5 Points to Consider Before Merging an Anesthesia Practice

Anesthesia practices nationwide have turned to consolidation as a way to thrive amidst the general uncertainty of the healthcare industry. Through mergers and acquisitions, hospital groups and private practices are seeking strength in numbers, a trend which continues to grow.

Josh Holmgren is a regional director for abeo Management Company, and he specializes in assisting anesthesia providers with group mergers and acquisitions. Mergers or acquisitions may be beneficial for many anesthesia providers, but all entities should perform due diligence before entering into any agreements.

Here are Mr. Holmgren's five aspects to consider before entering into a merger or acquisition.

1. Advantages of consolidation. Many anesthesia practices look to mitigate risk by growing in size, which is one of the many advantages of the recent uptick in consolidation. Becoming a bigger entity, both size and coverage-wise, means your practice could strategically be spread across multiple health systems. Groups with widespread coverage can more easily handle any changes that may occur within one system, Mr. Holmgren says.

"You mitigate the risk of being subject to just one health system and the ebbs and flows of that system," he says.

Diversifying your coverage area will also pay off as accountable care organizations form. "The ACO at one facility may not be the same as that of a hospital across town," he says, "but if your anesthesia group is covering both facilities, then you won't be stuck with the methodologies at one health system or hospital."

Consolidation also can bring an advantage to managed care contracts. Having more members and clients may result in more leverage with commercial payors for better rates, Mr. Holmgren says. However, this benefit is not certain to last as reimbursements continue to change and commercial payors look for ways to save money.

2. Challenges of consolidation. Any practice considering acquiring or merging with another group should be well aware of the realities of consolidation. Owners may need to give up some of their autonomy in exchange for the security of belonging to a larger entity, Mr. Holmgren says.

"The goal is to maintain the ability to work in private practice and negotiate better benefits," he says. "Sometimes you have to give up a little — some of the culture and the history — when coming together with another group, but you gain security and the chance to retain your private practice status."

Practice owners and physicians should also keep in mind that not all associations can transfer to a consolidated group. Most likely, the new care entity will have one set of vendors, one retirement broker and one health insurance broker, for example.

"There may be some collateral damage in terms of who you work with," he says. "Try to go in with an open mind and focus on what's best for the new group as opposed to hanging on to all you had as a previous organization."

3. Potential partners. Picking a compatible organization with which to partner is essential to a successful merger or acquisition. A partner that will add value to your existing practice should have complimentary skill areas. For instance, if your physicians provide hospital-specific anesthesia services but not trauma, pediatrics or cardiac care, join with an organization that can bring those diverse skills to the mix.

Also look for anesthesia groups with longevity because they are likely more secure, respected and established than newer organizations. "If they have been around for a long time, they have built relationships and done the right things to keep their practice going," Mr. Holmgren says. Aim to find a partner with a culture that meshes well with that of your practice.

However, he warns, be wary of any groups that financially survive on unjustified stipends from hospitals or other healthcare providers. Do your due diligence to make sure any stipend is warranted, he says. It can be risky to partner with a heavily stipend anesthesia group because if the payment is revoked or decreased, then the group may be unable to survive.

4. Agreement specifics. The initial steps to pursuing a merger or acquisition include drawing up a letter of intent or nondisclosure agreement. In the letter, be sure to specifically identify the governance, staffing and compensation structure of the future anesthesia group, Mr. Holmgren says.

Be clear and concise on how decision-making powers will be divided and who will make up the board of directors. Make sure the compensation structure is clearly laid out and both parties mutually agree to any coverage requirements. It is also better to tackle staffing issues up front, such as requirements for hospital work and when vacations may be taken.

Being open with specifics in those three areas will give everyone involved a better understanding of what the consolidated group will look like and avoid unnecessary conflict down the road.

5. Legal assistance. Any anesthesia groups considering a merger or acquisition need proper advice to get through the process smoothly and economically, Mr. Holmgren says. Look for a third party consultant or experienced management company who not only knows the legal ins and outs of the process, but also who specializes in anesthesia.

"There are so many nuances with anesthesia," he says. "You need a good facilitator and adviser to help you through the merger."

He warns groups from simply hiring an attorney to handle the documentation because the costs and fees associated can be much higher than expected. He has worked with groups that have spent an exorbitant amount on fees from general advisers who were not able to work out anesthesia-specific issues.

"Don't undervalue a good adviser who can guide you through the process and who understands the importance of your merger," he says.  

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