Successful Medical Practice Merger

Especially in the new landscape of the Affordable Care Act (ACA), many doctors are exploring ways to cut costs and increase efficiency. Merging with an existing medical practice allows doctors to share expenses, streamline processes, deliver more complete health care services and build a stronger presence in the community.

However, a poorly orchestrated merger can backfire. If a merger is conducted according to a lopsided agreement, one practice could reap all the benefits while the other bears most of the burden. And a failed merger may result in substantial damage to both parties.

Before entering into a merger agreement, the American Academy of Family Physicians (AAFP) advises practitioners to take the following precautions:

  • Remain involved in key decisions about the practice
  • Consult a lawyer and an accountant
  • Negotiate and sign a contract
  • Include a buyout provision in the merger contract
  • Implement sound cost-cutting measures in the practice

The AAFP also recommends that practice owners consider four important matters before moving forward with a merger:

  • Choosing an appropriate legal structure — A general partnership exposes all doctors in the practice to liability if one of the parties is sued. A limited liability corporation (LLC), a limited liability partnership (LLP) and a professional corporation (PC) protect each member from personal liability, but can delay Medicare reimbursement while the business waits for its Medicare assignment account to be processed.
  • Restructuring the daily operations — Merging a practice should include merging administrative duties and processes, including charting, filing, moving patients and refilling prescriptions. Creating a consistent protocol and assigning clear decision-makers can help the new group run more efficiently day to day.
  • Allocating practice expenses — Doctors should have a clear understanding about which costs should be itemized under fixed, variable and personal categories and how the division of these costs affects each member of the group. In other words, the amount each physician pays should reasonably reflect the expenses he or she generates.
  • Distributing compensation — Physicians’ groups can use a variety of methods for determining each doctor’s compensation. Common accounting approaches include gross revenues, net revenues, patient encounters and relative value units (RVUs). Whichever method a merged practice decides upon should equitably compensate each doctor for the amount she or he earned.

Mergers can bring about significant changes for health care practices in New Jersey and New York and should be planned out carefully. If you are considering a merger or other business transaction, seek guidance from a knowledgeable attorney.

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Posted in: Compliance, Regulation