To Acquire or Not to Acquire: A Continuing Conversation

On February 11, ECG hosted a webinar titled “To Acquire or Not to Acquire That Physician Practice:  An Assessment Framework to Drive Smart, Strategic Decisions.” Presenters Sean Hartzell, a Senior Manager with ECG, and Alex Ogburn, Vice President of Ambulatory Services with Saint Francis Healthcare System, explored the structured process organizations can undertake to evaluate the strategic and financial implications of potential practice acquisitions.

Given the high level of merger and acquisition activity in the market and the limited critical resources to complete transactions, employing a well-defined approach to acquisition assessment is imperative to success.  The FAST (Financial Impact and Strategic Alignment of the Transaction) matrix helps stakeholders view potential acquisitions through the lens of their financial impact and fit with organizational strategy, thereby fostering a more objective decision-making process.

The webinar audience, composed of numerous CEOs, CFOs, and business development leaders, offered valuable insight into the key factors their organizations assess when making acquisition decisions, including long-term financial impact, clinical services and integration, and competitive advantage.  Attendees also had a number of questions, several of which are posed to the speakers in this follow-up conversation.

Evaluating transactions inevitably introduces some level of subjectivity on the part of the reviewing team. How do you maintain objectivity and consistency when scoring the criteria?

The matrix approach enables organizations to assess transactions across two key dimensions – financial impact and strategic alignment.  The criteria within each dimension should reflect the priorities and values of the parties to the transaction and be general enough to apply to a variety of transactions across specialties and sizes.

Some potential factors to assess across the financial impact dimension include required financial investment, ability to access capital, level of outside financing required, and overall impact to the organization.  For the strategic alignment dimension, factors to consider include congruence with vision, current and planned service portfolio, and impact on competitive advantage.

Objective review is possible with a detailed scoring methodology and consistency across the teams that review the various transactions.

Do you find system leaders and executives tend to agree on the criteria and scoring shared in the FAST matrix?

At the outset of these engagements, we often find differences of opinion.  To accommodate that, we suggest that organizations solicit input from multiple stakeholders when creating the criteria, including both physician and administrative leaders.  The greater level of input from various stakeholders will lead to more buy-in to the methodology and outputs when the matrix scoring approach is employed.

Typically every organization has its own unique set of criteria that reflects its culture and priorities.   Nonetheless, for the tool to be successfully adopted, it is critical to reach consensus regarding the criteria and scoring.

How do you go about creating the scoring methodology for the FAST matrix?

When we work with organizations, we interview senior leadership separately and then tell the group what we heard regarding goals and key metrics to consider.  After reviewing the group’s input, we assign criteria and scores based on the relative importance of each component.  It is typically an iterative process that involves both individual and group feedback to develop a robust matrix scorecard.

Does it ever make sense, as guided by the FAST matrix, to acquire physicians who have gone on record stating they only want to practice for a few more years?

We have been asked on numerous occasions by organizations to assess whether it makes sense for a hospital to acquire physicians who are close to retirement.  In those cases, we perform a comprehensive assessment of the practice to understand how it is performing and what its future looks like.  There may be times when it makes sense to acquire the practice to allow for a transition of the practice’s volume to younger providers, perhaps to maintain key market share or to attract younger providers to the market.   These opportunities should be carefully (and realistically) evaluated to ensure that the acquisition will meet the expectations of both parties; again, the FAST matrix may be a useful tool to facilitate these discussions.

If you weren’t able to attend this webinar, you can view the recording here. ECG’s transaction experts will host another webinar on March 10, titled “Combining Forces to Manage the Continuum of Care.” We hope you’ll join us. For more on this topic, download your copy of “Choosing the Right Physician Practices.”

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