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Integrate Comp Plans Key for Practice Merger Success

Physician Compensation & Recruitment, June 12, 2008

Medical practice mergers are quickly becoming one of the most popular ways for physicians to band together and develop a long-term strategy for dealing with major strategic issues. However, once the legal merger is completed, many operational issues must be reviewed for the transformation to be successful. Perhaps the single greatest issue that practices confront as they merge is their postmerger income distribution plan (IDP).

The issues of integration center around the transitioning of the practices from their individual units (i.e., practice entities and IDPs) to the mind-set of a larger group with multiple locations, many ancillary services located at different places, and a newly formed centralized corporate services structure. All these things must be considered and resolved prior to going into full-scale operations.

Consider the following recommendations for a successful compensation plan merger:

Allow some individuality to continue. Each separate practice unit prior to the merger should have some ability to realize a portion of its compensation through that individual entity.

Create a group mind-set from the start. The merged practice should be a major part of the group mind-set going forward. This will not only enhance the merger from the IDP standpoint, it will also make it more successful in all other areas. The IDP should have a major component coming from group performance.

Distribute ancillaries equitably. There should be some ancillary services distributed throughout the group, regardless of where they originate. At the same time, it will likely be appropriate to distribute some ancillaries within each practice unit or division.

Model the new IDP extensively. This should be a major part of the premerger analyses. Taking actual data and applying them to the suggested new IDP formulas along with comparing the total projected compensation to levels that have historically existed for each physician is essential.

Review corporate allocations carefully. This is also important, as there can easily be some inequities that result from the merger. Develop a basis for allocating such costs, such as a percentage of volume or productivity in work RVUs from one physician to another, or some other reasonable metric.

Incorporate individual and group incentives into the new IDP. This would likely entail a portion of the professional fees and overhead being allocated equally and a portion based upon individual productivity metrics. (Usually, ancillary profits are handled as a separate profit center outside of the professional fees and overhead associated with those professional fees.)

Create a plan that is fair yet simple. Although it is difficult to create a fair plan and yet keep it simple within a newly merged group, the overarching goal should be to have these characteristics.


This story was adapted from one that first appeared in the June edition of Physician Compensation & Recruitment, a monthly publication by HealthLeaders Media.