Merger and acquisition strategy in specialist healthcare providers

Merger and Acquisition

Mergers and Acquisitions

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.

Contract Structure

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. Equipment.

3.1 Equipment shall be provided at no cost to physician. The practice equipment suitable to perform medical services shall be provided to physician.

4: Confidentiality

4.1: To guide against competition, all physician shall keep confidential information about their services, personnel, sales strategy, research and development, finance, system, accounting and plan.

Plan to Appoint or Hire Specialists for the Clinic

The proposal will place an advert in the local newspaper or through the internet to advertise the intent to recruit physician specialized in surgery, heart disease, gastroenterology, dermatology, surgery, gynecology, and respiratory disease. The recruitment term will be explained to make physician understand the term of service and payment.

To make recruitment more competitive, the payment term will be discussed in detail and physician will be paid based on the years of experience and additional skills that might benefit the health sector.

The payment term will be fee-for-service compensation plan based on the fee schedule for service provided by physician. (Gaynor & Mark,1999). The proposal will shortlist qualified applicant and arrange the interview for the final selection.

Justification to accept Medicaid

Medicaid is federal program used to assist low-income people and people above 65 years. The proposal will use Medicaid as source of finance to take the advantages of recent federal government funding on healthcare for low-income people in the United States. The proposal will accept Medicaid to generate awareness from large number of population towards the newly formed physician merger. The proposal will take advantage of increase in funding for Medicaid to source for finance because the federal government estimated funding for Medicaid is approximately $458.9 billion in 2012. In 2010, President Obama signed Patient Protection and Affordable Care Act to provide healthcare for more than 30 million uninsured people in the United States. Moreover, the program also cover more than 50.7 million senior citizens categorized as low income. Based on the large number of population covered under the Medicaid, the merger will enjoy a significant large amount of finance from Medicaid program.

Conclusion

The paper proposes merger for physician in different specializations. The organization will attract market from both private individual and the government and the increase in the overall government funding for the healthcare will assist the organization to enjoy large market advantages. The paper also provides contract term for physician and inclusion of Medicaid for additional source of finance will assist the merger to accelerate its growth rate.