Why Medical Practice Mergers Fail (Or Fail To Get Off The Ground)

Mergers and acquisitions are exceedingly common in most industries as business leaders have seen the obvious value in consolidation. Even in healthcare, major players such as hospitals and insurance companies are moving to consolidate and grow. Medical practices, however, have been much slower to consolidate — much to the detriment of many physicians who are now being forced to abandon private practice in favor of hospital employment. There are likely many reasons that physicians have been slow to consolidate but in my experience, one of the primary reasons that merger discussions among medical practices fail to even get off the ground is a fundamental lack of trust between the merger participants.

Very often when we bring prospective medical practice merger partners together, physicians are primarily concerned about loss of control. This is understandable given that many physicians in private practice maintain a close watch on costs and utilization and the prospect of losing that control is daunting. Physician merger candidates also often express concerns over loss of their office culture to that of a larger organization. Smaller practices may fear that they will be absorbed into (i.e., taken over) by larger practices in a merger.

While all of the above concerns may be legitimate, they can certainly be overcome. In my experience, physicians who are able to suspend these concerns and look objectively at likely outcomes, and build solutions based on those outcomes, are able to make mergers work. By way of example, the post-merger practice may be structured to allow for divisional accounting and decision-making so that pre-merger office locations maintain some level of local control over income and expenses. Concerns over governance and disproportionate voting power can easily be addressed by vesting decision-making at the board level and providing for equal representation on the board regardless of pre-merger group size. Another option for addressing governance concerns is to require supermajority approval for certain defined actions.

Huge corporations throughout history have been able to make mergers work successfully so there's no reason to believe that medical practices can't also do it. But, for merger discussions to even get off the ground, participants must be open to a process of finding acceptable solutions.

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