MGMA16: 10 considerations before a practice acquisition


SAN FRANCISCO--Hospitals and healthcare systems are acquiring physician practices at a regular pace. Larger physician practices acquire smaller ones.

Yet it wasn’t something that Linda Zinkovich, R.N., chief operating officer at Orlando Health Physicians Associates in Florida, expected to happen at her practice, but it did. Her former employer, the 85-phyician group, Physician Associates, was acquired by Orlando Health four years ago.

“You never know when this is going to happen to you,” says Zinkovich, who described what she wishes she knew before that acquisition in a presentation at the Medical Group Management Association annual conference in San Francisco this week.

People involved in an acquisition need to be ready for both logistical and emotional challenges, she says. Here are her 10 ways to avoid problems during acquisitions:

1. Remember this is a marriage. "Don't get so caught up in the wedding plans you forget that the next morning, you all will wake up in bed together," she says. Work out all the details, such as how billing, recruitment and compensation will be handled--before signing those final papers.

2. Not everyone on either side is going to like it. Sometimes opposition comes from an unexpected party. “For us it came from hospital nurses,” she says, who thought acquisition of the medical practice was preventing them from getting raises.

3. Money isn't everything. “Values, culture, mission and vision are more important,” she says. If both parties aren’t aligned in these crucial areas, it may not be the right partnership.

4. Be careful what you ask for. You just might get it. Think about the long-term consequences of the negotiation. “It may be short-term, but you might pay a price later,” she says. For instance, physicians at one practice acquired by Orlando Health negotiated higher salaries for two years, but may face a big surprise when they take a large pay cut when that period ends.

5. Due diligence on both sides means more than just looking at finances. The organization doing the acquiring will ask for all kinds of reports, but a practice should do the same, she says. Are there lawsuits or government actions pending against the organization acquiring a practice? For instance, one organization was hit with a $15 million fine for Stark law violations.

6. Really evaluate what you want long-term and focus on getting those terms during negotiations. What was most important for the 85 physicians in her practice was to maintain control, she says. “That was the number one focus,” and would have been a deal breaker.

7. Start living together as soon as possible. Before the papers get signed is a good time to sit down and work though the transition, she says. For instance, you may need to change electronic health records or work out employee benefits.

8. Remember that compromise takes both sides giving something up. “This is as important after the acquisition as it is during negotiations,” she says. You may have to change the way you have handles procedures, such as using online scheduling that has never been done before.

9. It is very difficult for those who have been owners and in charge to suddenly become employees. Physicians can be stubborn about changing their ways. Four years later, she had one doctor say, ‘what do you mean Orlando Health owns us?’ “You will be surprised, they will want to continue to be owners,” she says.

10. Charts (patients) are not necessarily an asset that has monetary value. “That’s an old way of looking at things,” she says. You can’t own a patient, because a patient's loyalty to the practice isn’t guaranteed. What is of value is the profit a practice makes. In calculating fair market valuation, consider that real value is assets.