The Affordable Care Act has imposed some significant challenges to medical practitioners. Many physicians are considering a merger of their medical practice into a larger medical group or a hospital group. There are a number of issues that need to be considered. Below are five issues that should be addressed.
- Culture: Every medical practice has its own culture and while evaluating a merger, one has to review the culture in both of the practices and make sure the merging practices will be able to adjust to a new culture over a period of time and thrive.
- Valuation of the practice: One should use an experienced valuation professional to determine the estimated fair market value of the practice. This valuation will be used as the basis for negotiation between the parties.
- Compensation Structure: Physicians are accustomed to receiving compensation based upon their production and collections from the medical services they have performed. In joining a larger group the compensation formula may include other factors. Accordingly, physicians should address and document a clear understanding of the compensation formula so there are no misunderstandings. A new employment agreement should be drafted for the physician so the terms of the agreement are documented.
- Staffing: After a merger, some staff positions may be eliminated. This issue should be discussed in advance so staff can be informed as to what employment opportunities are available.
- Liabilities: One should determine if the existing malpractice insurance policies will be continued after the merger. If not, necessary arrangements need to be made for tail coverage which may be expensive and should be a consideration when evaluating the merger.
If a new employment agreement is made after the merger, special attention should be given to documenting revenue allocation, malpractice insurance coverage, and who will be the responsible party.
Above all, if due to unforeseen circumstances, the merger is not successful, there should be clauses in the merger agreement on the rights and responsibilities of the parties concerned and how the assets/liabilities of the practice will be handled.
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