3 Common Mistakes of Physician Group Mergers

Acquiring another practice can be a powerful tool for your group to achieve growth and build long-term value. There are, however, a few key mistakes that are often made which could be avoided with more thoughtful reflection.

  1. Failing to define a visionbefore the integration occurs.
    Crafting a vision that clearly spells out the opportunity inherent in the transformation ahead should, but often doesn’t, start long before a deal is pursued. Drawing from an “expanded due diligence” process that explores quantitative metrics, like physician group operations and financials, as well as the people and culture of the merged entity, is key.

    Leaders must build and communicate a vision of success that is understandable, tangible, and compelling to employees throughout the ranks of both practices. Factoring in in the value of the people, assets, and cultural elements of each practice will empower leadership to look beyond the basic additive advantages of the deal and construct a more holistic vision—inspired by both head and heart—for the opportunity ahead.

  2. Forgetting to ask, “What more could we become together?”
    The single biggest pitfall that derails successful transactions occurs during the actual integration process. Those involved often focus too heavily on ensuring the tactical aspects of the deal are covered, including technology integration, financial reporting, operations, and merging organizational structures.

The real power of any physician group merger comes from both practices challenging each other to ask, “What more could we become together?” How can each practice learn from the best of each respective practice and let go of old biases? This will build the two parts into a better whole. Viewing the integration process through this lens will help build collective urgency and alignment around shared goals and generate excitement among employees for the new entity’s future.

  1. Underutilizing your people to drive change.
    Throughout the merger integration process, leaders at each practice should deliberately involve staff from throughout the practice to help facilitate change. The practices should empower employees at all organizational levels to join and lead a volunteer army to accelerate the transference of ideas and inspire the desired culture of the new combined practice.

With so many moving parts throughout the process, empowered employees working as informal networked groups can work with agility and adaptability to help the two physician groups gradually become one.

One simple but effective way to ensure a successful acquisition is to study why others have failed and do something different. Here are nine common root causes of failed acquisitions.

  1. Strategy: Poor strategic logic or fit. No strategy used to determine goals of integration.
  2. Synergy: Overestimation of potential synergies, or underestimation of synergy complexities or timetable to delivery.
  3. Culture: Fundamental incompatibilities (including buyer’s lack of self-awareness), ineffective integration, or squelching positive attributes of target’s culture in name of uniformity.
  4. Leadership: Weak leadership, delays in appointing new leadership team, loss of key talent, insufficient participation in the transaction and integration process, ego clashes, or failure to deliver on pledges.
  5. Transaction parameters: Overpaying, inappropriate deal structure, or endless negotiations which bleed both practices dry.
  6. Due diligence: Insufficient investigation (especially little or no strategic and operational due diligence), or failure to translate findings into actions.
  7. Communications: Failure to communicate with sufficient transparency, awareness, depth or frequency, failure to take key messages to appropriate stakeholders, failure to address the concerns of each group with targeted yet strategically consistent messaging, or making empty promises.
  8. Key talent: Failure to identify key personnel or failure to act swift enough to retain them.
  9. Technology: Failure to identify fundamental incompatibilities (poor due diligence) or underestimating complexities or time required for system integration.

So, how can you avoid these problems? Successful acquirers embrace the process of integration as the single-most powerful value creation tool available, and view their investment in integration as one of the elemental costs of doing a deal. And, they understand that integrating and operating are two different processes, with unique objectives and requiring separate attention and separate skills.

Running a practice is an ongoing process aimed at optimizing an existing set of circumstances. Merging two physician groups is a temporary process aimed at changing those circumstances. Running a practice is a recurring evolution. Acquiring or merging is a finite revolution. The two have different objectives and require different approaches altogether.

Ideally, integration insight is woven into virtually every step of the acquisition process. It is incorporated into the strategic thinking and target identification, into the due diligence and the valuation process. It plays a huge role during the months before and after closing. And it carries on long after the deal is done and the bankers and lawyers have all gone home. Thinking about integration at every step in the deal process will help physician groups avoid transaction failure.


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Identifying the Right Reasons for a Practice Merger

Like every long-term relationship, it’s imperative that physician group mergers happen for the right reasons.  When two practices hold a strong position in their respective arenas, a merger aimed to enhance their position in the market or capture a larger share makes perfect sense.  However, practices often fail to realize this.  Many physicians consider mergers as last ditch effort to save their flagging position.  The combining forces can augment their footing in the market and led to a successful merger.

Have an Eye for Risks

A merger is an extremely significant move for each physician group involved.  It is a tight ropewalk and even a small slip can pour millions down a drain.  Timely identification of weaknesses, risks, and threats, whether internal or external, can save huge costs and efforts.  Internal risks can include cultural frictions, potential layoffs, low productivity or power struggles at the helm.  External risks may include a low acceptance of service lines through combined synergies, sudden change in market dynamics, regulatory changes, etc.  Although it is not possible to be impeccably far-sighted, precision in dealing with such potential risks is a must.

Cultural Compatibility

While absolute cultural congruency is not always possible, it is advisable to find the closest fit while planning a merger.  Both physician groups must recognize their similarities and more importantly acknowledge their differences.  Then can they strive to create a new culture which reflects the core beliefs of the practice.  The creation of a brand new identity with employee support leads to a sense of belongingness and continued efforts towards a shared goal.  Thus the staff can be engaged in a new culture, new goals, and a new future.

Maintaining Leadership

As much as it is required to identify the correct reasons for a merger, it is also required to retain the correct people after the merger.  The success of a merger hinges on a seamless transition and effective implementation.  Many physician groups take too long to set the key leadership in place, thus creating confusion and apprehension.  Choosing whom to retain and whom to let go is a dicey game, but this is where judgement and skill play a role.  If the pillars of the each physician group are retained judiciously, the path becomes easier.  However, if employees feel out of place since the beginning, they may drift apart leaving a big vacuum in the newly-merged practice.

Communication is the Base

Studies have proven that management of the human side of a merger is an important factor to maximizing the value of the deal.  Effective employee communication and culture integration are the most difficult to achieve, but have maximum importance in the success of the merger.  Conveying the decision to merge at the appropriate time helps to reduce a lot of uncertainties both in the pre and post-merger stage.  Uncertainties lead to speculation and weaken trust.  Grapevine conversations only result in loss of productivity.  The more open the communication, the better it is.

Successful Integration is Critical

Life comes full circle post-merger implementation.  This article shows how to identify things at the pre-merger stage, but that is just one side of the coin.  Actually, it is the post-merger implementation that decides the fate (I will address this in next month’s article). It is how the newly formed relationship is nurtured.  There is stress of performance in core-business areas amid changed circumstances and the time pressure is tremendous.  Unlocking synergies quickly and obtaining support from key personnel is critical at this juncture.

If you are considering merging your practice with another group, make sure you are doing so because it’s the right thing to do.  Physician group mergers must take place for strategic reasons, such as to improving competitive capabilities, expanding footprints, achieving economies of scale, increasing patient base, testing new geographies, enhancing brand equity, rather than superficial reasons like tax benefits or to save oneself from market risks.  Physician group mergers must be considered as a means to fulfill far greater strategic outcomes rather than a mere ends in themselves.


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Growth Options for Your Medical Practice

It is important to evaluate whether you want to consolidate your medical practice’s position or find ways to grow. If you decide that your priority is growth then you need to plan carefully if you are to succeed.

Growth has its risks, but the right strategy can deliver stability, security, and long-term profits.  Once you’ve assessed the current strengths, weaknesses, opportunities, and threats to your practice and how well it’s equipped to handle them, you can move on to the next stage — building a strategy for growth.

The Importance of Medical Practice Growth

Your medical practice’s focus changes as it moves beyond the start-up phase.  Identifying opportunities for growth becomes a priority to ensure the practice’s sustainability.  You can measure growth by looking at key statistics such as your revenue, profits, patient volume, market share, etc.

However, determining which measure delivers the most accurate picture of your practice’s performance can depend on both your specialty and what stage the practice has reached. In general, a combination of top line revenue and bottom line profit is the most balanced way to measure growth.

Where to Begin

Even if you are happy with your current performance, it is important to keep looking for ways to develop. If you don’t, you risk allowing your competitors the room to grow and take market share from you, which could seriously weaken your position. Going for growth may therefore begin with consolidation of your current markets. To devise a successful growth strategy, you need to know exactly what shape your medical practice is in. This will help you to ensure your practice is properly structured to make the growth strategy you choose a viable option.

Consolidate your Existing Performance

While you may be spending more time and resources on developing the practice, you need to be sure that the core of the business is still performing well.  It is vital not to neglect your existing patient base as this will underpin your growth and provide the cash flow you will need during this phase.

Timing is critical to the success of any growth strategy.  Answers to the following key questions will help you judge if the time is right:

• Could your practice cope with expansion, or is it working at full capacity?

• Do you have the resources and systems in place to carry on your existing practice while targeting expansion elsewhere?

• If new initiatives are likely to disrupt existing performance, how will you ensure your patients don’t lose out?

You may have to consider including additional staffing, refining clinical processes and equipment, or outsourcing certain tasks in order to give you the flexibility to pursue a growth strategy.

Options for Growth: Increasing Market Share

If you’re looking to increase market share, it’s important to make sure your business is in good shape first. To increase market share, a medical practice has to take patients from its competitors or attract new patients.  Achieving this requires a thorough understanding of both your own patient base and that of rival practices and hospitals. Having the answers to the following questions will help you build a comprehensive picture of your market and your competitors and put you in a stronger position to win a bigger market share.

• Who are your existing patients?  Are there any other patient demographics that may require your clinical skills or services and that you haven’t targeted before?

• What are your competitors’ strengths?  Do you have these too?  If not, why not – and should you have them?

• Why do patients seek care from your competitors?  What advantages do you have over your rivals that may attract their patients?  How can you communicate so that your competitors’ patients seek care from your practice instead?

• What is your unique selling point?

• Are there patients who have stopped coming to your practice?  Do you know why?  If not, you may want to ask them.

Options for Growth: Diversification

Many small medical practices grow by taking opportunities to diversify, although there are risks because of limited resources on all fronts.  Practices should weigh up the risks and costs of opting for growth carefully against the benefits. Diversification can take several forms, including:

• New, related products or services to existing patients

• New markets for existing services

• New services for new markets

Deciding how and when to diversify depends on you having:

• Thorough market and patient research for the new product or service

• A clear development strategy — including trying a new product or service for a short test period with prototypes and test marketing before totally committing to the new project

• Efficient clinical and business operations that can cope with the added demands

Generally speaking, diversifying with similar services and selling them to a familiar patient demographic is less risky than creating a service for a completely new patient demographic.

Options for Growth: Partnerships, Mergers and Acquisitions, Joint Ventures

You can also expand your medical practice by joining forces with another physician group.  While this can create more shared decision-making and possible management and staff issues to resolve, there can be clear advantages. Successful co-operation can deliver:

• More resources

• Sharing of the managerial load

• Larger skills and talent base

• Bigger pool of patients

• Increase in catchment area

• Reduced risk

It is important to be very careful who you link up with.  An agreement defining the terms of the partnership or joint venture is essential and further legal protection is advisable.


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5 Reasons Behind Practice Mergers

As I work with physician groups throughout the country, I am often asked, “What is secret recipe for successful practice mergers?”  To be honest, like most things in life, there is none. A well-etched strategy, astute management team, and an eye for details is what encapsulates the essence of successful merger. While strategy is important for most mergers, cultural compatibility is the soul.

Many physician group mergers  happen every year.  Some of them gather media attention, while some just happen in a hush-hush way.  But that’s not what is important.  What actually matters is how many of these stand the test of time and how many remain a memory at best. Before finding out more on this, let us first try to comprehend as to why mergers happen in the first place.  Why do two independent entities come together to forge a new relation when they can make way on their own?  Mergers can be risky if approached haphazardly and one miscalculation can cascade into huge financial losses.

While physician group mergers can have a profound impact on the business, too often practices view the merger itself as the strategic end game.  Primarily value creation or value enhancement is the goal of any merger.  These are business combinations and the reasons are based on economic elements.  Let’s take a quick look at some of the reasons behind physician group mergers.

Increased Capacity

One of the most common driving forces of a merger is to increase capacity through combined forces.  Usually physician groups target such a move to leverage expensive practice operations.  However, capacity might not just pertain to practice operations; it may emanate from procuring a unique technology platform instead of the practice having to finance the technology.

Achieving Competitive Edge

Let’s face it.  Competition is cutthroat.  Without adequate strategies in its pool, physician groups will not survive this wave of healthcare transformation.  Many physician groups take the merger route to expand their footprints in a new market where the partnering physician group already has a strong presence.  In other situations, attractive brand portfolio lures physician groups into mergers.

Surviving Tough Times

Tweaking the adage, let’s say, “Tough times don’t last, tough physician groups do.”  The healthcare industry is going through a phase of uncertainty and combined strength is always better in tough times.  When survival becomes a challenge, combining is the best option.


Sensible physician groups do not just believe in keeping all eggs in one basket. Diversification is the key.  By combining their providers and services, they may gain a competitive edge over others.  Diversification is simply adding products (providers, services, and technology) in the portfolio which is not part of current practice operations.

Cost Cutting

Economies of scale is the soul of most businesses.  When two physician groups are in the same specialty, it makes perfect sense for them to combine locations or reduce operating costs by integrating and streamlining support functions.  This becomes a large opportunity to lower costs.  The math is simple here.  When the total cost of patient care is lowered with increasing volume, total profits are maximized.

Mergers represent a challenging and risky strategic decision.  The decision to merge should be fully challenged before physician groups decide to go ahead, particularly given the average performance of the returns and risks associated with the potential outcomes.  Even with thoughtful planning and preparation, best practices and focus, success is not guaranteed.  However, applying the best practices should enhance the chances of success and help avoid catastrophic pitfalls.


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Amplifying Your Vision to Grow Practice Revenue

People who buy into the “butterfly effect” believe that small actions can result in large effects. Just like the flap of a butterfly’s wings may cause a tsunami on the other side of the world, the messages that organizations share publicly can force sizeable change in the mindset and behaviors of their customers, shareholders, industry and even the world at large. Amplifying a practice’s vision should be a key goal when developing any messaging strategy, yet many physicians struggle to decide if and when their practice brand should speak up and why.

When it comes to amplifying your vision, practice leaders need to control the conversation. Medical practices need to communicate early and proactively address the “why” of their vision. In my experience, innovative practices tend to share their point of view early on, in order to take control of the conversation. Whether that conversation is positive or negative, there are three important times to speak up.

When you expect changes in your specialty

Successful physicians carefully monitor where their specialty is headed and seek out opportunities for growth.  Super innovative physicians can even drive change on a large scale, allowing their practices to grow market share while competitors scramble to catch up. When you see change coming, get ahead of the game with messages that address the change and explain how your practice is prepared to capitalize on it.

In anticipation of a new service launch

It’s also important to be proactive in the way you’re telling your story, especially when anticipating a new service launch.  Start promoting your vision — not your service — before the service is launched. People buy visions, they buy purpose, and they buy solutions.  They don’t buy products. So if you know your practice will be launching a better mousetrap in two years, now is the time to communicate why you have a vision for a better mousetrap.

When your practice is having problems

Rather than reacting to ongoing patient complaints or a class action lawsuit, proactively seek out and listen to patient feedback to find out what your practice can do better.  As you resolve those internal problems, openly communicate about what you’re fixing and why. You may ask, “But why spill the beans if you don’t have to?”

Some physicians fear transparency when troubles are brewing in their practice. They believe there is no need to expose something that doesn’t need to be exposed and assume people (patients, referring physicians, etc.) won’t find out about it.  Why not just try to fix things and tell everyone, “We’re great!” Marketing doesn’t work that way today. Truth sells. And with today’s 24-hour news cycle and all of the review sites that are out there, people are going to find out.  The more honestly and authentically a practice operates, the more reliable that practice will be perceived. Make no mistake, transparency and authenticity beat positioning all day long.

Amplifying vision early on can also help practices weather a crisis

We’ve all seen healthcare organizations react too late to a crisis and end up dealing with huge public relations issues.  Practices would be better off sharing a confident mantra along with ongoing examples of positive patient experiences with the public, before a negative crisis arises. By reinforcing this mantra with your staff, you can significantly reduce highly publicized patient incidents because employees will think twice before acting inappropriately toward patients.


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Executing the Strategic Planning Process at Your Medical Practice

Often, a practice undergoes a strategic planning process, either with or without an outside facilitator, but there is no execution.  This lack of follow-through demotivates those who were involved in the process and ends up casting doubt on the future direction of the practice.  In addition, future efforts to engage physicians and staff in strategic planning turn up fruitless.  To avoid this waste of time, effort, and money, as well as to ensure the practice’s strategy is carried out, it is important to put into place some operational steps on the heels of the strategic planning process.

Develop an action plan that addresses goals and specifies objectives and work plans on an annual basis.  Once the longer term elements of a strategic plan have been developed, it is time to ensure a specific work plan to begin implementation.  Strategic planning recognizes that strategies must reflect current conditions within the organization and its environment, thus annual action plans are needed.  Annual program objectives should be time-based and measurable.  The annual plan may be a part of the strategic plan or an annual addendum to it.

Objectives and work plans for the physician board are as important as program-related ones.  Most projects have specified annual objectives and work plans because of fund requirements, while only a strategic plan is likely to require a physician board to think about its desired composition, skills, and involvement, or about practice structure and administrative systems.

Developing objectives and annual work plans requires both physician and staff input, with staff often taking major responsibility for program-related goals once the physicians have defined practice goals.  Physicians, however, must be responsible for developing goals and objectives related to governance.

The physicians must approve the action plan, while staff can do much of the development of the written plan.  This is an area of staff expertise (with consultant help, if desired), since implementation of programs and other strategies based on policies set by the physicians is a staff function.

Finalize a written strategic plan that summarizes the results and decisions of the strategic planning process.  There is no set format, but be sure to include the outputs of each major step.

Build in procedures for monitoring and for modifying strategies based on changes in the external environment or the practice.  Be sure progress towards goals and objectives and use of strategies is monitored regularly, with strategies revised and annual objectives developed yearly, based on the progress made, obstacles encountered, and the changing environment.  Have procedures for taking advantage of unexpected changes such as changes with competitors, referring physicians, or reimbursement.  Define annual objectives at the start of each year.  Look back to see what progress has been made in critical success factors.  Use the plan as a compass but not an inflexible blueprint for action.

The physicians play a critical role in reviewing progress and assuring that strategies are changed as appropriate; staff should carry out the documentation required to generate ongoing data for this review. They should carry out periodic monitoring and making reports to the physician board.  The practice administrator should play an ongoing role in monitoring progress towards goals and objectives, and analyzing reasons for shortfalls in accomplishments.

The steps listed above are just one approach to developing and implementing a strategic plan.  Strategic planning is a process which lends itself to a joint physician-staff effort.  In larger practices, there is often a joint physician-staff retreat early in the process, facilitated by a seasoned consultant.  The retreats are in addition to committee meetings and ongoing staff work.  The key planning sessions work best when facilitated by an outsider knowledgeable about the physician practices.  A facilitator should be someone skilled in group processes and experienced in strategic planning who is non-directive, committed to assuring full discussion of issues but also task-oriented and able to move the process forward.  Be sure to document not only the plan but also the process, so you can improve upon it with each cycle.


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Strategic Planning Underway

How do you determine your physician group’s strategic plan?  When undertaking strategic planning for your practice, one of the key areas is to define or review the organization’s values, community vision, and mission.  Be sure there is consensus on why the practice exists, what goals or outcomes it seeks to achieve, what it stands for, and whom it serves.  Consider beginning your strategic planning by agreeing on the following:

  • Organizational core values or operating principles – those beliefs or principles that guide the practice
  • Community Vision – your vision for the community
  • Mission – the stated purpose for your practice’s existence

Agreeing on values, vision, and mission is usually best accomplished as a part of a planning retreat or at a special meeting and can take several hours.  Often, you will draft the values and mission statement and describe the vision as part of your strategic planning session.

Develop a series of goals or organizational status statements, which describe the practice in a specified number of years — assuming it is successful in addressing its mission.  It is usually a short step from the vision to goals — sometimes the statements describing the vision are essentially goal statements.  It is extremely valuable to transform the vision into a series of key goals for the practice, preferably in the form of status statements describing the practice.

Agree upon key strategies to reach the goals and address key issues identified through an environmental scan.  The major emphasis should be on broad strategies, including current and new program, advocacy, collaborative, or other approaches.  These strategies should be related to specific goals or address several goals.  The process requires looking at where the practice is now and where its vision and goals indicate it wants to be, and identifying strategies to get there.  Approaches might include the following:

  • Once the issues to be addressed and the goals have been specified, the planning group, staff, or a consultant might look back at the strengths, weaknesses, opportunities, and threats (SWOT) results of the environmental scan. They can identify changes in current strategies which may be required to reach the goals and address the issues. This might mean identifying potential new strategies or suggesting changes in emphasis or priority.


  • The planning group might review the planning process to date, and develop a series of alternative approaches or scenarios. Based on the decisions made using these scenarios, strategies will be determined.

Whatever the specific approach used, specific criteria for evaluating and choosing among strategies should be agreed upon. They might include such criteria as the following:

  • Value – Will the strategy contribute to meeting agreed-upon goals?
  • Appropriateness – Is the strategy consistent with the practice’s mission, values, and operating principles?
  • Feasibility – Is the strategy practical, given personnel and financial resources and capacity?
  • Acceptability – Is the strategy acceptable to the owners, key staff, and other stakeholders?
  • Cost-benefit – Is the strategy likely to lead to sufficient benefits to justify the costs in time and other resources?
  • Timing – Can and should the practice implement this strategy at this time, given external factors and competing demands?

Based on these or other agreed-upon criteria, strategies can be evaluated and selected, or prioritized. In agreeing upon strategies, the planning group should always consider the need to clearly define responsibilities for their implementation. There must be a coordinated effort, from both physicians and the practice manager, to take responsibility for implementing this strategy.


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