sell or dispose of the assets.

The main risk to buyers in an asset purchase transaction is that a buyer may fail to purchase all of the assets it needs to effectively run the practice. There are also various aspects of an asset sale that can be time-consuming and drive up transaction costs, such as listing specific assets and determining their value.

For some assets, third-party consent may be required before the assets can be transferred to the buyer. The manner in which title of an asset is passed to the buyer will vary depending on each kind of asset. Finally, there is always the risk that the seller could retain sufficient assets to continue as a competing going concern. This risk is usually mitigated by requiring that the seller enters into a covenant not to compete with the buyer.

Sellers generally disfavor asset transactions because the seller is left with potential liabilities without significant assets it could otherwise use to satisfy those liabilities. Also, the tax treatment of an asset sale is generally less favorable to sellers than a stock sale. The practice and its shareholders can each potentially incur taxable income, which could result in double-taxation of the sale proceeds. Entities that have pass-through taxation such as partnerships, LLCs and S corporations can avoid the problem of double taxation and thus may be more likely to accept an asset purchase structure.

Stock Purchase

In a stock purchase, the buyer purchases the stock of the target practice directly from the target’s shareholders. The practice remains an existing going concern after the purchase, and its business, assets, and liabilities are all unaffected by the transaction. A stock purchase may be preferred if the buyer wishes to continue operating the target practice after the purchase. Further, absent unusual circumstances, consent from third parties is not needed to approve the transaction.

However, the buyer may be exposed to unknown risks by buying the entire practice, assets, and liabilities. Buyers can reduce their risk by holding back some of the purchase price in escrow to satisfy any liabilities that arise after closing.

Obtaining approval for a stock purchase can be problematic if the target has a large number of shareholders. Unless there are agreements in place before finalizing a deal, buyers cannot force shareholders to sell. Thus, a holdout shareholder could refuse to sell to the buyer. This result can be very undesirable for buyers and could ultimately cause the deal to fall apart.

Buyers may have less preferential tax treatment in a stock purchase. However, in certain circumstances, buyers can elect to treat the stock purchase as an asset purchase, thus securing a desirable tax treatment.


In a merger, two separate legal entities become one surviving entity. Under state law, the assets and liabilities of each are then owned by the new surviving legal entity. There are several structures that mergers can take. The simplest is a forward merger, whereby the selling practice merges into the purchasing practice, and the purchasing practice survives the merger.

Sometimes, buyers will wish to keep the target practice as a separate legal entity for liability reasons, so the buyer will instead merge the target into a wholly-owned subsidiary corporation of the buyer, called a forward triangular merger. When complete, the subsidiary survives the merger, holding all of the assets and liabilities of the target practice.

Both a forward and a forward triangular merger generally require consent from third parties, as the target practice ceases to exist after the merger and all of its assets are owned by the surviving entity. A reverse triangular merger is similar to a forward triangular merger, except that the target practice is the surviving entity, instead of the wholly-owned subsidiary of the buyer.

How a merger is taxed depends on its structure. Generally, forward and forward triangle mergers are taxed as asset purchases while reverse triangular mergers are taxed as stock purchases.

In terms of required corporate approvals, mergers generally require approval only of the seller’s board of directors and a majority of its shareholders (absent other requirements in its charter documents). This lower threshold is particularly appealing when a target practice has multiple shareholders. However, shareholders who vote against the merger will generally have appraisal rights under state law. Appraisal rights, or Dissenters’ Rights, enable dissenting shareholders to petition a court to obtain the fair market value of their shares. This can complicate transactions and increase the buyer’s costs.

Clearly, medical practice transactions can be complicated. Consequently, it is imperative that physicians have an experienced and competent team consisting of a consultant, accountant, and attorney who help you review all of your options and choose the one that ensures your practice’s continued success.


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5 Key Ingredients for a Successful Startup

Physician entrepreneurs need know-how and a strategic vision to run a company. They also need to know what they don’t know so they can fill those critical knowledge gaps. I work with many physician entrepreneurs with great ideas who want them to come to fruition. These physicians are often curious as to what would make their startup successful. You could argue that many ingredients go into a successful startup, and luck is undoubtedly one of them. However, there are additional elements that are necessary for success. Here are five critical elements that are sometimes missing when beginning a startup:

No strategy

Unfortunately, most startups—like many medical practices—do not have a strategy even though many claim they do. Rather, these physician entrepreneurs often have mission statements or goals. For example: “Our strategic goal is to grow 20 percent per year in revenues and profits over the next five years.” These are not strategies; these are aspirational goals or wish lists. A strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a significant challenge or opportunity. A strategy should be described very simply, often with an analogy or metaphor. Arriving at this succinct conclusion, however, takes many hours of work.

No evidence-based business model

Sometimes a startup will have a “business plan” that describes the company and how it plans to reach target numbers in their five-year financial pro forma. Problem is, this narrative consists mostly of assumptions and judgment calls. Business models should first start with the idea (solution and opportunity).  Models should then show how each critical element of the business ecosystem works together with all the other elements to achieve repeatable, sustainable sales. Each significant assumption needs to be tested and verified so potential investors are confident of the startup’s success.

No compelling story

In my experience, very few physician entrepreneurs know how to craft and tailor their story to all of their audiences. Telling your story includes infographics, presentations, and most importantly, answering questions. A standard one-size-fits-all presentation does not work. Every audience has different levels of experience, expertise, and interests. I find most of the pitches are presentations with a text-filled slide deck and a rambling list of product features. They don’t show the bigger picture or how their idea will solve a problem. A persuasive story must take people from Point A (uninformed or skeptical) to Point B (knowledgeable and committed). The story must also be filled with benefits that relate to the specific persons addressed.

No fundraising plan

Most physician entrepreneurs leave fundraising until the end of the development process. Raising funds is hard work and takes lots of time away from nurturing the business. But, you have to start early and identify when you will need additional funds, how and from whom you are going to raise these funds, and outline a process to reach your goals. It is challenging to “sell” investors on a high-risk venture. It is better to get investors involved as early as possible and let them “sell themselves” along the way.


A critical component in the company’s success can be attributed to the CEO and the leadership team. For many investors, the CEO and team’s capabilities are the first, and often most important criterion, they evaluate. Founders with a great idea are not automatically great CEO’s. It takes a person with vision, know-how, focus, and a growth mindset.  The CEO must have the ability to make decisions under stress and uncertainty, and know how to keep score (revenues and profits). A great CEO knows the development phases of the business and is able to adjust herself and the team to meet the challenges of each phase. A talented CEO and team determine the success of the company.

These five elements are important, but by no means the only ingredients. Just as in baking, a successful startup requires careful calculations, precise measurements, and fine tuning. With the right guidance and structured thought process, physician entrepreneurs can run their existing medical practice and also nurture that next budding idea that they have.


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6 Areas to Consider When Conducting Valuations

Have you ever wondered what your practice looks like to physicians looking to join or to potential acquirers?

If you had to look at a number of physician practices and determine which practice has the best prospects for the future, could you pick it?

Although the methodologies for different-sized practices vary, the principles are the same. When outsiders evaluate your practice for an acquisition, one element they consider are potential synergies between the practices. The value proposition may be greater when practices combine because of increased market strength, cost advantages, complementary services and/or increased service offerings, or extended geographic range.

The value proposition depends on whether you are an investor, acquirer, or employee. Some characteristics of an attractive practice include: a high return on equity, sustainable and consistent growth in revenues and earnings, growth and size of market value, market leadership, service offerings aligned with patient needs and wants, and changing to stay at the forefront of the market. It is helpful to do a valuation as part of the analysis of a practice. Valuations can be done when selling a practice to investors, merging with another group, or when adding/removing a physician partner.

That being said, valuations change over time and not all acquisitions are a good deal. Here is some guidance for how practice owners can view their practices as outsiders and questions for physicians to ask as they contemplate joining a practice, especially as a future partner.

There are three basic approaches to valuations:

  • Income– There are several different income methodologies, with discounted cash flows being the most common. This approach considers expected income and risk adjusted returns.
  • Market– Revenue or earnings before interest, tax, depreciation and amortization (EBITDA) multiples of comparable practices may be used along with adjustments for risk or particular strengths of a practice.
  • Asset– This approach attempts to get a picture of business value by viewing the practice as a combination of assets and liabilities. It is based on the economic principle of substitution, which examines the cost to create a similar business that can produce the same economic benefit or utility.

Aside from the formulaic approach of a valuation, there are many quantitative and qualitative factors to consider when evaluating a practice. Some factors will be more dominant than others. To determine the weightings, you must have an understanding of the medical specialty and critical success factors of practices within that specialty. In addition, it is important to determine what is relevant and what is not.

Here are six areas to evaluate the prospects of a physician practice:

1. Competitive

  • What is the size of the market?
  • Is the market growing, maturing or declining?
  • What is the impact of technology and social trends on the market?

2. Competitive landscape

  • Is it a highly fragmented market or are there one or more dominant practices?
  • What are competitors’ strengths and weaknesses?

3. Market positioning

  • What are the practice’s strengths and weaknesses?
  • Is it a market leader?
  • What is the practice’s market share compared to its competitors?
  • What are its competitive advantages?

4. Operations

  • Are the business and clinical processes effective and efficient?
  • Are there any issues in the physician governance?
  • Are there concerns with any of the offered services?

5. Strategy

  • Is the practice growing through acquisitions or organically?
  • Are the marketing plans effective?
  • Are the operational strategies effective?

6. Practice management

  • In a small practice, the effectiveness of the management team can be evaluated more readily than in a large practice. Understanding the culture and effectiveness, as well as any shortfalls, of the management team is critical.
  • As the economic and market factors change, how does management react to the changes? For instance, a decline in revenues may occur because of market or economic conditions. Does management react in a way that helps the practice remain profitable and still postured for future growth? Cutting expenses is a great short-term solution that can have detrimental long-term consequences if not done properly.
  • Is management being rewarded only on short-term results or are there long-term incentives in place?
  • Does the practice’s culture contribute to growth and value maximization?
  • Do they respond to patient needs effectively?

When evaluating your practice, go beyond the historical growth rates. You need to see how changes in the market and business environment will affect the practice. As a result, you will be evaluating a number of internal and external factors that affect the entire physician practice. Look at how the practice responds to changes in patient needs, market trends, and technology. Determine if your practice is agile and able to change its course when necessary. If not, is this a red flag with regards to physician governance.

Valuations can be done at any time and are a useful way to see the bigger picture. It’s always a good idea to assess your practice, look at the competition, attract new talent, and improve patient care. At the end of the day, employees and investors want to know if your practice is a winner both now and in the future.


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Physician Group Post-Merger Integration

Closing the deal is a major milestone, but it’s the post-merger integration process where the real value is created. It may be difficult to believe, but the post-merger integration can be even more complicated than the deal itself. Communication is critical during the post-merger integration process, and the two groups need to share documents easily. Information must be transitioned seamlessly throughout and the whole integration process has to meet physician owners’ expectations for key timelines and capturing synergies in growth and costs.

Conducting post-merger integration at a high speed is one of the most critical elements to a deal’s success. Taking proactive action within the first 100 days post-closing can significantly realize deal synergies. Practice administrators working in concert with a seasoned consultant must develop a well-structured plan for their post-merger integration efforts to vastly improve their odds for a successful outcome.

The complexities of integration

Many physician owners spend months of time and effort closing merger transactions but stumble when it comes to integration. Oftentimes, buyers significantly underestimate the level of involvement in a successful integration effort. Common mistakes include:

  • Failing to properly assess the resources to integrate and operate two businesses
  • Not addressing “people issues” and cultural differences of the physician groups
  • Losing focus after the signing of a deal
  • Not acting promptly, allowing key personnel to leave both organizations
  • Overloading management with integration responsibilities outside their scope of expertise

These mistakes lead to a lack of synergies and a significantly slower integration effort. This lack of speed during integration tends to compound the mistakes.

Speed is of the essence

Physician groups that move slowly during the integration process are vulnerable both financially and competitively. The announcement of a merger between two groups creates uncertainty among employees of both organizations and fuels anxiety-filled discussions about who will stay and who will be let go. Without proactive and effective communications, employee morale will suffer. Even worse, those key employees that you hope to keep may jump ship to competitors or other organizations.

The turbulence of an announced merger can give competitors a perfect opportunity to call on your referring physicians and even patients. The community at large can spread all kinds of unconfirmed “alternative facts.” A slow response to retention initiatives (retention of employees, patients, and referring physicians) during a merger can leave competitive doors open too wide for too long. Decision-making must be streamlined for the integration effort to move forward. The completion of a few “quick win” integration tasks will bolster confidence in the team leadership and keep the process moving forward. For example, one of the first things to accomplish is a staff meeting to discuss key human resource issues such as payroll schedule and benefits transition.

A plan of action

Strategic integration decisions should be put in place prior to the completion of due diligence because these strategic decisions may influence the deal terms and structure. It’s important to identify these details and include them into the deal agreement before closing. Ideally, a 100-day integration plan is implemented when the deal closes. This should include identifying tasks to be completed, known issues, milestones, and planned timelines for completion.

Following the deal’s closing, detailed planning sessions should begin with functional department members of both practices. In the beginning stages, joint meetings are essential to establish relationships between representatives of both practices. Once initial on-site discussions are completed, subsequent discussions leveraging virtual meeting technology can take place. The two together will result in more efficient time utilization and reduced travel costs.

If you think of a physician group merger as a marriage, then you can see there is still a lot of work left to do after the wedding date, or day 1. Yes, it’s the day in, day out effort of the marriage that takes patience and thoughtfulness—and also tends to get messy. Compared to a marriage, the wedding is easy. Post-merger integration is critical to realizing the value of a deal. It’s also highly complex, taking place under severe time pressure, and happens in parallel to running the core business—making it one of the most challenging initiatives physician owners and practice administrators will ever undertake.

What’s the secret to post-merger integration success? Focus on the strategic objectives of the deal, accelerate synergies, and build a high-performance medical practice.


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Women and Healthcare

The Women’s Heart Alliance surveyed over 1,000 women, ages 25 to 60, to learn about barriers and opportunities regarding cardiovascular disease. Per the Journal of the American College of Cardiology (2017;70(2):123-32), the survey revealed:

  • 45% of the women were unaware that cardiovascular disease is the leading cause of death in women
  • 71% of the respondents indicated they had almost never raised the issue of heart health with physicians

Here are some other noteworthy statistics regarding women and healthcare:

  • 80% of healthcare decisions are made by women (Fast Company, Apr 13, 2015)
  • 77% of surveyed women say they don’t do what they know they should do to stay healthy; 62% claim they just don’t have the time (The Power of the Purse: Engaging Women Decision Makers for Healthy Outcomes)
  • 70%-80% of all consumer purchasing is driven by women (Forbes, Jan. 21, 2015)
  • 43% of surveyed women passed a health literacy quiz (The Power of the Purse: Engaging Women Decision Makers for Healthy Outcomes)
  • 35% of surveyed women don’t fully trust their physician (Harvard Business Review, May 28, 2015)


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