Medical practices must balance the impacts of healthcare reform, decreased reimbursements, payer negotiations, and other issues to remain profitable. While some physicians have decided to leave the private practice circus and work at a hospital, others are considering merging with or acquiring medical practices. Combining practices can create a greater revenue-generating entity with potential cost-saving opportunities.
In general, the more physicians that work at a practice, the more bargaining power that practice has. This power is especially high when the practice negotiates provider contract terms, reimbursement rates, and hospital access. Bargaining power also depends on the number and size of payors and hospitals. Merged practices may not be able to increase reimbursement rates, but they may be able to settle for no rate cuts.
Economies of Scale
If most of the physicians relocate to a single location, then the practice can combine exam rooms, diagnostic equipment, revenue-generating assets (such as ancillary services), and supply ordering. In spite of these economies of scale, geographic centralization does not have to be a requirement. In some cases, it may make more sense to leave several strategically located offices throughout the market area.
Creating Practice Operational Efficiencies
Larger practices also have the advantage of assigning specialized roles to practice employees. Merging two or more practices may not reduce the number of people needed to process claims, but doing so will enable individual billers to concentrate certain payors or providers in the group. This scenario fosters a more efficient billing process. Other operational functions within the practice are also amenable to the same approach.
Medical Practices Coming Together
If a healthcare facility decides that it wants to merge, it should first identify one or more candidate practices. The candidates should share the facility’s culture and goals. Once a healthcare practice decides on potential partners, it should then hire a neutral financial professional to:
- perform due diligence on the merging practice’s finances, legal standing, and operations,
- provide a tax analysis,
- create a buy-sell agreement, and
- develop a practice compensation formula.
Is it Time to Consolidate Your Medical Practice?
CRI’s healthcare CPAs can you evaluate the pros and cons of consolidating your medical practice. A large and thriving practice can generate more capital for new technologies that increase patient satisfaction and attract new doctors and medical professionals.