How to Survive a Merger or Acquisition in Radiology

January 28, 2016
Whitney L. Jackson

A continuing trend in radiology, it’s time to think logically about mergers and acquisitions.

Mergers and acquisitions have been a radiology conversation topic for several years. The number of practices melding hasn’t increased significantly, but it’s a possibility that concerns many.

If you’re facing this decision, industry experts have guidance on when it might be beneficial and what you can expect in 2016.

Reasons to Conjoin
There are several reasons for considering a merger or acquisition, according to Lawrence Muroff, MD, the chief executive officer and president of consulting firm Imaging Consultants, Inc., and radiology professor at the University of Florida and University of South Florida Colleges of Medicine,.

“Typically a merger or acquisition provides protection or is for the perceived or actual need to provide specialty expertise on an around-the-clock basis or for the opportunity to confront or negotiate with your hospital system to step-up and take responsibility for the entire system,” he said.

You’ll likely merge or acquire for one of these reasons:

• Protection: If you’re part of a larger group of entrepreneurs, a bigger corporate entity, or a national enterprise, you’ll have a better chance at protecting your existing hospital contracts or replacing other radiology groups.

• Geographic reach: Integrating will allow you to serve more patients. As the industry moves from fee-for-service to a focus on population health, covering a larger geographic area could be financially beneficial.

• Negotiation clout: As a single group or practice, your abilities to negotiate prices and fees are limited. As a larger group or team, you’re better prepared for negotiations with managed care entities or hospitals.

• Economies of Scale: Economies of scale are rarely achieved to the point expected, Muroff said, but a merger or acquisition could provide benefit. You no longer have a need for two office staffs, you can increase your abilities for offering sub-specialty services and enhance business opportunities, and you can strengthen your revenue cycle management and marketing initiatives.

• Forced Merger: In these cases, you might have very little choice. Due to financial or clinical circumstances, you could face a hospital-imposed forced merger.

What to Consider
Before you jump into a merger or acquisition, there are things you should consider, said Mark Weiss, a California-based attorney who handles business and financial issues for physicians, medical groups, and other health care providers. Addressing these questions can help you decide whether a merger or acquisition is right for you – and how to approach it, he said.[[{"type":"media","view_mode":"media_crop","fid":"45371","attributes":{"alt":"mergers/acquisitions in radiology","class":"media-image media-image-right","id":"media_crop_7546298327420","media_crop_h":"0","media_crop_image_style":"-1","media_crop_instance":"5193","media_crop_rotate":"0","media_crop_scale_h":"0","media_crop_scale_w":"0","media_crop_w":"0","media_crop_x":"0","media_crop_y":"0","style":"height: 153px; width: 200px; border-width: 0px; border-style: solid; margin: 1px; float: right;","title":"©Biro Emoke/Shutterstock.com","typeof":"foaf:Image"}}]]

• Governance & Structure: Map out what your new organization will look like and how it will run. Pinpoint the leadership type you want to have and how it will impact your relationships with your referring physicians and hospital partners. Determine how your structuring will impact your abilities to make future business decisions.

“Many groups are set up more like clubs than businesses. Everyone has an equal voice,” he said. “Everyone must agree on any decisions, so basically one person has veto power. That structure can make any decisions on future activities difficult.”

Design a structure, he said, for all voices to be heard without preventing forward motion that could benefit your group or practice. Additionally, he added, encourage your physicians and staff to get involved with medical staff meetings – the more individuals that express interest, the stronger your hospital relationships will be.

• Employment Status: When you merge or are acquired, it’s likely your employment status could change. You could go from self-employment to suddenly working for another group or hospital. This change could impact your group members differently, he said. Discuss it.

Your older radiologists are less likely to resist switching to employee status. With fewer work years left, he said, they might be amenable to spending that time reporting to a larger group or hospital administration. Your younger partners could have concerns about being an employee so early in their careers. Discussing the individual financial implications could help strength your decisions as you move forward.

• Getting Your House in Order: If your practice is considering a merger or acquisition, start preparing now. You can’t wait to fix problems until you decide to make the option public. Any financial, workflow, or professional issues that exist will scare away potential partners or buyers.

Conduct a self-audit, and give yourself several years to prepare, Weiss said. Make any necessary changes because future partners will examine your practice’s past several years’ performance. Handling the issues now will only increase the value of your practice or group and make it more attractive to others. Even if you have remaining issues when you enter the marketplace, have a plan in place to address the problems – a strategy for success will put potential buyers or partners at ease.

• Proper Tools: Merging brings massive amounts of data together, as well. Be sure you have the proper tools that can handle the image volume, as well as make them accessible to all your providers. In these cases, said Trent Conwell, director of information technology at Sentara Healthcare in Virginia, a vendor-neutral PACS system is critical. Sentara addressed this issue by implementing an interoperability platform from Mach 7, allowing for seamless data migration, physician accessibility, and compressed storage. The clinical components are also web-based for easier use.

• Protect Your Contracts: Don’t become complacent, thinking a larger size will secure your business. Being a bigger practice doesn’t automatically mean you’ll be the provider of choice, said Richard Cooper, an attorney with Cleveland-based law firm McDonald Hopkins who handles mergers and acquisitions for health care entities.

In today’s environment, a growing number of hospitals publish requests for proposals, seeking the most affordable and effective radiology partner. Unless you cultivate your relationship with your existing hospital partners, you could lose their business, regardless of your size.

Stumbling Blocks
Despite the benefits of these new relationships, they aren’t without possible pitfalls, Muroff said. With many individuals and existing business models involved, problems can arise. But, you can side step them.

• Shifting Focus: You must pivot your mentality and loyalty from your existing practice or group to the new entity you’re creating. It can be difficult for you or your colleagues. Before you can fully embrace the new venture, everyone in your group must step out of your existing silo and put the best interest of the merger before any pre-existing situations.

• Cultural barriers: Each radiology practice is a microcosm, Weiss said. You have different expectations about productivity, individual abilities, and unique strategies for relating to hospital administrations, employees, and referring physicians. Before you can be successful, you must discuss and agree how these situations will be handled going forward.

• Power Grabs: Giving up power and influence can be difficult for both you and your staff, but refusing to compromise or cede any authority to new partners can immediately undercut any potential deals. You must compromise and hand over some control to your new colleagues. Doing so demonstrates you trust them, building a firm foundation as you go forward.

• Setting Yourself Apart: If you merge or acquire, ensure you can set yourself apart from the competition, Cooper said.

“Ensure you don’t become a commodity. Offer a broad-based menu of services, extend your geographic coverage, and control your cost of services,” he said. “Make sure you offer distinguished quality services and maintain strong ties to your health system.”

• Licensure: If you merge with another large group, be sure all your providers are licensed to practice in every state you serve, Cooper said. Monitoring this issue can be tricky if you have referring physicians from many locations. Additionally, be sure all your providers are properly licensed before you merge.

Ultimately, Muroff said, enter a merger or acquisition scenario slowly. Test it to ensure it’s the right thing for your practice.

“I like the idea of a year-or-two trial period where you act like you’re merged, but you can unwind in a no-harm/no-foul situation,” he said. “It’s a bit like living together before you’re married. You don’t risk your assets or contracts without a trial period.”