Benefits of Strategic Planning Today

The COVID-19 pandemic has undoubtedly hit practices hard.  I have many physician clients that have either closed their practices temporarily to non-urgent patients or have gone the route of putting most of their patients on telemedicine visits.  But the business of medicine is not taking a break, and as the world gets a better grasp on the virus, your clinic will once again be busy as you gear back up with treating your patients.  Consequently, physicians are taking this opportunity of decreased patient load and less clinic hours to focus on strategic business initiatives they have been putting aside.  Along those lines includes strategic planning, and if you have not done strategic planning in the past two years, then your practice is long overdue. The strategic plan, to be of long-term value, must be treated as an ongoing business process.  It must evolve and change to reflect changing market and industry conditions.

As a physician owner, you are busy.  You have an endless to-do list, a full calendar, and many people to talk to, making you wonder how you are going to get it all done. However, as the practice grows and the healthcare environment becomes more complex, the need for strategic planning becomes greater. Creating a strategic plan and thinking strategically are not about doing more.  They are about focusing how you spend your time so that you are more effective in reaching your goals and getting to where you want to go. That said, no physician practice has an unlimited amount of time, money, or people resources.  Strategic planning can help you make the most of the resources you have, allowing you to have more enjoyment in your work while you are doing it.

Here are eight reasons for getting your team together for a strategic planning session.

  1. Vision. You will create a clear vision for what success looks like in the future.  If you don’t know where you’re going, how are you going to get there?
  2. Priorities. You’ll identify priorities for the short and medium term.  You can’t do everything at the same time, so focus on what needs to be done now and then do it well.
  3. Alignment. You’ll get alignment and buy-in around direction and strategy.  Having these conversations will move your team from implicitly being on the same page to explicitly being on the same page.  The clarity will energize the whole team.
  4. Identify Challenges. You’ll create an opportunity to talk about key issues facing the business (competition, changing trends, etc.).  You want to ride the waves, not get smashed by them.  Being reactive throws off your plans, and takes your eye off your goals.
  5. Direction. You’ll create a clear roadmap for the rest of the organization.  Your staff wants to know where the practice is going and how they can contribute.  An engaged staff is 20% more productive than one that is neutral (or, worse, disengaged).  Your staff wants to win and this is how you can help them.
  6. Open Communication. You’ll create space for people to share what’s going on with them and what they want to see as the future of the organization.  It will open lines of communication and improve teamwork.
  7. Empowerment. You’ll empower others to take on tasks that will move the practice forward.  As a physician owner, that means less firefighting and more focusing on what you do best: patient care, leading, and executing.
  8. Values and Culture. You’ll create the culture, values, and behaviors that you want to foster within your practice.  When your values are clearly articulated, your team will understand what you expect from them on a day-to-day basis.  Culture and values are the glue that keeps a strategic plan together.

Strategic planning doesn’t need to take a lot of time away from the practice.  The focus and the results will speak from themselves.  Before the COVID-19 outbreak, we conducted a lot of strategy discussions with physicians onsite.  Recently, we have shifted to doing these discussions virtually.  They key is to have an outsider facilitate the meetings to avoid confirmation bias.  Furthermore, the facilitator will be able to ensure your meetings stay focused, allow everyone time to share their thoughts, and ultimately leaving you with a clear plan on how to move forward.

Medical practices which consistently apply a disciplined approach to strategic planning are better prepared to evolve as the local market changes and as the healthcare industry undergoes reform.  The benefit of the discipline that develops from the process of strategic planning, leads to improved communication.  It facilitates effective decision-making, better selection of tactical options, and leads to a higher probability of achieving the physician owners’ goals and objectives.

Strategic planning can be a challenging process, particularly the first time it is undertaken in a medical practice.  With patience and perseverance, as well as a strong team effort, the strategic plan can be the beginning of improved and predictable results for the business.  At times when the practice gets off track, a strategic plan can help direct the recovery process.  When strategic planning is treated as an ongoing process, it becomes a competitive advantage and an offensive assurance of improved day to day execution of the business practices.

Use of a consultant can help in the process and in the development of a strategic plan.  As an outsider, the consultant can provide objectivity and serve as the “devil’s advocate,” as well as a sounding board.  In the end, however, the plan must have the authorship and ownership of the physicians and managers who must execute and follow the strategic plan.  It must be their plan.

Strategic planning, when treated as a work in progress, rather than as a binder on a shelf, or a file in a computer, provides a medical practice with a real and lasting competitive advantage.  A living strategic planning process will help direct the business to where you desire it to be.  Strategic planning is your medical practice’s road map to your vision.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Projected New Cancer Cases — U.S.

Today is World Cancer Day, a day that aims to save millions of preventable deaths each year by raising awareness and education about cancer, and pressing governments and individuals across the world to take action against the disease. On this day, I thought I would share some U.S. data from the Centers for Disease Control and Prevention’s (CDC’s) Division of Cancer Prevention and Control.

  • 50% is the expected increase in new cases of liver cancer, which is likely the result of the increase in hepatitis infections, particularly among people born between 1945 and 1965.
  • 40% is the expected increase for 2020 in weight-related cancers (except for breast and colorectal cancers); this is up from 30%.
  • 30% is the expected increase in oral cancers for white men, which is likely the result of more human papillomavirus (HPV) infections.
  • 24% is the expected rate of new cancer cases for men in the U.S. between 2010 and 2020; this is equal to more than one million cases per year.
  • 21% is the expected rate of new cancer cases for women in the U.S. between 2010 and 2020; this is equal to more than 900,000 cases per year.
  • 15.2% is the expected rate of deaths for men between 2007 and 2020.
  • 8.1% is the expected rate of deaths for women between 2007 and 2020.
  • 18 million cancer survivors are expected by 2020, up from 11.7 million survivors in 2007, because cancer patients overall are living longer.
  • 10,000 new lung cancer cases are expected to be found in women each year by 2020.

Source: www.cdc.gov

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Physician Practice Acquisition Paths

When working with physician groups on strategic decisions, potential acquisitions has been a common topic, and many find it beneficial to start from the beginning with the potential acquisition paths. In particular, why would physician owners and the acquiring entity choose one type of structure over another? Of course, laws vary somewhat by state, but this article will give physicians a general overview on this decision-making process.

Asset Purchase

Asset purchases generally work best when the buyers are interested in select assets of the target practice, such as CT scanners in radiology or linear accelerators in radiation oncology. If the buyer is not concerned about the practice continuing as a going concern, an asset purchase is likely the best approach. The seller in an asset purchase transaction must be careful to ensure it receives sufficient consideration to cover any future liabilities. Further, the taxable income the corporation receives may be subject to double taxation in a C-corporation, both at the company level and then at the shareholder level when the proceeds from the sale are distributed. It is because of these tax implications, that physicians would be wise to discuss the proposed approach with their accountant. Generally, when pieces of a business are sold, the price will be lower than when the entire business is sold as a going concern. However, buyers sometimes choose an asset purchase structure even when wanting to continue the practice as a going concern, but are particularly concerned about acquiring unknown or contingent liabilities. Also, an asset purchase can be more difficult where there are a large number of contracts with third parties whose consent would be required to transfer those contracts to the buyer.

Stock Purchase

A stock purchase generally works best when the buyer wants to acquire the target practice as a going concern, and there are few shareholders. Negotiations are more straightforward when there are fewer parties involved, and holdouts are less likely. Thus, large practices with many physician owners may take longer to consummate this time of acquisition. Buyers will prefer to obtain all of the outstanding stock of the target practice if possible. When there are minority shareholders who do not agree to sell, they buyer can approve a merger after the acquisition, although this can trigger appraisal rights. Sellers will generally prefer the tax treatment of a stock purchase, while buyers will prefer the transaction be taxed as an asset purchase. After consultation with your accountant, it might be possible to classify a stock purchase as an asset purchase for tax purposes by filing a special tax election, thereby affording the seller and the buyer the best of both worlds.

Merger

A merger generally works well when there are multiple shareholders in a target practice that a buyer wishes to acquire as a going concern. Instead of having to negotiate with multiple shareholders, once a majority of the shareholders consent to the transaction, the buyer can be assured of having control of the business going forward. In a “reverse triangular merger”, buyers can retain limited liability by separating the target practice in a wholly-owned subsidiary, obtain all of the assets by operation of law, and generally avoid having to obtain third-party consents.

Laws

Mergers and acquisitions are largely a creature of the laws of the state in which the practice is incorporated/formed. However, tax laws impact the analysis significantly as well. The business and legal terms of an acquisition will be negotiated and agreed among the parties, but the underlying state law provides a framework for, and the basic requirements of, how each of those transactions must be conducted. The essential features of each deal type are a function of state law as well. Federal tax laws also weigh on the determination of whether the parties choose to enter into an asset sale, stock sale or merger, as discussed above.

Reasons for Selling

The reasons physician owners decide to sell a practice are as varied as the reasons for starting a practice in the first place. Some practices are sold because no one in the younger generations wants to continue in the business as an owner. In some instances, practice owners may not be actively considering selling when they are approached by an interested party (e.g. hospital, physician practice, or private equity-backed MSO). Because of their fiducial duty to act in the best interest of the practice, shareholders must carefully consider even unsolicited offers.

A buyer’s reason for targeting a practice for acquisition can be equally varied. The target may have developed a market into which the buyer wishes to expand, whether a geographic expansion, patient base, or referral base. The target may have a medical specialty that the buyer believes would be valuable to its business operations. Often larger companies (such as hospital systems or private equity-backed MSOs) can maximize the efficiency of a smaller practice or create other synergies by bringing in-house various administrative functions that otherwise eat away at profits of smaller practices. A buyer may also attempt to literally buy market share by purchasing a competing practice.

Regardless of the motivations from the buyer or seller’s side, the ultimate driver for an acquisition is price. A seller wants to realize a return on investment (as that term is used in the broadest sense), and a buyer wants to realize value in the long term through the target’s business or assets. It is for all these reasons outlined above, that physician owners would be wise to engage experienced professionals to help them first navigate the strategic aspects and then to wade through the transaction details.

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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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10 Ways to Strengthen your Strategy

A strategic plan is not just a document written by physicians and managers and then filed away for safekeeping. It is a vision for the practice, owned by the practice. For the practice to succeed, everyone must engage with and live and breathe the plan. Strategy should inform your operations, your structure, and how you go about practicing medicine. Your strategic plan should be the pillar against which you assess your priorities, your actions and performance. As such, it’s mission critical that your plan is comprehensive and up-to-date. Here are 10 questions to assess your strategic plan:

1. Will your strategy beat the market?

Each year, perform a thorough analysis to get a clear picture of how the competing practices’ forces in your specialty are likely to play out. To grow at an accelerated pace, you will need a meaningful point of difference that can’t be easily copied or nullified. Mindlessly copying another practice’s business model is not a strategy — it is a recipe for mediocrity. Do you really have a winning strategy?

2. Do you have a sustainable competitive advantage?

How will you make money in the future? Do you have a unique strategic position, a concept that you “own” in the minds of your target patients? Do you have special capabilities that can’t be easily copied? Remember that nothing lasts forever, so you need to focus on both today and tomorrow.

3. Are you focused on a clearly defined target market patient or referring physician?

Push for the narrowest possible segmentation of your target market. You need to aim for the bull’s eye to hit the target. Clearly defining and understanding your target market patient or referring physician is one of the most powerful things a physician practice can do to improve its strategy.

4. Does your strategy put you ahead of the trends?

Many strategies place too much weight on current trends. But as the founder of modern management Peter Drucker said, it is not the trends, but “the changes in the trends” that leaders must stay current with. These changes creep up so slowly that most practices fail to act until it is too late to mount an effective response, let alone take advantage of it. They are held back by sunk costs, an unwillingness to cannibalize a legacy business or an attachment to yesterday’s formula for success. Instead, you should always look to the edges. How are your patients shopping for healthcare? What are the innovative new entrant competitors doing? What innovations could change your entire specialty?

5. Does your data give you privileged insights?

It is easy to be overwhelmed with data. The key is to make sense of it all and obtain actionable insights. Do you really understand your patients? Your referring physicians? Your competition? Practices that go out of their way to experience the world from their patients’ perspective will develop better strategies. The same exercise in perspective applies to your referring physicians and competitors, too.

6. Does your strategy embrace uncertainty?

Prioritize all your current threats, things that could derail your strategy, as part of your annual SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). Consider what action you would take if these worst-case scenarios came to fruition. Could you handle it? Do you have a contingency plan ready to implement?

7. Does your strategy require commitment and tradeoffs?

Hedging your bets is not a strategy. A full commitment to a defined course of action is the only path to a sustainable competitive advantage. This requires tradeoffs, as you can’t be all things to all people. Remember to consider what you are NOT going to do, and accept those self-imposed limitations to stay focused on long-term success.

8. Is your strategy contaminated by bias?

Confirmation bias refers to a tendency to cherry-pick information that confirms existing beliefs or ideas. The best way to avoid this is to ask an outside consultant to facilitate your strategy discussions. That individual has no emotional ties to your practice and will instead lead a rational discussion on your strategic plan’s viability.

9. Is your leadership team fully committed?

Many good strategies and change initiatives fail to be executed because of a lack of commitment among the owners and practice administrators. Just one or two non-believers can strangle a strategic change at birth. Sell leadership on the plan early on so they can help sell the mission to other employees.

10. Have you translated your strategy into a one- or two-page summary?

Capture your key decisions on a very short document so that everyone in the practice can clearly see where your practice is going, how you plan to get there and what specific actions they need to take to play their part.

Strategic planning provides a physician practice with a real and lasting competitive advantage when treated as a work in progress rather than as a binder on a shelf or a file in a computer. A living strategic plan will help direct the business to where you and your partners or advisers desire it to go. Spending time to invest in the future will result in a clear focus, a sense of joint purpose and agreed-upon priorities, consensus among stakeholders, and a basis for measuring progress and impact. Strategic planning is your practice’s road map to that shared vision. Are you ready to prepare a strategic plan?

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When Physicians Consider Succession Planning

You might feel a little uneasy about starting the discussion about selling your medical practice. Your practice is your baby, and the thought of letting go can be overwhelming. However, the truth is that failing to plan is a plan to fail when it comes to your practice exit strategy. Everyone thinks of their future, but they don’t always take active steps in the present to prepare for what they want tomorrow. But the time will come when you must step away. You need to have a plan to leave your practice — regardless of your age, experience, or long-term career goals — out of respect to your employees, in an effort to prioritize patient care, and to ensure your family’s well-being. Here are several reasons why you should start the succession planning conversation today.

You have increasing family obligations

Owners can run medical practices and have families. Depending on the size of your practice and the size of your family, balancing the two can be difficult. If obligations, such as an ill family member, or your children’s educational or extracurricular commitments are taking time away from your practice, you could experience a negative shift in the dynamic of your practice. If you don’t have a team in place that can run the practice without you for a few days, consider bringing in reinforcements. Bringing in a physician partner or strategic partners, such as a management services organization or private equity firm, can help free up time for your family while still allowing you to actively contribute to your practice’s growth. These types of partnerships don’t require you to immediately exit from your practice and allow you to discuss future end goals with your new partner(s).

You have personal health issues

Personal health issues are pulling you way from the practice. When your personal health is in decline, it can be difficult to continue business as usual. As the practice owner, you don’t need the undue stress caused by juggling an illness and the medical practice. Furthermore, your priorities might change if you find your health or the health of a loved one declining.

Your view on where your time needs to be spent might shift from a focus on growing your practice to your personal relationships. Spending time away from the practice may be best for you personally, but it will have a direct negative effect on your practice’s revenue and daily operations. This makes the goal of achieving maximum value more challenging. Therefore, having a succession plan is essential.

You don’t have a successor

You’re a great leader, and you run your practice like a well-oiled machine. But what happens when you’re gone? If you find your employed physicians aren’t interested in taking over, or if you don’t have any employed physicians, you need to know what you will do when it’s time to leave your practice.

You’re feeling burnt out

Running a practice takes a lot of tenacity. Burnout can creep in slowly and take hold in what feels like an instant. It’s important to balance your work life and home life, and that takes commitment and constant fine tuning. You need to set boundaries to make it effective. If you don’t have a good handle on taking time for yourself, and you are just barely keeping things afloat, exiting partially (such as by bringing on a physician partner, engaging private equity, or joining a management services group) might be a good option to help you reclaim time to yourself while still maintaining, and hopefully growing, your practice.

You aren’t doing what you love

You had an ambitious view of starting your own practice. You intended to bring outstanding patient care to a community. You were excited and ready to go. Everything starts strong and innovative ideas are flowing. Then, you hit a wall or find yourself working on administrative tasks. It’s time to take a step back and reflect on what you are doing what you would like to be doing, then see who can help pick up the slack.

You’re having growing problems

Your practice has grown a great deal, but now you’ve hit a plateau. You aren’t implementing new ideas and performing patient outreach like you used to. You don’t have time to research your competitors. You aren’t bringing new ideas to your practice because all your time is tied up in making sure the practice stays where it is and doesn’t fall behind. How can you continue to experience growth when you can barely keep up with your practice as it is? It might be time to consider bringing in a partner who can develop a synergistic platform to help take your practice to the next level.

We all know that anything can happen at any time. What will you do if something happens that requires you to step down from your practice sooner than anticipated? As a business owner who is responsible to your employees and patients, it’s important that you consider succession planning before it becomes necessary.

Remember, there are ways to plan so that you can continue doing what your love. Succession planning doesn’t necessarily mean leaving entirely, but it does mean being prepared for the future. Spend some time in thoughtful reflection about your goals, reality, and any changes that you wish to make. Bring your ideas and concerns to a financial adviser or other trusted expert who can help you find the work-life balance you need, both now and in the future.

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Managing Cultures During Physician Practice Mergers

There are many reasons why physician practices merge or acquire other practices: increased market share, gaining new capabilities, diversifying a product offering, and more. It’s also no secret that mergers and acquisitions sometimes don’t go as planned. The most common reason mergers and acquisitions fail: culture. A merger or acquisition may look perfect on paper, but it’s the people who ultimately guarantee its success — or failure.

In my experience, the largest contributor to merger and acquisition failure has to do not with the business but with the people. More specifically, how we handle (or fail to address) the cultural differences between organizations, which are exacerbated by a lack of effective communication. Leadership did account for the culture or anticipate a potential culture clash.

To ensure your merger or acquisition has the greatest chance of success, it’s critical to make your employees’ experience painless (or at least less painful). Consider what’s at risk during such a transition, how you communicate with employees, and how to support them. It’s especially important to focus on people and culture during an acquisition or merger. Be sure to communicate with employees, collect feedback to take targeted action for retention, and provide ongoing support.

Anticipate potential roadblocks

There are a few things at risk during a merger or acquisition: losing talented employees, disrupting the culture of your practice, and missing opportunities to communicate with newly-acquired employees.

To avoid having employees jump ship, speak with them, ideally before the deal closes. This will give you a better understanding of which parts of the business are at highest risk of turnover. The goal here is to reassure employees of job security and to thus reduce the risk of a mass exodus.

It’s inevitable that your physician practice culture will change after a merger or acquisition. There are three common ways to thoughtfully develop and shape a culture post-merger:

1.     Choose one business’ culture to be carried on,

2.     Create a new culture that combines the best from both physician practices, or

3.     Create a completely new culture.

Each path has its pros and cons. Whichever you choose, it’s important to communicate your decision, and your rationale, with employees. During times of transition, communication often becomes increasingly siloed to top-level decision makers, leaving the majority of employees in the dark. This disconnect causes rumors to spread and breeds distrust of leadership. Devise a communication plan before the deal is finalized and exercise it throughout the process.

Prepare employees

Concerns about job security are top of mind for employees. They want to know if their role will still be relevant, if their past successes going to be recognized, and how they will be accepted as members of the new team. Address their concerns and keep them updated on the process and timeline as much as possible.

Also communicate how and when benefits will transition, what their election options are, time off polices, how you conduct performance reviews, and when and how you review compensation,. Addressing employees’ basic needs is crucial to establishing a foundation of trust and building confidence in leadership.

Offering career path training pre- or post-merger is a great way to prepare and support employees. This way, even if there are layoffs or they opt to leave, they have an understanding of what their next step should be and where their strengths lie.

Once the acquisition is complete, it’s a good idea to conduct onboarding for acquired employees, same as you would for a new hire. This is a great way to make them feel integrated and welcomed as well as establish expectations. Is there an actual orientation process? Do they need to participate in any training or watch any videos? Is there written material for them to read on their own? Is there welcome swag? Treat them like members of the team, because they are. Remember, you don’t need to wait until things feel settled to collect feedback post-merger or acquisition. Soliciting employee feedback during times of transition will give you the data you need to take action, and ensure employees’ voices are heard both now and in the future.

 By adhering to these pointers, you raise the likelihood of immediate and long-term success for your merger or acquisition. You will also likely significantly reduce the inevitable anxiety that comes with such a significant effort. That’s a win/win for all involved!

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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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Contact ABISA for healthcare consultancy support or speaking engagements.

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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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Contact ABISA for healthcare consultancy support or speaking engagements.

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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.

Merger

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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Contact ABISA for healthcare consultancy support or speaking engagements.

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