Physician Practice Mergers: Leveraging Strength in Numbers

Consolidation is a hallmark of the current healthcare industry. As many hospitals decide to align strategically, so too are practices looking for ways to take advantage of strength in numbers. One of the tactics private practices can pursue is to merge with other entities.Physician practice mergers typically fit into three major structural classifications:

1. Legal Merger

• Parties combine into one legal entity
• Parties merge few, if any, administrative operations
• Parties effectively merge few, if any, clinical processes or facilities
• Parties maintain a somewhat separate governance structure
• Legal/Compliance functions (and others as required by law) blend into one entity

2. Operational Merger

• Parties are under one federal tax identification number
• Financial integration across the organization
• Parties integrate clinical and administrative functions
• Complete merger of governance and leadership structures
• Absence of distinction between the entities
• Facilities (eventually) merge

3. Hybrid Merger

• Parties consolidate into one legal entity
• Parties merge select operational, clinical, and administrative functions
• Parties continue to manage facets of their respective companies separately (divisional/pod concept may prevail)
• Options to merge fully or continue to operate with some distinctions

Coker has developed a four stage process for mergers. These stages are a standard outline that can be customized to meet the client’s specific needs.

‍Stage One: Initial evaluation (“Landscape” Reviews)

• Coker conducts on-site and off-site interviews to ascertain the viability of a merger between the proposed practices.
• Coker provides an independent assessment of the feasibility of the merger (includes qualitative and quantitative analyses and recommendations).

Stage Two: Roadmap

• If practices decide to move ahead, Coker facilitates discussions to address key issues impacting the structure of the merger. (This step likely entails a collaborative “Working Group” process wherein key members of each entity, with Coker’s facilitation, vet the key issues of the prospective merger.)*
• Coker will also complete a pro forma analysis to support the anticipated economics of the proposed merger.
• The results of this stage include finalization of the merged entity (NewCo) structure, governance model, compensation decisions, and overall functions and strategy for the practices.
• The agreed-upon transactional components are then memorialized via letters of intent.

Stage Three: Legal documentation

• This stage Includes drafting all applicable legal documents from the final letters of intent.
• Coker will work with legal counsel (who will develop these documents) to ensure the accuracy of definitive agreements and assist with final negotiations, as needed.

Stage Four: Pre-opening operational structuring and formulation

• Coker may assist with assimilating all operational, financial, and relational areas required to be combined so that NewCo may function as a separate operating entity.
• The final stage of the merger entails the physical start-up and formulation of all operating, financial, and relational processes. This may entail information technology systems implementation as well.