I took another “We Think We Need To Merge!” call today from a thoughtful practice on the east coast. A couple small groups, aimed at getting a more fair piece of the pie. Can’t say I blame their intent.
Practice mergers are like tattoos - they sound good when you and all your friends have had a few drinks. They even look good on a few people. “Just picture it: 70 of us, fighting UnitedHealthCare!” sounds suspiciously like, “Just picture it: a rose, right there, where no one can see it!” Face it, can you come up with a tattoo design that will look good on you 10 years from now?
The inspiration to record this conversation came from one comment in the middle. Apparently, there’s a trustworthy lawyer in the mix (they exist) who has stated, unequivocally, that he believes the practices need to merge in order to negotiate with insurance companies. I wonder if this lawyer has ever actually negotiated a primary care insurance contract? Do you think he sees tens of thousands of dollars in fees making this happen, risk free? I sure do - whenever I see a lawyer pushing for groups to merge, I throw a GIANT RED FLAG. If the plan succeeds, he’s a genius. If it fails, there are 1001 reasons for the failure besides his insistence. And if it neither succeeds nor fails, but rides in the middle for a decade or more…you become one his favorite clients!
I’ll save the long lectures for future posts, but our experience with group mergers (which is significant) has identified a few of the myths of practice mergers:
- Smaller practices cannot negotiate as well or better than larger practices.
- The only way to negotiate is to be a large practice.
- My area is different from the rest of the country and, therefore, we can’t negotiate.
- Practice X grew in a way that I am sure would work here where I live.
- There are significant economies of scale to be gained by merging practices.
- Merging practices isn’t expensive, doesn’t affect your productivity and personal life, and won’t distract you too much.
- In order to save lots of money on ordering supplies, etc., (part 1 of the myth), we have to be large enough to make a difference (part 2 of the myth).
- I could get along with all these practices I’ve competed against for years!
This sounds reactive, I realize, but for every merger success I’ve seen, there have been a half-dozen failures. Perhaps I’ll provide real examples of these items above to act like warning signs for anyone following the merger footsteps.
It’s not that we think they are a bad idea, we just think they are usually done poorly and for the wrong reasons.
Or, more succinctly: groups merging simply to stick it to the insurance companies will fail. FTC issues aside, you’d better have a lot more in common than hatred for managed care or it’s never going to fly and only the lawyers will get wealthy.