Striking a Match: A Perspective on Evaluating Benefit Structures When Considering a Merger

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 - David Myrice
David Myrice, Director of Practice Management, Zotec Partners

To achieve success in consolidating two radiology practices, it’s important that they are a “good fit.” But what determines a good fit?  While practices may be similar in size and may even have some structural similarities, no two practices are exactly alike. However similar the challenges are that radiology groups face in the current healthcare environment, each group is unique, and made up of individuals who have formed their practice’s culture. By definition, culture is a congruence between the norms and values of the practice and the individuals who make up that practice. Finding another practice with a compatible culture is an extremely important variable in the success of most mergers.

So how do you determine a good fit? Performing a thorough inventory and review of each group’s benefit structures is a great place to start. Understanding the benefit structure built by each group, from retirement planning to malpractice insurance, health insurance and continuing education is essential to recognize the underlying motivations of the group’s shareholders, as well as where there may be affinities between the groups. David Myrice, director of practice management with Zotec Partners, offers his perspective on current consolidation activities in the radiology industry, and important considerations when assessing a potential new partner. 

“We are seeing a lot of consolidation in radiology right now,” says Myrice, “and when there are two groups contemplating a merger or some form of combined relationship, there are some important issues to consider. One area of particular significance is the benefit structure of each group. Benefits are a reflection of a group’s culture. Often, we’ve seen groups that walk away from a consolidation opportunity because their cultures are not compatible.”

Begin with the End

Every radiology practice has some form of retirement plan, and a majority of groups maximize those plans. Defined contribution plans can be implemented using traditional 401k plans, profit sharing plans, or both. A profit-sharing plan is a defined contribution plan in which the amount allocated to each individual account is usually based on the salary level of the participant. Depending on how the plan is structured, the shareholders control the frequency and amount of the contributions based on circumstances, and in some cases, whether or not the company makes a contribution at all. The IRS limits the total contribution amount, and these figures change annually. Companies take the IRS limits into account and adjust contributions, whether purely made by the company, or matched to employee contributions.

“When your group is considering a merger or partnership, it’s important to understand what you have in terms of retirement plans, what the other group has, and how they may be impacted if the two groups join together,” Myrice counsels.  “Oftentimes, the structure of a group’s retirement plan is determined by the size of the group, and whether or not it is completely shareholder based, or comprises shareholders and non-shareholders.”

Groups with large staffs that include both shareholders and non-shareholders often use both the traditional 401k retirement tool, as well as a profit sharing plan as it offers more contribution flexibility when salaries vary widely across the employee base.  

Manage Liability

The cost of medical malpractice insurance for radiologists, as for many other specialties, can be very high, and higher yet for those who perform more invasive procedures, such as interventional radiologists. There are several different types of policies available for malpractice coverage, so groups looking to consolidate need to take inventory of this as well.

“In most cases, malpractice insurance is paid for by the group, which has selected the carrier and negotiated the policy details. Professional liability insurance comes in two basic forms: occurrence or claims-made,” explains Myrice. “In today's insurance market, the overwhelming majority of policies available are claims-made, but a few insurance companies do offer occurrence policies.”

Claims-made insurance provides coverage only for incidents that occurred and were reported while the employee is insured with that carrier. For a claim to be covered, the claim must be filed while the insurance is still in effect. If a claims-made policy is dropped, most likely because an employee leaves one practice to join another, the policy does not cover any suits filed later