Merge Ahead

Radiology practice mergers proliferate in light of regulatory pressures.merge ahead 1

Several times during their group's 25-year history, the radiologists at La Porte Radiology in La Porte, Ind., considered merging with another practice. But the six-member team never had a compelling reason to follow through — until 2015.

That's when Radiology, Inc., in nearby South Bend, Ind., reached out to propose a merger, and the La Porte Radiology team determined that given the changing health care milieu, the time was right to join another practice. Their story is part of an ongoing narrative that is expected to continue nationwide.1

Radiology practice mergers have proliferated in recent years as health care's current has shifted from volume toward value. With the passage of the Medicare Access and CHIP Reauthorization Act in 2015 and the establishment of the Quality Payment Program in 2016, radiologists and other providers are being pushed to deliver increasingly exceptional care and report quality improvement measures along the way. To meet these expectations, some radiology practices are exploring mergers with the idea that larger groups have a better chance of providing the expanded services and greater value that new payment models require.

"Changes in the payment structure and calls for updated processes to support improved patient care are putting a lot of external pressure on radiology practices to take action," says Ezequiel Silva III, MD, FACR, director of interventional radiology at South Texas Radiology Imaging Centers in San Antonio and chair of the ACR Commission on Economics. "Groups of all sizes are concerned about succeeding in this new paradigm on their own, and many think they may do better if they increase their size through either expansions or mergers with other radiology practices."

Benefits and Challenges

Mergers can help radiology practices achieve their quality objectives in several ways. For instance, when two practices merge, they often gain capacity to provide better subspecialty care and participate in more value-added activities, such as hospital tumor boards, because the merged group has more radiologists to provide coverage than either of the individual groups alone. Other benefits practices often reap from mergers include an expanded geographic footprint and a greater number of nonclinical support staff.

"Generally, the perception among radiology practices is that bigger is better," says W. Kenneth Davis Jr., partner in the Chicago office of law firm Katten Muchin Rosenman LLP, which has been involved in dozens of radiology practice mergers over the years. "The thinking is the larger your group, the greater your ability to access new business sources and new opportunities to read films."

While mergers may have benefits, they are not without their challenges. Perhaps the biggest hurdle practices involved in a merger must overcome is the cultural differences between the two groups. Every radiology practice has its own identity and way of doing things, so getting two independent groups to agree to operate a certain way can be difficult. "There are inherent tensions in terms of giving up control, sharing economics, and doing things in way that you weren't accustomed to doing in the past," Davis says.

Another challenge is that once two groups merge, the relationship can be difficult to undo if things don't work out. "When you combine two groups in a true merger, where everybody is employed by the same group, they can be hard to pick apart," Davis explains. "One reason is if you attempt to split the groups up, one of them will have to get new payer contracts, and that's not something people really like to do."

Stepped Approach

With these things in mind, practices are advised to take a stepped approach to initiating a merger. To begin, practices should determine what they want to accomplish from the merger, says Howard B. Fleishon, MD, FACR, associate professor in the radiology and imaging services department at Emory University and division director for Community Radiology Specialists. "Mergers take a lot of energy and financial resources — and success is not guaranteed," says Fleishon, who is also the chief of service at Emory-Johns Creek Hospital and secretary-treasurer of the ACR. "Practices must be brutally honest about why they want to merge, asking themselves, 'What is my burning platform?'" (Burning platform is a business term associated with a situation that must be immediately addressed through change.)

For La Porte Radiology, the goal was to increase its efficiency without compromising its quality. "We've never been a group that prides itself on cranking out more X-rays per hour than anybody else, but as payment for procedure has gone down relative to cost, we knew we needed to become more efficient," says Smari Thordarson, MD, chair of radiology at La Porte Hospital who was a general radiologist with La Porte Radiology before it merged with Radiology, Inc. "So we decided to join a group that would allow us to provide better subspecialty services and improve our billing and coding operations without losing our focus on delivering the best care possible."

Once a group outlines what it wants to accomplish, it must find another group to merge with. Davis says most groups identify merger partners through casual conversations and interactions. For instance, although Radiology, Inc., didn't have an existing relationship with La Porte Radiology, the two groups knew each other's reputation. Other groups conduct more deliberate searches for merger partners. "Although it's the exception, some radiology groups have engaged a financial advisor or investment banker to help them identify strategic partners in a methodical and disciplined fashion," Davis says.

Discovery Process

Once two groups agree to explore a merger, their next step is to get to know each other better. As part of this process, the groups must consider how their merger might impact their hospital systems. Some hospitals prohibit their radiologists from reading studies in other systems, which is more likely to occur as a result of a merger. "Hospitals have always been competitive, and they have been increasingly saying to radiologists, 'I don't want you to work in any other systems,'" Davis explains.

If the groups decide to proceed, members of the two practices should meet and discuss their existing cultures, the outcomes they expect from the merger, and how they will go about achieving those outcomes. Fleishon says practices should include their radiologists and other relevant employees in the process. "Engagement is very constructive in a merger," he says. "Develop committees with specific tasks so stakeholders are involved."

The members of La Porte Radiology and Radiology, Inc., sat around a table together and discussed what was important to each practice and what a merger might look like if it occurred. Thordarson says the two groups also went through a discovery process, where they shared their bylaws, financials, and other documents with each other. "Through our conversations, it became pretty clear that we both had democratic cultures that were oriented toward quality and value," he says. "We felt that we were compatible, so we moved forward with the merger and have been working under the Radiology, Inc., umbrella since Jan. 1, 2016."

Other Options

Thordarson says the merger is going extremely well but admits his group had some reservations against losing its name and small practice identity. "We're still the same people, providing the same service in the same hospital that we were before," he says. "Our referring doctors and patients never really thought of us as La Porte Radiology, anyway; they've always known us by our names and faces — and that hasn't changed."

While Radiology, Inc., and other groups have found success with mergers, some groups that wish to remain independent are exploring alternatives to mergers. One of these is an alliance model, where practices help each other with common challenges, like creating teleradiology solutions and understanding new payment models, while remaining independent. Other options include physician practice management companies (vendors that provide administrative, billing, and other services to client practices), independent practice associations, and management services organizations (networks or cooperatives of independent physician practices that work together and share some business operations while still maintaining their autonomy).

Despite some groups' commitment to remaining independent, Silva expects practice mergers to persist as new performance mandates come online. He is concerned, though, that some radiologists may be overthinking the situation. "I worry that we may be placing too much emphasis on these regulatory pressures," he says. "I think independent radiology practices of all sizes — from the five-person group all the way up to the 100-plus person group — will continue to have an important role to play well into the future."

By Jenny Jones, Imaging 3.0 content specialist

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