What Otolaryngologists Should Consider Before Merging Their Practices

Whether you are considering combining your otolaryngology practice with another group or with a multi-specialty practice, a merger can provide significant and long-term benefits if it is well planned and strategically executed. Before you become engrossed in the initial excitement of a merger, you must first address a number of difficult decisions and legal issues.

After these decisions are identified and considered, the prospective merger sometimes dissolves as the perceived difficulties and uncertainties of actually implementing the plan eclipse the initial excitement. Do not fear a merger that makes sense from a personal and business standpoint, however, because the ultimate benefits frequently outweigh the challenges. This article will address some of the key benefits, frequent sticking points, and common issues that should be considered by an otolaryngology practice contemplating a merger.

Benefits

Some of the benefits that can come from merging two or more existing practices, whether single specialty otolaryngology practices or multi-specialty groups, include the following:

1. Improved lifestyle through shared on-call coverage and patient rounding;
2. Increased attractiveness to recruit physicians;
3. Additional utilization of physician extenders (e.g., physician assistants and nurse practitioners);
4. Greater utilization of expensive resources (e.g., electronic health records system, medical devices, newly hired associate physician salaries, physician extender salaries, and office staff salaries);
5. Greater leverage with payers;
6. Expanded referral source opportunities;
7. Cost savings through economies of scale (e.g., volume discounts on supplies); and
8. Pooling of capital and financial resources.

Considerations and Issues

Mergers can fall apart almost as quickly as they are formed if the parties have not carefully crafted a comprehensive plan. Too often, a merger closes and the physician partners later realize that they have fundamental differences regarding key components of the post-merger relationship, or, worse, there is so little coordination that few, if any, of the potential benefits of a merger are achieved. The following are some of the key considerations that should be addressed prior to the closing of a merger:

Legal Structure

Generally, there are two legal structure options for combining practices. The first option is one practice (Practice A) merging into the other practice (Practice B), with the later practice (Practice B) as the post-merger surviving entity. In that case, Practice A ceases to exist, and the owners of Practice A exchange their ownership interest in Practice A for an ownership interest in Practice B. Practice A’s pre-merger assets and liabilities are assumed by Practice B, and Practice B holds the assets and liabilities of both Practice A and Practice B.