Phase One – Interest

• Parties meet to review the pros and cons. Cons including the loss of autonomy, the significant costs of the process, changes in compensation methodology, and loss of employees are often over looked.
• Begin to discuss a common vision
• Physicians need to assess whether they can work with the other physicians in the group.
• Develop the letter of intent and confidentiality agreement
• Sign confidentiality agreements and letters of intent

Phase Two – Evaluation

• Select a consolidation committee
• Assign roles and responsibilities, such as treasurer, secretary, and president
• Interview and select a consolidation adviser to lead future discussions, conduct the due diligence, and guide the consolidation process. (Note: Adviser can be an experienced healthcare consultant, accountant, or attorney. Whoever is selected as an adviser should have an extensive understanding of medical practice operations and the challenges encountered when bringing practices together.)
• Establish a meeting schedule for all participants and the consolidation committee
• Make capital contributions to fund pre-consolidation activities
• Collect data and initiate due diligence process. Some of the most vital data elements include:
  
  
  • Income statement and balance sheet for each practice for the 3 most recent fiscal years
  • Federal income tax returns for each practice for the 3 most recent fiscal years.
  • List of significant or key operating assets within the practice
  • Copy of the current malpractice insurance policy for each physician and past claim history for each physician
  • Copies of office rental leases for each practice location
  • Copies of leases for any office and medical equipment
  • List all of the major insurance payers that the practice participates with at the present time
  • List the practice management software system currently in use at each practice; include the version of the software used.
  • List all physicians, physician assistants, and nurse practitioners that work in the practice and include the base salary and compensation formula for each provider
  • List all office staff employees with current rate of pay, benefits, and date of last salary increase.
  • Charges, payments, and adjustments by CPT code by provider and for the practice as a whole for the last 3 fiscal years and current year to date.
  • Current summary aged accounts receivable in total and by major insurance payer.
  • Copy of the superbill and current fee schedule
• Develop the practice consolidation proforma–financial model of post-consolidation practice (Note: The proforma will assist in answering the following questions: Does the consolidation make financial sense? What are the costs going to be and what must each physician contribute? What will be the impact on physician compensation in the short-term and long-term?)
• Retain an accountant to evaluate tax and accounting implications of various legal structures
• Retain legal counsel
  
  
  • Evaluate Stark and Antitrust issues
  • Evaluate possible legal structures
  • Decide to consolidate or merge (Note: In a consolidation existing entities will no longer exist; a new entity is formed. Typically, consolidation is preferred to merger, as old liabilities and debts are not brought into the new practice. In a merger one existing entity continues on and essentially absorbs the other entity or entities. Not preferred as debts and liabilities of other entities are assumed by the surviving entity.)
• Evaluate "buy-in" methodologies.
• Select a buy-in methodology and determine the amount of each shareholder's buy-in. Buy-in may be contribution of assets, cash, or combination of both.
• Vote - physicians make final decision and commitment to consolidate.

Phase Three – Implementation

• Identify board of directors
• Select officers and committee members
• Select new practice name
• Interview candidates for practice administrator position
• Hire an experienced and well trained practice administrator
• Evaluate and make decisions regarding locations that can be consolidated
• Consolidate functions such as billing and collections, on-call schedule, policies, employee benefit structure, employee pay scale, and human resources and personnel decisions.
• Submit RFPs to evaluate practice management systems
• Select a practice management system
• Decide on new compensation formula
• Legal documents (i.e., bylaws and articles of incorporation) and employment contracts drafted by attorney
• Develop a consolidated call schedule
• File articles of incorporation with secretary of state
• Obtain federal tax identification number and state employer identification number
• Seek quotes from malpractice insurance carriers
• Select a malpractice carrier and begin process of consolidating all physicians' coverage to one carrier.
• Select a bank–establish new checking account, line of credit, and lock box.
• Consolidate fee schedule
• Notify Medicare, Medicaid, and third-party payers of change and new practice information such as new tax identification number
• Change signage, letterhead, and other forms to reflect new practice name.
• Advertise new practice