GI Practice Mergers: Steps Involved in Forming a Mega GI Group
February 11th, 2018 | Uncategorized
The healthcare provider landscape has been shifting of late and vibrations have been
felt across the country. In the past few years, multispecialty clinics have grown to a
thousand or more physicians. Other large multispecialty groups remain housed within
large hospital systems and include hundreds of physicians affiliated with tertiary care
As these groups were being developing and acquiring more and more primary care
practices other specialties became acquisition targets long before multispecialty groups
came knocking on the doors of gastroenterologists. Cardiology practices have largely
been subsumed under the umbrellas of large health systems. Likewise, so have many
In the Chicago area, for instance, there are two large GI groups each with 45+ Board
certified gastroenterologists plus additional midlevel providers. Chicago’s large health
systems, including Advocate, Northwestern, Northshore University, Presence and
Amita, are competing to attract or retain GI’s within their employed physician groups or
within their affiliated physician partners. Timing was right in the past few years as
independent GI groups saw the storm clouds forming around them and felt that there
was safety in numbers. Member physicians purchased shares in the new mega groups
in order to be voting members and to participate in decision making.
So what’s involved in merging multiple GI practices together? How is the leadership of
the group established? And are they effective in reducing costs per practice, achieving
better rates with payers and maintaining their volume of referrals from PCP’s in their
By consulting with health law attorneys experienced in mergers, you’ll find several
options for how best to structure a mega group, depending on physicians’ goals,
regulations in your state, etc. A popular approach is one which minimizes control from
the top and maximizes independent decision making and control locally. Each practice
typically has two representatives on the Board of Managers and each physician has an
equal ownership share in the mega group organization. As it’s being formed the
founding members make decisions about all the detailed provisions of the group’s
Operating Agreement. These include size of board, officers, authority level of the Board
on expenditures, etc.
Financial integration is required to show that the group is actually functioning as a single
entity and not just trying to exploit the use of a single tax identification number (TIN) to
gain certain benefits. To demonstrate financial integration the practices must combine
their accounting, banking, payroll, employee benefits program and retirement programs.
Over the course of several months, the mega group must select vendors for the above
services and reach consensus within the Board of Managers to implement the
integrated financial services for all SBU’s. This should be accomplished within the first
twelve months following formation of the group.
Revenue & Expenses
Of the significant reasons for forming a mega GI group the advantage of owning their
own pathology lab and of gaining reductions in medical malpractice coverage are two of
the most significant advantages. The pathology lab can be formed within one of the
practices and then purchased by the new mega group’s corporate entity from the
practice in which it was spawned. Assuming that the base global reimbursement fee for
pathology is about $60 and that there are about 2 specimens per GI procedure, the
gross revenue opportunity for a group of 20 or so GI physicians is in the range of $2.4M
Not as significant of an impact to the financial statement are the discounts achievable
from medical malpractice premiums. Nevertheless, the reductions of 15% to 25% per
practice are significant for GI physicians who had been paying $20,000 to $30,000 each
per year for such insurance. In addition, there is coverage at the group level which also
carries its own premium. Malpractice insurers seeing the consolidation trend among
physicians are willing to discount premiums for the newly consolidated groups who now
are under one TIN instead of previously operating as separate practices.
Merging onto a single EMR platform is a substantial task for multiple practices. This is
one of the most important decisions. It needs to be made very carefully and requires the
endorsement of all participating groups. The Board must consider the systems that are
in place with the current practices and the advantages of using one of the existing
systems or selecting a completely new system.
Important questions that must be answered include how the EMR will function as an
enterprise wide system for all the groups, will the system be easily interfaced with
hospital systems for auto transmission of medical records between the practices and
the hospitals, and what costs will be incurred for license fees, data conversion costs,
system interface programming costs, etc.
In addition to challenges on the EMR side of the practice, there also is the issue of
billing system and practice management system capabilities. Is the preferred EMR
sufficient to support a mega group on required EMR as well as billing capabilities?
Should there be an internal billing department or does the group prefer to outsource
billing and collections? Every practicing GI physician has their own nightmare billing
experiences, which actually allows the physicians to compare notes and perhaps reach
consensus on the best route to proceed. As most physicians know, there are no easy
answers to this question, but there are a number of ways to reduce the risk as you
negotiate with billing services, if that’s the decision the group makes regarding billing.
Setting up an internal billing unit requires selection of the right leader, coordinating with
all the SBU’s and providing a vision of how the billing unit will develop from the merger
of existing practices. Certainly there are advantages to having an internal billing unit and
you should be able to gain greater control, track and report expenses transparently and
more easily allocate billing costs based on a per member basis or on a percentage of
As GI mega groups overcome their inevitable growing pains they may begin looking at
more opportunities to solidify their position in their market and grow revenues. It’s
important to identify key partnerships with major payers as well as with major health
Founders or select Board members may take the lead in enhancing relationships with
major payers through bringing value to the payers that they aren’t getting from small
independent practices or from large practices that are controlled by a health system and
which the payers deem not to be not trustworthy.
For health systems there are increasing competitive pressures to consolidate provider
groups and to expand geographically across large markets, such as in Chicago with its
population of about 9.5 million. Perhaps there are opportunities to be anointed by the
health system as the preferred GI group or perhaps there are opportunities to sell a
minority interest in the mega group to the health system, thereby generating cash for
the mega group and its member physicians and building long term referral relationships.
Whether they form alliances with a single health system or multiple systems, there are
significant benefits to be gained from doing so.
Along the course of the initial years of the mega group other GI physicians should be
attracted to join. The Board members and the lead Administrator make calls to
interested GI physicians to explain the process of joining the mega group. There is a
modest capital investment required of each participating physician, signing of the
Operating Agreement and signing the Membership Agreement in order to gain the
benefits of belonging to a mega GI physician group.
Many of the corporate integration projects listed above should be developed during the
first year along with recruitment of additional groups. New groups joining the mega
group will need to convert their data into the mega group’s EMR system and therefore
this affects the timing of bringing new groups into the mega group and realizing the
mutual benefit of having them participate and spreading the startup costs across more
In less than two years mega groups can successfully expand their number of physician
members, set up reliable infrastructure of EMR and billing, take advantage of new
revenue opportunities and reduce expenses in certain key areas. So, what’s next?
Initiatives that may come up for discussion include recruitment of new members, pursuit
of specialty pharmacy capabilities, creating a group purchasing organization, creating
an anesthesia group to serve all the endocenter locations, and more. All of these new
ventures should generate additional revenue and offset the startup costs and overhead
expenses associated with a large single specialty group in a major metropolitan area.
Outlook for Mega Groups
The outlook for mega GI groups in the US is strong. Many have been formed and
benefits of these mergers are being realized, although there are challenges in doing so.
Success depends on a variety of factors. Leadership is a key consideration as much
work is involved in forming a mega group and considerable time and money have to be
invested to achieve the gains they all hope to realize. Compatibility of the practices is
another consideration. Practices should have similar goals and similar practice
structures to begin with. As with any other partnership, being compatible at the outset
and having common goals are key considerations and should be discussed and
evaluated openly at the outset. Timing in each particular market is also an important
consideration. As each market develops and local health systems consolidate,
determining whether the time is right also helps to determine potential for success for
physicians interested in forming a group.
Rock Rockett, PhD is Principal Consultant of Rockett Healthcare Strategies and
operates his business out of Chicago. He works with GI physician groups around the
country and provides his insights on mergers as well as on strategies for increasing
revenue and making the independent GI group sustainable over time. You may contact
him at firstname.lastname@example.org.