Mergers and acquisitions (M&A) is an aspect of business strategy dealing with the amalgamation of two or more companies of similar entities or buying, selling or dividing different companies. Despite several common features of M&A, there is still a distinction between the two concepts. Merger is the amalgamation of two businesses of equal or nearly equal sizes; however, acquisition is the takeover of entire business of small firms by big firms. Similar to other industry, M&A has become a valuable tool that healthcare sector use in driving sustainable clinical and financial outcome. "Healthcare mergers are increasingly being considered as a possible solution to creating sustainable and patient-centric service models." (Carter, 2011 P. 3). If done right, merger and acquisition is a tool that healthcare provider employ to enhance competitive market advantages.
Fundamental objective of this paper is to investigate how the merger and acquisition strategy could assist a specialist healthcare business exclusively located in neighborhood and run by physicians specialized in surgery, heart disease, gastroenterology, dermatology, surgery, gynecology, and respiratory disease. The paper evaluates the M&A decision of the specialist healthcare providers.
Advantages and Disadvantages of M&A decision in Specialist Healthcare Business
This report recommends that the specialist healthcare business should proceed with M&A and incorporate other specialist health profession. The organization would enjoy several advantages by incorporating other physicians specialized in different fields.
First, the organization would enjoy wide market advantages by incorporating other healthcare specialists in the business making the organization to deliver sustainable quality healthcare, which will attract large number of patients into hospital. The M & A strategy will attract large number of patients to the hospital because patients will be attracted to the hospital based on the presence of large number of physicians specialized in various fields.
More importantly, the diversification of healthcare service provided by the hospital will assist the organization to increase the market shares thereby making the company to capture large market shares in the neighborhood.
Moreover, the organization will be able to increase the profit margin with M&A strategy because the organization will eliminate the duplicated operations or department thereby declining the fixed costs and lower the overall operation costs.
Moreover, the M&A strategy will assist the organization to decline the scope of marketing thereby declining the marketing costs, which will make the company to increase total revenue. Another advantage that the organization will enjoy from M&A strategy is the declining of taxation. The organization will be able to reduce tax levied on it by merging different physicians. The decline in taxation will assist the organization to decline the operation costs thereby increase overall profitability.
One of the greatest advantages of M&A within healthcare organization is that there will be an increase in their negotiation strategy against insurers, hospital suppliers and payors. As an hospital increases in size, its bargaining power increases.
Despite the advantages that an organization could enjoy from M&A, organizations could still meet with failure if pre-merger planning and due diligence are not incorporated. Carter (2011) argues, "uncertainty related to policy change or unclear lines of leadership can create unnecessary complexity and easily derail the merger process. (P 12). Typically, there has been 70% of merger failure because these businesses fail to add values in term of human and financial terms. Typically, healthcare organizations widely face challenges when implementing mergers policy and many health organizations face financial difficulties after M & A policy is incorporated.
The organization could face leadership problem with improper pre-merger planning which may eventually lead to distrusts among the stakeholders. There could also be incompatibility problems among physicians leading to management conflict. All these issues may lead to pitfalls in M&A operations, which may eventually lead to de-merger.
Brown, et al. (2012) argues that incorporating M&A policy could lead to costs increase. The increase in costs is likely due to the compliance costs because there would be an increase in the standard charge. Moreover, the hospital will need to increase the expenditure on technology to enhance clinical and operational systems to implement better patient care. More importantly, the hospital will need to employ more physicians to manage population health, and improve clinical quality. Thus, the hospital will incur more costs in satisfying these issues.
The paper provides the feasibility for profits or non-profit organization to enhance greater understanding which physician-merger should adopt.
Feasibility of for profit or non-profits Organizational Status
There are differences between non-profit and for-profit healthcare organization. While for-profit healthcare organizations are evaluated relative to shareholder value, the non-profit healthcare organizations are measure in term of quality of care. However, poor funding availability has been the major factor that affects the delivery of quality of healthcare in the non-profit healthcare sector. Typically, successfully implementation of non-profit healthcare organizations is complicated by management and stakeholder issues because of the ownership and funding structures. In the United States, government and charitable foundations are the major source of funding for non-profit healthcare providers. However, with unfavorable change in government funding policy, and stiff competition for funding, many non-profit healthcare organizations are facing challenges to deliver quality healthcare for the population.
Based on the challenges that non-profit healthcare providers are facing, the proposal recommends that our health organization should adopt for-profit healthcare system. The U.S. health industry is the fastest growing industry in the United States, and the growth rate is projected to reach 22% in 2016 compared to 1.1% growth rate for other industries. The U.S. healthcare market reaches approximately $885 billion in 2012. However, the market for physician, dental and other clinical services reach approximately $735.4 billion. Additionally, the federal government expenditure for Medicare for the 2012 fiscal year is $590.8 billion, while the national expenditure on Medicaid totaled 458.9 billion in 2012. Overall, healthcare market reaches $2.8 trillion in 2012, and is projected to increase to $3.5 trillion in 2016 and $4.8 trillion in 2021. In 2013, the private health spending is expected to grow by 4.8% in 2013. In 2012, the U.S. expenditure on health is 17.9% of the GDP (Gross Domestic Product) and the spending is projected to grow steadily. By 2020, the national spending on health is projected to reach $4.6 trillion, which will comprise of 19.8% of GDP. Typically, the government-sponsored on health spending is projected to rise from 45% in 2010 to 50% by 2020 driven by the robust growth in the Medicaid enrolment.
By 2013, the hospital spending is expected to enjoy 5.3% growth with the increase in the private health insurance spending, and by 2014, the hospital spending will accelerate to 7.2% growth rate due to the expansion in private insurance and Medicaid. Between 2015 and 2020, the hospital spending is projected to enjoy 8.9% growth rate and physician and clinical services will enjoy average of 5.6% growth rate with the growth in the private health insurance spending.
However, inflation will continue to increase healthcare costs and despite the rising costs of healthcare, the U.S. healthcare sector is undergoing deep transformation. In 2014, health spending will experience growth acceleration of 8.3%. Moreover, Medicaid eligibility is expected to cover individual under 65 years of age, and new health insurance is expected to cover 13.9 million people in 2014, which will contribute to 9.4% of private health insurance spending. (Plunkett Research, 2012). Thus, the merger will enjoy high market advantages both from private individual and from the government.
This section provides the contractual agreement among physicians in various specialties. The contract agreement reveals provision of service, financial arrangements, term & termination and miscellaneous.
PHYSICIAN CONTRACT AGREEMENT
This document forms the merger agreement among physician specialized in surgery, dermatology, respiratory disease, heart disease, gastroenterology and gynecology.
Physician contract agreement ("Agreement") is made as of November 17, 2012 (the "Effective Date"), by and between INDEPENDENT PHYSICIAN.
WHEREAS, Physician is an independent medical practitioner, specializing in various fields such as surgery, dermatology, respiratory disease, heart disease, gastroenterology and gynecology.
WHEREAS, Practice is a professional medical practice that provides medical practice within the neighbourhood in the United States;
WHEREAS, Practice provides medical service for Clients;
WHEREAS, Practice desires to merge Physician in accordance with the terms & conditions of this Contract;
WHEREAS, all Physician is agreeable to the engagement.
1. Provision of Services: Payments
1.1 Provision of Services. Physician shall provide professional medical service in surgery, dermatology, respiratory disease, heart disease, gastroenterology and gynecology at the neighborhood.
Physician agrees to provide diagnostic reports or non-diagnostic report if the Client has not provided necessary requested information necessary to assist produce a diagnostic report.
1.2 Payment for Services. All physicians in the contractual agreement shall be paid by Fee-for-Service and all payment shall be made via electronic fund transfer or through a mail check.
2. Financial Arrangements
2.1 Exclusive Billing: Physician shall bill customer for Physician's services. Physician shall provide service for customers and collect all reasonable information to permit billing in an accurate and timely manner.
3.1 Equipment shall be provided at no cost to physician. The practice equipment suitable to perform medical…