Managing The Business & Cultural Aspects Of A Practice Merger

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EDITOR’S NOTE: Becky Rudolph is the founding partner of Healthcare Management Partners, LLC in Denver. In this article she will touch upon the business and cultural aspects of a practice merger. With a background in psychology she has been focused on the business and people aspects of health care for the past 30 years. The emphasis on physician practice management, operational efficiency, organizational development and mergers has evolved over the last 15 years. Becky is called upon for the nuts and bolts of how to blend everything into one functional business model after the attorneys and CPAs are finished. She turns several business cultures and systems into one seamless entity; dealing with everything from finance to business process to cultural aspects.

INTERVIEWER: Among physicians, there’s a growing perception that there’s a benefit to larger practices. From the non-physician side, what are the actual benefits you have seen with practice mergers?

BECKY RUDOLPH: Having been involved with practice mergers predominantly for the past 15 years, I would say the economies of scale are there, but the knowledge of how to get to those economies is a mystery to most organizations. Many of the mergers I’ve been involved with have started with exorbitant overhead, and by working through streamlining business and management systems, they’ve been able to cut their overhead from 70% to 80% down to 50% to 55%. This of course takes time and expense may actually rise for a brief period while new systems emerge.

INTERVIEWER: The legal and financial issues have been worked out; now it is time to call you to help us with the nuts and bolts. What do we do next?

BECKY RUDOLPH: When I consult on a merger, the initial step is an organizational analysis of each entity to determine the operational strengths and weaknesses. Each practice is going to have its own culture and management style. I think it’s important to look at any potentially conflicting management and practice styles because dealing with hot topics early on can lead to relatively easy negotiation of the issues. When conflict happens, people are on edge; they have formed an opinion and there is much more to deal with as everyone thinks they’re right. Potential partners will be willing to manage things more openly and positively if we can talk about each of the practices’ styles—what is relevant, what is not, and what the group agrees to adopt as the business culture. Make no mistake—when change happens, chaos will follow, and mergers create massive change for the inside of each business. Fear and doubt rule and the staff member thoughts are: “Am I going to have a job?” or “We don’t do it that way” or “Our office is better than yours.” The physicians are caught in the middle, trying to navigate these issues and practice medicine at the same time. If you do not address the issues with management and staff, fear and doubt can and will undermine the most positive intent.

The model I use in dealing with change I like to call the Change-Chaos Model; it is characterized by the acknowledge that change creates chaos, and chaos has to be managed by systems, protocols, and uniform implementation. Conflict has to be addressed, decisions made and implemented; then with solid directives from the stakeholders and the business will settle down to a day-to-day process that will run smoothly. This kind of transition takes 18 to 24 months. There’s no easy way out—it takes a lot of hard work and communication. But the new culture blending all parties emerges in to one new entity where the mentality of all goes from “I” to “we.”

INTERVIEWER: So is it good to start with a hybrid model of the care centers and eventually ends up with the fully integrated? Or stay with the care center? Or does it depend on the situation?

BECKY RUDOLPH: I think it’s all about nuance. There are certain things within the operational structure that immediately need to be part of a complete merger. Business systems—billing, financial systems, management styles, and front-office operation— need attention and consistency from the beginning. Other processes can wait until the group is more comfortable in moving forward together. Because staff is the biggest culture killer behind the scenes in any practice, the most important factors are giving thought and attention to consistency of knowledge and training. When working with physicians, it is important to get them to realize that they all practice in the same fashion about 85% of the time. They all have an excellent standard of care, and thus subscribe to similar standards of practice. About 15% of what they do in clinic is physician preference, so staff must be trained consistently to accommodate these physician preferences. When staff can be trained to cover a multitude of situations instead of being able to work for only 1 or 2 physicians, coverage becomes much more consistent and patients can be accommodated. That’s one of the efficiencies you gain, as it keeps physicians in production day to day. So I agree with a blended model to start with full integration as the ultimate goal. It is best to look at processes from the beginning of the merger and streamline sensibly. It is so important that decisions about the business make sense to all partners.

INTERVIEWER: Are there factors that can predict whether a merger’s likely to be successful?

BECKY RUDOLPH: If the physicians do not like each other, you’ve got challenges to overcome that need close attention and mediation to find positive resolution to the conflict. If there is a huge disparity in production and it is not addressed up front, it will tank the merger as feelings will arise concerning fairness. If there is one controlling group and you don’t set up an executive committee model that represents the needs of the entire partnership, it’s going to scuttle the merger. These are the business/social/cultural issues that are the hardest to get your hands around unless you spend time with each physician. As the Consultant on a merger I find out each physicians preferences and what they think works so the issues can be mediated. It is a sure formula for conflict if thoughts and feelings are not dealt with from behind the scenes.

INTERVIEWER: What about practices’ inequities and inequalities with productivity? Does that play into whether a merger’s successful or not? How do you deal with that?

BECKY RUDOLPH: The shaky ground regarding this issue is the willingness for people to have an open and honest conversation about inequities or perceived inequities. I find Physicians as a group are usually very conflict-avoidant. They want in no way to hurt anyone’s feelings, especially someone as valued as a partner. So they’ll tend to talk about inequities through the back door and not address them in the open air so people can come up with creative solutions about how to deal with them. Once they are to the point where a trusting conversation can ensue, they can come up with some pretty creative solutions.

INTERVIEWER: Is there a management style you would recommend?

BECKY RUDOLPH: The management style I find most effective is one that is highly collaborative and focuses on communication at all levels. In many cases, management is pretty unprepared for dealing with the scope of the merger. So people become very territorial and the management staff can split the physicians and ramp the chaos, even at the partnership level. The conversations have to be highly collaborative from the beginning, and I think that a high-level Consultant is the key to bringing something like this together. A consultant is a neutral party to help unify the physicians and managers until things calm back down and people feel they’re on solid ground. The Consultant can help all parties select best practices for running the business that are a blend of the former organizational preferences. When the new processes make sense to people at every level of the organization and a new identity has emerged, it is very possible that current management can rise to the occasion and run the new business model.

I think it’s really significant to address culture, deal with change, bring the partners together into a unified voice, and ensure management knows the direction in which they are headed. If these items are dealt with early, the potential for conflict lessens and all parties can focus on the change and chaos management necessary to make the new organization work.

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Thirty-years of accomplished health care management, effective, result-oriented leadership with a rare acumen for organizational and business development. Over the coarse of her career Becky has built and sold two businesses; over the past fifteen years Becky has focused on physician practice management where she has demonstrated proven excellence in working with medical professionals to attain thier goals. Her expertise includes: practice merger and acquisitions; innovation and change management techniques; medical practice turnaround; billing and coding services; practice start-ups; physician recruitment; succession strategies, planning and implementation; ancillary business lines for physician practice and surgery center build out. Extensive experience in executive management and leadership in all phases of operations, expense control, budgeting, risk management, human resources, business development, marketing, strategic planning and organizational development.