Culture and the Practice Merger

Twitter icon
Facebook icon
LinkedIn icon
e-mail icon
Google icon
merger.jpg - merger

Radiology groups merge for numerous business reasons, but an economic case alone rarely makes for an optimal merger. To achieve the type of highly functional, profitable and high quality single unified entity most merger partners desire means dealing with the difficult task of getting two separate groups of people to come together and begin to do more than simply act as one. They must begin to think of themselves as one unified team.

That internalized group identity is best described as the group’s culture. Culture can be tricky to define and even harder to measure. Consider how you would describe yourself. It is much easier to start by describing your

physical attributes, like hair, eye color and height. It is much harder to describe who you are as a person. Likewise, when potential merger partners sit down, it is much easier to describe their groups by number of radiologists and subspecialties represented than to describe what the culture of the group is.

Sometimes groups are so eager to merge that they opt to skip over difficult questions like cultural compatibility in pre-merger discussions for fear that it will derail their merger plans, explains Will Latham, a consultant based in Charlotte, N.C. This is a mistake.

A common complaint of groups that struggle after a merger is that they  feel that they were deceived. “They weren’t,” Latham says. “They just didn’t talk about it. It is kind of like a couple that didn’t talk about having kids and then after they got married one of them says ‘I would like to have 10 kids,’ and the other says ‘Well, I don’t want to have any.’”

Frank J. Lexa, M.D., MBA, radiologist, practice consultant and medical director of the ACR’s Radiology Leadership Institute, concurs with Latham about the importance of culture. “Culture is easily one of the biggest reasons you can have failure of a merger or end up with a situation where the groups should get divorced but they don’t,” he says.

Merger Fever

With so much riding on cultural fit and compatibility, why rush into a merger? Part of the reason is that radiology groups today are under intense pressure to merge, say experts interviewed for this article. In addition to the important advantage of economies of scale that has always been there, now there is the need for bigger IT budgets and resources to meet increasing regulatory requirements. Another driver is the growing desire by hospitals and health systems to work with larger entities that can offer them more subspecialties and their own in-house overnight coverage.

Overall marketplace consolidation also should not be discounted. With payors and hospital systems getting larger and larger, radiology practices that wish to have any leverage in negotiations need to get larger as well, notes William F. Muhr, M.D., president and CEO of South Jersey Radiology Associates, Vorhees, N.J., which two years ago merged with another well established New Jersey radiology group called Booth Radiology to form a 52-physician group with 37 partners.  “In a consolidating market, you want to remain as much as you can on equal footing with those entities that are consolidating,” he says.

Meeting the demands of the customer is also a very important driver of mergers, explains Robert Epstein, M.D., of University Radiologists in New Brunswick, N.J. This is part of the reason University Radiologists merged with one 12-member group 18 months ago and another 18-member group on January 1, 2016.  “When your goal is to provide subspecialization seven days a week and 24 hours a day, and there are so many subspecialties, you need to get to a critical mass of radiologists,” Epstein says.

Sometimes hospitals and health systems even dictate to groups that they must merge in order to provide the system-wide standardized service and practice metrics the larger entity needs. This can be a challenging situation because the hospitals and health systems may neither understand the cultural differences between the groups nor fully appreciate the importance of these differences.

“If the groups can’t get along with each other, it is very hard to provide value to the institution you are trying to serve,” Lexa says.

Over plan, over communicate

Practices need not be a perfect cultural match for a merger to work, and even hospital system “arranged marriages” can turn out well. However, the practices do need to have an honest discussion about what the cultural differences are between them and figure out if those can be overcome in time, Latham says.

“This is where an outside person can be helpful, to bring out the differences, explain the options and ask the groups if this one little thing that is keeping them apart is worth taking a pass on all the other benefits of the merger,” he says.

No two groups will be perfectly compatible and the difficulty of merging cultures should not be underestimated.

However, don’t let this discourage you, Epstein adds. “I think to some degree you will always have some cultural differences. You have to basically weigh how good the fit is with the external forces that are encouraging the groups to come together,” he says. “Obviously, the better the cultural fit, the easier it will be to have the groups come together successfully.”

It is amazing how many cultural differences can exist between groups, Lexa says. Some of the top ones he has identified are:

  • Lifestyle-revenue balance: Differences in how groups weight the two priorities.
  • Growth ambition: Differences in the size the groups wish to achieve.
  • Group cohesiveness: One group may have an intimate small-group culture where everyone works together closely in one location; the other may be very large and disparate in which members rarely meet face-to-face.
  • Value-added radiology versus production radiology. How does each group value work that does not directly contribute to reimbursement, such as time spent consulting with referring physicians, sitting on committees and attending conferences?
  • Academic focus. Groups that are geared toward teaching and serving an academic institution tend to work best with groups that share that focus.
  • Democratic versus corporate governance. Some groups may have a highly democratic structure where every partner has a voice in decisions. Others may rely on an executive board or even have a single practice owner or CEO at the top who makes all decisions for the group.

Based on his merger experience, Epstein has developed a list of questions to probe cultural differences during pre-merger discussions. (see sidebar, page 00)  “You have to make sure there is enough common ground to make it achievable and enough upsides to make it worthwhile,” Epstein says. “I think there are certain core differences that would preclude a successful merger, but in general, most differences can be overcome.”

Realistic expectations

Often, when groups merge, there is a temptation to take a short-range view on the merger. In reality, it can take five years or more to truly tell if the merger was a success in the marketplace, Muhr notes. In addition, being a well-functioning unified group doesn’t mean that there are never disagreements inside the group.

“People think they are going to be one big happy family, but we were not one big happy family all the time prior to the merger,” he says. “I know the merger is going well when I see the traditional fault lines between radiologists, such as those between interventional radiologists and diagnostic radiologist and between the high tech doctors and the mammographers, reasserting themselves. Once you start to see those kinds of fights occurring again as opposed to the us versus them fights, you know that you are starting to become culturally enmeshed.”

One of the worst things groups can do in a merger is to set unrealistic expectations about what coming together will do for the group, warns David R. Phelps, MD, president of Radiology Associates of North Texas (RANT), based in Fort Worth. Mergers have played a key role in RANT becoming one of the largest privately-owned radiology practices in the nation, and with each merger, there was a clear understanding about why the groups were coming together that helped form the basis for a unified culture dedicated toward improving patient care.

“If you want to overcome the cultural differences that are always going to be there when you merge groups, you have to make sure the process has been open and transparent from the beginning,” he says. “Everybody knows what to expect, and there is a clear and consistent vision for what the combined group is going to look like.”

Problems will come up when merging cultures. An additional important expectation to set is that this work will take some time, Epstein adds. “Cultures are established over decades and they are not going to change overnight,” he notes. “Groups may legally merge on a given day, but the merger really has to be planned well before the official merger date and continue well afterward.”

The radiology leaders consulted for this article noted that there is no single timeline for merging cultures because much depends on the individual characteristics of the two groups merging. A merger of two very similar groups may create a unified culture in a much shorter time period than a merger of two groups where there are larger cultural differences that must be overcome.

Likewise, because people determine culture, the level of motivation and engagement of the radiologists that are part of the merger plays a big role in how quickly a unified culture may be created. If the radiologists are more excited than fearful about becoming one group and are eager to try new things and learn about each other, then a unified merged culture may develop much faster.

Bring people together

One of the best things groups can do to speed the creation of a unified culture is to create every opportunity possible for people to work together, Phelps says. Groups are sometimes reluctant to ask radiologists to move around and work in a location that was not part of the group they came from. In some cases, it may not even be possible to have people working physically side-by-side. Even virtual collaboration, however, can be a big help.

If a group is big enough—like XX-radiologist RANT—unifying the IT and PACS to allow subspecialists across the organization to work together as a section is one way to blur the old boundaries between the two merged groups. “The more you can consolidate PACS and other imaging systems, not only will that be good for you and your imaging partners, but it also creates more opportunities for individuals to work with each other across regional borders,” Phelps says.

If there was one mistake South Jersey Radiology Associates made in its merger two years ago with Booth Radiology, it was not unifying the PACS sooner, Muhr says.

“Honestly, what really got people to feel like one group was when we got  them cross rotating,” he says. “Once we had a common PACS [at a year post merger], that really changed things. When you have people working next to each other on a daily basis, a lot of perceptions people have about each other break down.”

Tools used by University Radiology to facilitate bringing radiologists together include scheduling in-person meetings whenever possible, using videoconferencing rather than teleconferencing and linking a picture to internal emails so that whenever a radiologist gets an email from a colleague, he or she also sees the face of the person who sent the email.

It is even okay to schedule meetings and events that have no other purpose than to bring people together, such as retreats or parties. “I think social events are very important and when you need to discuss problems after the merger—which inevitably arise—meet face-to-face whenever possible,” Phelps says. “The idea that not having social events to save on costs is in my mind absurd because it will pay off massively. If you are really serious about having a unified cohesive group, you have to know each other and you have to get together.”

For large groups, leaders should also get out of their offices and go around to meet as many radiologists within the group as they can, Phelps adds.

Sensitivity to minority group concerns

Mergers of equally sized groups are rare. Usually, one party is going to be larger than the other and the larger groups must be careful not to confuse a merge with a takeover,  Epstein notes. “You have to spend extra time and effort to ensure the smaller or the less dominant group will still have a say and not be lost amongst the larger merged entity,” he explains.

Ways to do this include making sure there is representation from the smaller group in the new group leadership structure. For at least a few years, this representation might even have to be greater than what the smaller group would have under a representation system that was strictly proportional by size.  “Knowing that your voice is going to continue to be heard helps people a lot, especially if you are the smaller party in a merger situation,” Muhr says.

While it is generally a best practice to get members of the two merging groups working alongside each other as quickly as possible, when one group is smaller, it may also be wise to have a transition period where the smaller group can continue to manage some especially sensitive concerns on its own.

“Avoid trying to change too much too fast,” Epstein says. “For example, for several years, refer any individual radiologist performance issues to their original parent group and not the new larger merged group.”

Since having overrepresentation for the smaller group in leadership and allowing a transition period for sensitive concerns can raise issues of fairness with the majority group, set an expectation that the overrepresentation of the smaller group in leadership is fair initially because the reality is that the smaller group will need to change more to fit in with the larger group, Epstein explains. However, eventually you will be one group and you have to sunset the added representation and have it become proportional.

Culture-free merging

With all the headaches of trying to merge well established cultures, some practices do opt to forego trying to create a unified culture. They  focus instead on mergers that are much more limited in scope.

One option is a negotiated joint venture between the groups instead of a traditional merger. Another is to create a divisional structure where the two groups have certain shared services (i.e., malpractice coverage, billing, accounting) and take advantage of specific economies of scale through purchasing. However, each division operates as a largely separate entity.

“That works best when the cultures are very different and they are geographically separated,” Epstein says. “When you start to have overlapping geographies, service or coverage, one division may conflict or compete with another division.”

While divisional mergers may allow the groups to avoid the hard work of creating a unified culture, it also may limit the usefulness of a merger, Lexa says. In the corporate world, the definition of a failed merger is one that did not create any added value for the shareholders, he explains.

In a merger, you can have two plus two equal four, and sometimes that is all you want. Ideally, however, you want two plus two to equal five because that is where you are creating novel new value. “Otherwise, all you did was make a bunch of lawyers and sign makers rich,” he says.

Finally, don’t overlook the importance of the group’s brand. A single unifying name rolled out quickly signals to both the public and your colleagues that your group is now one.

Lexa says that he’s been to meetings where there is a dysfunctional culture and one of the first things one notices is that the people in the meeting are still wearing the white coats with the pre-merger practice names. “That is sort of a first sign that they don’t think of themselves as a unified entity,” he says.

In a sense, building a unified culture is a task that is never completed, explains Latham. “There always are people retiring and people coming in, so you are never really fully done,” he says. “You are developing pride in the organization, and as you bring new people in, you want them to feel like they are joining a unified group.”

Having that unified culture is worth it in the long run agrees Epstein. “The best mergers are the ones where eventually you no longer remember who came from which group: That is the goal,” he says. “At the end of the day you want one mission and one vision for your entire group.”