Episode 064: Making Mergers Manageable

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Brian: Thank you for joining us today. My name is Brian Fortenberry. Coming up today, boy, we have got something that is a hot topic in the medical area and it can be awfully scary and exciting all at the same time. It's practice mergers and we have someone here who is going to be able to get through this. Today we have Shannon Hampson. Shannon, thank you for joining us.

Shannon: I'm glad to join you. Thank you for having me.

Brian: Well, before we get started in talking about this, tell us a little bit about yourself and about your background.

Shannon: Well, I'm a CEO with Abercrombie Radiology and we're a 28 person radiology practice. I've been here 28 years so I don't remember much of the life before this. We're an interesting group that Dr. Abercrombie started this group, the first radiologist in Knoxville, and we've been here since 1925, so it's a very old established group.

Brian: Wow.

Shannon: And we are slow to change but the merger topic we have visited over the past 28 years numerous times. We have put our toe in the water and really have only done one but we continue to look for opportunities. So that's kind of where we are.

Brian: Well, as we get started Shannon since you obviously being part of a group that has been around for this long and had the opportunity to not only participate in a practice merger but always looking for those opportunities, it can be kind of intimidating and scary I would guess. Is that correct?

Shannon: It is and we've found strategic partners to help us kind of navigate. We have an attorney that helps us. We also have a consultant and they've kind of guided us in these processes. It is scary but once you kind of sit down at the table with different groups, it becomes less scary because you kinda know what you're looking for and if it's really gonna be something that's a go-forward.

Brian: Right, and I guess in any situation you look at it from a business standpoint. It's gotta make sense not only for you but for the other party as well. When did you participate in the practice merger? How long ago has that been?

Shannon: The one that we successfully completed, it was kind of an interesting way. We had two groups in Knoxville that we had talked a lot during the years, as far as how can we combine? How can we work together? And we actually bought a billing system together 20 years ago.

Brian: Okay.

Shannon: And so we had a good relationship but we were definitely two different groups, two different managers, two different everything and all we did was share a billing system. So as it progressed and we felt like the hospital systems combined that we needed to merge. We did kind of a side by side where the manager retired and so I managed both groups for a few years and that was in 2012.

Brian: Okay.

Shannon: And then finally got used to each other, realized we could probably make it work and then we actually officially merged last year.

Brian: Okay. So this was recently completed but a long-term relationship, which makes me ask the question. In your opinion, having done this this way, is it better you think when a merger opportunity comes along, and it is a group that you're familiar with, or is it better really if you're not as familiar with them and are able to go in and make wholesale changes? What do you think is really better having gone through this?

Shannon: Well, if you had the opportunity to kind of know what you're getting into, it helps. I mean, we kind of knew what the landmines were and what the issues were but the main thing with mergers is cultural and while the two groups were culturally very different, being able to manage both of them simultaneously kind of gave me some insight into what we're gonna be the issues pretty quickly and what we could probably overcome. So there was some comfort there.

Brian: Sure.

Shannon: But if you went with a whole new group that you weren't familiar with then I'd probably be more hesitant.

Brian: How do you navigate that cultural water because as you say that is probably gonna be the biggest issue? If there's not cohesion there, that is a recipe for disaster and you came from a situation you said you knew the cultures were different going in, how do you handle that and how do you do it delicately?

Shannon: We were really transparent and both groups I had to be completely open with and say, "Here's how this group differs," and gave lots of feedback and tried to prepare everybody for how the groups were different, because they were. But being really open and there wasn't a time where I didn't feel like I told both what I needed to tell them so they were really few surprises.

Brian: And that helps I think. That open dialogue where everyone knows exactly where they stand and what's expected probably helps that. What kind of timeline does it take to do one of these mergers? You said you guys knew each other way back and it just finished last year, was that out of necessity or was that out of another issue? How quickly can someone do a merger?

Shannon: I think to really go through the contracts and to go through all the nuances of a merger it's gonna take nine months to a year. It just takes a long time. I mean, we knew each other so once we decided to do it, it went very quickly. Probably three to six months but if you're starting from scratch because we've done that as well. We've gotten a consultant with a whole different group in a different city and started that process and that took six to nine months to get through and then at the end of the day we still didn't merge. We went through all the due diligence but we still didn't finish it.

Brian: When you talk about the due diligence you think about the process and maybe a checklist or something you go down to kind of check the boxes to see and make sure, one is in the vetting or the pursuit of it, is it going to work out? If it is good for both parties but also if you decide that, yeah, this is an opportunity here, a checklist to make sure you do everything and don't leave anything out along the path. Did you use any kind of checklist and if so what are some of those processes along the way?

Shannon: The merger that we really went very, very far in with the group in a different area, we actually hired a consultant and he was amazing in the sense that he did that. He said, "Send me your contract, your managed care contracts, also your employment agreements with your group." And he had a checklist that we actually went down and he put them together and then we set up monthly meetings of the practice manager and also the main physician liaison for the practice and we sat down with the consultant once a month and went through what the consultant had combined to say, "Here's your differences. Here's the employment agreement differences, here's your actual contracts and your opportunities and your threats and which one will be the surviving entity and what did it look like?" So he kind of guided us on that because we really didn't know anything underneath the hood so he helped a lot.

Brian: So you would then recommend definitely getting an outside consultant or someone out there to kind of help you walk you through this process?

Shannon: Definitely. If you're gonna put a sizable group together, they had double the amount of physicians we did but it's too complicated, there's too many things you can miss I think to do it yourself. I don't know if you need an attorney until the very end and you don't need to incur those kinds of costs, but a consultant that's done mergers before can definitely streamline it and only involve you and the physicians in a minimal amount so you're not really wasting your time.

Brian: Sure. And whenever you get ready to do the merger there is not only, I'm assuming, a merger of all of the office staff and all of the physicians but there is, like you said, processes and guidelines and contracts, all of those types of issues that you have to take into account. What would you say is at the top of that list, the first thing you have to make sure that you're focused on? Where did the consultant start I guess I should say?

Shannon: Well, after he put together kind of the documents and that kind of thing I think you really have to define why you're doing it. Is it to get bigger because you feel like there opportunities in contracting? Are you getting bigger to protect yourself? Are you doing it for additional services for night coverage? I mean, what's your real purpose for doing it?

Brian: Sure.

Shannon: And if you don't understand that, then there's really no reason because it's not just bigger's better.

Brian: Right.

Shannon: There needs to a real reason and a driving force why you're together. And once you answer that, it's more about how do you really wanna function? Do you want to be divisional? Do you want to all be one group? Do you want to keep things separate? And so once you really decide the cultures of the group and what you really think is a go forward, then you can kind of put together something. But the consultant will quickly say, "You're very different in how you handle bonuses. You're very different how you handle expenses." And those come out very quickly and then you realize the things that you might be able to overcome and the things that probably are a deal killer.

Brian: At the end of the day I can imagine all mergers, the final product, are not gonna look the same. They're gonna look very different, correct, given the situation?

Shannon: I think they're gonna look very different because you're creating something from scratch and I don't think there are any two mergers that are gonna look the same.

Brian: I think you hit on a great point, they're not all gonna end the same but they're not gonna all start the same and they're not gonna all be for the same reason, you know? It may be financial, it may be size, it may be structure, it could be all of those issues. Of the mergers that you see happening around in the medical community, in your area and nationwide, what are the biggest reasons that we're seeing mergers now? Is it for size or is it financial or is it somehow be compliant with a lot of the new healthcare laws we're having? What is the biggest reason we're seeing these mergers today?

Shannon: I think it's I.T. What it takes to run a practice now, the infrastructure is you need very specialized people. I know in radiology and that's really my only point of reference is our biggest challenge is I.T., is connecting everything, getting the images in, getting the reports out and doing the billing and all of that takes a lot of expertise. It's hard to employ that in-house with a small group so to pool your resources for the I.T. part of it.

Brian: Sure.

Shannon: And also the compliance part, the HIPPA and the meaningful use and the different things that we have to do to be compliant is a huge expense and small practices struggle with that. And to get the reimbursement from MIPS and MACRO and all that.

Brian: Right.

Shannon: If you don't have a large support system, it just gets very expensive.

Brian: And it seems like in other conversations that I have had with people, that target seems to constantly be kind of moving as well as this whole process gets figured out by the federal government, state government, whoever. So there's constant change as well and that change is probably easier to accommodate with a bigger structure, correct?

Shannon: Definitely. Right now all the guidelines for MIPS and MACRO, they're just now coming out and we're in the middle of the year. It is this huge moving target and you think you're prepared, you think you're ready and then they change the rules. And so whether it just be by necessity or be by it helps to have other people in the same boat with you but it's constantly changing.

Brian: And to be able to pool those resources to help with those changes and things like that is certainly gonna be a lot easier. What kind of advice would you give you another practice manager that is either looking at their practice going through a merger, potentially investigating going through a merger or right in the middle of it right now? What advice have you learned you would pass along?

Shannon: I would be extremely strategic of who you think your partners are and to be sure that pretty quickly you have some conversations to see if your goals align if you think that you have a lot in common as far as where you see yourself in a few years. And it's not to say that you're gonna have all the answers but it really does help you have some basic fundamental goals and where you're heading and the contracting is complex and you don't really get to know all of that if it benefits you or not till the end. And going through the process is so lengthy and it's expensive so you need to be sure that you've got the support of your board.

Brian: Sure.

Shannon: That they're really wanting to go forward, that they feel like it's a win and have the key people. Don't go to these meetings unless you've got your president of your group, you've got total buy-in and that the physicians hear everything that you hear because it's complicated and it's time-consuming and you don't want to start it unless you're pretty sure that that's where you want to go at the end.

Brian: It sounds like you really need to make sure you have all your ducks in a row.

Shannon: Yep.

Brian: Because if you don't, it's gonna cost you a lot more time than you're really wanting to put into it and certainly a lot more money than you would want to put into it.

Shannon: Right.

Brian: In the business world, it's certainly a word that kind of scares people at times when you hear merger or acquisition. In the healthcare world, I'm assuming it can be the exact same thing. How do you deal with, I guess the best word would be, unease or unrest or discomfort whenever people that are working in your office hear of this and they start getting nervous because that means change and potentially elimination maybe for their position. How do you deal with that?

Shannon: I can honestly tell you that we're so used to change now. Healthcare has become just ever changing that most of the people even though we have very long term employees, we're constantly changing. We're changing billing systems, we're changing processes, that we kind of got over that years ago. This is the new norm. You're gonna constantly be changing. And I really feel like if you're doing things for the right reason you have to take yourself out of it and not what's best for you but what's best for the group. It makes it a lot easier and then if you're honest and you're transparent then at the end of the day if it's meant it to it is as far as for you personally but I think you have to put the group first in what's most beneficial for the group as a whole.

Brian: Well, Shannon as we get ready to wrap up for today, we've really hit on how the practice mergers work on a 30,000-foot view, but how it affects physicians and contracts and personnel. As we wrap this up, what are some of just the main takeaways, kind of looking back at what we've said for a practice manager or a physician, that could be listening to this today that you would say, "Here are four or five bullet point takeaways when it comes to practice mergers and what you're looking at and what you're facing?"

Shannon: I think no action is action. So to just be still and not explore what's out there, I think is not doing your due diligence. It doesn't mean you have to merge but to not at least have your feelers out there to know what the community's doing or the state's doing or your region is doing is probably not in the group's best interest. You really need to know what's happening around you, what other groups are doing and really listen to what the market is saying. I think it's crucial because I think you'll get left behind and you won't really understand where you are and the potential that's there without doing a lot of work and a lot of due diligence. For me, with radiology, I attend a lot of the R.B.M.M.s, the Radiology Business Managers' Meetings, just to see what other groups are doing around the country to really figure out if merging makes sense on a statewide level, on a regional level or even throughout the country. And I think knowing that and what other people are doing and how they're handling it is your best bet.

And as a CEO, I feel like my real job is to bring opportunities to the group and to make sure that they're worthwhile, that they're strategically aligned with what we're interested in so you don't get left behind and that you try to pool your resources to cut costs and expenses and to gain the expertise with I.T. and the different challenges that we're all having with payment and reform. And so it's really understanding your market and understanding the opportunities and bringing that to the group.

Brian: Well, our guest today has been Shannon Hampson, CEO at Abercrombie Radiology. Shannon, thank you so much for taking the time to spend with us and discuss this important topic.

Shannon: Thank you for having me. I appreciate it.

Speaker 1: Thank you for listening to this episode of Your Practice Made Perfect with your host Brian Fortenberry. Listen to more episodes, subscribe to the podcast and find show notes at svmic.com/podcast.

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