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Practice Mergers
Mergers and New Providers in general practice. Some Reflections on Current Market Changes
Some Background to the Market
Before the creation of the NHS, a general practice had a goodwill value that was an attractive part of the “pension arrangements” that a GP would receive when he/she retired. But in 1948 the Government gave GPs access to the NHS pension scheme and bought out the goodwill that was in the system at the time and decreed that in future it could not be bought and sold. Consequently now – unlike a general dental practice or a pharmacy – general medical practice has no goodwill value (except for the value of enhanced services offered by providers without a practice list) - something brought in 2004 as part of the new GMS contract discussions.
Since 1948 general medical services have been provided by small private businesses operating under contract to the Government but in a stable and controlled environment (the former Medical Practices Committee controlled GP supply) where competition and market change have been largely unknown.
While the potential for mergers with other practices has always existed within the rules, traditionally GPs have not thought about this. Why should they? What were the benefits? Few merger benefits were perceived (in a system where every practice received the same guaranteed basic income regardless of size) but many threats were seen by Practice Partners: -
Threats:
- Loss of power
- Loss of control
- Loss of tradition/history
- Anxious staff
- Fear of the unknown
- No-one else does it
So the result has been that until recently the UK marketplace has been made up of around 10,000 small businesses (Practices) each offering broadly the same basic range of services, and these Practices have enjoyed a monopoly over the provision of general medical services.
What has happened in the marketplace recently?
In the late 1990s the commencement of the Personal Medical Services contracts took away the monopoly that GPs had until then enjoyed to provide general medical services. Under the PMS contract, others (including nurses and managers) were allowed to become providers of GMS; a few entrepreneurial individuals (albeit members of the NHS “family”) took up this option, but in the main PMS continued to be provided by traditional GP Practices. Although the Government had hoped that the PMS contract would offer significant variation and innovation in the delivery of primary care services, the reality has been that most Practices took the PMS money that was then on offer and carried on largely as before.
However the 2003 GP “new” contract discussions and subsequent changes in the rules allowed companies other than those including a GP to apply for contracts to provide medical services and the Alternative Provider contract was introduced.
New Providers
It is now the Government’s clear intention to encourage the introduction of alternative providers of medical services into the “marketplace”, believing that the present arrangements are leaving too many patients without choice and without easy access to general practitioner services. For the first time there are larger providers (health care companies) seeking vacant practices and contracts for new service developments (currently contracts awarded in Derby and Dagenham); and there are a number of emerging companies, usually driven by an entrepreneurial GP, that are building from small beginnings (as a general practice) and expanding into larger Practices nationally to bid for vacant single-handed Practices. In February 2006 it was announced that Sainsburys, Britain's third-biggest supermarket group is planning to initially house GP surgeries in stores that already have pharmacy capability.
So why are more Practices considering merger now?
It is important to stress that the move to merger is still in its infancy, perhaps apart from the incidence of one Practice “merging” with a local single handed Practice that has become vacant. Mergers of Practices of similar size are still uncommon.
But the world of general practice continues to change rapidly and opportunities and threats exist that were previously not there. Within a short space of time we have seen a host of new developments – the 2003 GP contract and the quality and outcomes framework (QOF) and QOF revisions, started the process, Choose & Book, Practice-based Commissioning, ‘Out of Hospital Care’ and to say nothing of the entry of the new, bigger players to the primary care market are continuing the swathe of changes. Competition, clustering and market consolidation are words that have entered the GMS lexicon.
Any one of these developments individually would be a managerial challenge, but taken together it could be argued that they call into question the small business model of general practice predominant since 1948. Faced with such a massive change agenda, many people are coming to the conclusion that size matters.
[For an extended commentary on the argument for size and the limitations of small practice units see: Size Matters: making GP practices fit for purpose by Prof. Paul Corrigan. The New Health Network 2005 http://www.newhealthnetwork.co.uk
In this document Professor Corrigan builds a case for the development of new, larger, public and private organisations to deliver General Practice. He does not suggest that the small private business model has no place in service delivery; but argues that larger alternatives (including co-operatives, public benefit corporations, GP-led provider organisations and private providers) are urgently needed to work alongside the current model.]
A larger Practice can achieve a greater capacity and flexibility of delivery than a smaller unit, and has a wider skill-mix to enable new service development. It has the ability to offer greater specialisation to the individuals within it. Larger Practices can also attract greater management resources paid for by economies of scale and can also attract high-calibre staff of all kinds because of the diversity of work that they can offer.
So if bigger is better for the provider (although surveys constantly reflect positive patient comment on small/single-handed Practice) how is bigger to be achieved for existing Practices? In some instances, a desire to grow can be achieved simply by a pro-active patient acceptance policy, re-opening a closed list or extending a Practice catchment area; this is especially true in inner city areas with high levels of new immigration. In other cases as discussed there may be an opportunity to take over a neighbouring single-handed Practice when a retirement occurs.
However, in many cases the only route to achieving significant growth in terms of patient base and capacity to deliver will be that of merger. Although some Practice Managers will have lived through the experience of a merger in the private sector in earlier careers the thought of a merger will be well beyond the comfort zone of many GPs.
One dictionary definition of merger reads “The union of two or more commercial interests or corporations”. It should be appreciated that the term “merger” if it is thought to apply to commercial interests of equal size and make-up is often a misnomer, as the world of industry and commerce will testify. Rarely are there two equally matched partners who agree amicably to come together in order to share economies of scale, improve profitability and reduce overheads. Almost always one player is stronger or perceived to be stronger than another.
One merger story
Andrew Clark a Practice Manager near Sheffield takes up the story of his fairly positive merger experience….
“In the case in which I am involved, premises were the initial driving force. Like many Practices, my Practice had developed every available square foot of its site, which in itself had limitations since much of the property was originally a Georgian house. It was quite clear that if we were to take up the opportunities presented by the shift of work from secondary to primary care, we should need newer, larger purpose-built surgery premises.
We knew that such a venture would be expensive, and that we needed a larger patient and income base to make it possible. We could not see sufficient growth of patients or resources coming through organic growth or acquisition of a retiring doctor’s Practice, and so we began to consider a merger.
In looking for a merger partner, we decided that the ideal candidate would be one with similar problems in terms of premises. Just as importantly, we needed to be sure that our aims and cultures in a merger would be compatible. The Practice would have to have some commonality in terms of Practice area in order to justify a joint building project. It is of course true that a merger does not depend exclusively upon the need to share premises, but in our case that was a driving force behind our decision.
Amongst the 16 Practices in our locality, one Practice stood out. It had a very restricted site in a three storey Victorian house, its Partners were well known to our Partners and its Practice area had a great deal in common with our own. It was agreed that an initial approach would be made on a Partner-to-Partner basis to explore the possibility. The initial response was extremely positive, to the extent that we were able to reach an immediate decision to enter a joint tender for a new PCT service in the area.
We arranged a series of meetings to discuss not only the joint tender but also some of the details of the merger. We also agreed on a process for working with a site developer to identify a site for a new building together with design and planning.
Through this process of meeting and working together (at this stage without any formal commitment) we gained sufficient confidence in our growing relationship that after about two months from the beginning of tentative discussions we felt able to announce a merger decision to our respective employees and after that to our respective patient participation groups.
Openness and honesty are key ingredients for a successful merger, and so we adopted an ‘open books’ policy towards sharing our financial results and clinical protocols. After the staff were informed, a whole range of informal links began to spring up. Our District Nurses held a joint meeting to discuss the consequences for themselves. We began to share training sessions, and after three months we recruited our first shared member of staff who works on both sites. All of these connections began to embed the merger in everyone’s thinking.
Of course the relationship between the two Practice Managers was important, and both sets of Partners saw their importance in making the merger a reality. The Managers met to compare their backgrounds and aptitudes, and fortunately found that there was a near-perfect match. We used the Belbin role models to identify our team working preferences and found that whereas I am a creative ‘Plant’, my colleague is a ‘Team Worker’ with good completer/finisher attributes. My ‘Resource Investigator’ traits are matched by her ‘Monitor Evaluator’ tendencies. We were able to agree within the space of a couple of hours the way in which we would structure our joint approach to the merger, and to ongoing practice management tasks. We wrote a joint paper for both sets of Partners setting out our proposals, and these were immediately accepted.
On a wider level, we began to think about the areas we would need to be satisfied about in order to call the merger a success. I devised a questionnaire for the Partners [See Table A below. Based on a study of Collaboration: What makes it work? by Mattessich & Monsey St. Paul, MN: Amherst H. Wilder Foundation, 1992] which they worked through on an individual basis. Of course at that early stage it was impossible for them to tick all of the boxes, but we were well over 50%! The aim of the questionnaire was to draw out the factors for success and to act as a reference exercise which we could repeat as the merger progressed.
We accepted the need for professional advice, and work commenced at a very early stage on a joint Partnership Agreement. To achieve this, the input of experienced commercial solicitors is important. The process of working through the agreement was also helpful in reaching a common understanding of the ways in which the two sets of Partners saw such key issues as working hours, surgery vs. outside commitments, decision-making (unanimity or majority?) and of course holidays and sabbaticals.
Our respective accountants were helpful in interpreting each others financial results, although it is clear that in the first post-merger year we will have to go out to tender to appoint one single firm for the merged practice. A rationalisation of bank accounts is also required.
We involved the PCT in our decision to merge at a very early stage, and included them in meetings with Partners and surgery site developers. This was important in order that the PCT could put in context some of our subsequent requests to them, such as funding for migration to a common computer system and of course presentation of the business case for our new surgery. Keeping them involved has smoothed the path for many of our steps towards integration, including shared business cases for service development via Practice-based Commissioning.
What remains to be done? There is much more to do in terms of staff integration, and this will be assisted by using Agenda for Change as not only a job evaluation process but as a knowledge and skills inventory. More work needs to be done on harmonisation of clinical and administrative practices, and to make sure we address the essentials we are using the RCGP Quality Practice Award as a shared framework.
Overall, a merger may well seem to be outside the comfort zone of many GPs and their Practices, but the thought of trying to address the growing primary care agenda without combining our resources is, for us, even more uncomfortable.”
Other stories
But another manager with whom I have been working closely would give another perspective on his merger.
“Although the two Practices of 11 Partners (7 in one and 4 in another) made a commitment to a merger, we obviously failed to spot the reality behind the spoken word because it has become obvious that considerable reservations existed at the outset but these were not teased out and made public. In effect I have been working overly hard to put into practice something that deep down they acknowledge is the right thing in the long term, but in the short term they are too embroiled in the potential loss of power, traditions, rituals and points scoring; it is making life difficult all round……..”
Yet another manager overseeing a merger of two Practices (12 Partners) in the same town will share similar frustrations at progress. Those familiar with “force field analysis” (a method of measuring resistance to change) will recognise these comments…..
“There is a degree of commitment from most Partners, but also present is a philosophy “I won’t oppose it but I don’t support it,”. There is no doubt in my mind that even though we have a new shared premises as a focus around which to wrap our merger, I wish I had spent more time in the preparatory phase of exploring feelings and gaining commitment……….”.
And so…..
Changes in market sectors happen all the time. In the recent experience of all of us we can see what has happened in the retail sector – supermarkets from corner/smaller shops most noticeably. In other sectors closer to the general practice model there have been changes; one has only to look at the legal profession to see the merging of local practices to form medium sized and larger practices and the relative demise of the single-handed solicitor. In pharmacy too there is a noticeable decline in the corner pharmacy as bigger players buy up some of the smaller pharmacies. The general practice market is no longer so immune from these changes; in the last 12 years in England and Wales single-handed practices have declined from 33% of the market to 22%.
In the general practice setting there is no merger case law to review and so it is almost impossible to find any “checklist of activity” that people can work through. But the activity that has to be worked through is not complex in organisational terms/commercial terms, because of the extensive similarities between the joining organisations; both are Partnerships, both are paid on the same basis from a national tariff, both are employing the same type of staff etc. The usual practice of undertaking a SWOT analysis (strengths, weaknesses, opportunities and threats) is a good starting point.
“Mergers” of equals can quickly become “takeovers” in the minds of many participants if the project is not handled sensitively. Major change such as this is the time when many emotions come to the surface, often far too many for the average Practice and its management arrangements to deal with. Sharing with an experienced consultant the initial phase of gaining commitment and teasing out feelings is strongly recommended.
What should Practices do in the light of these potential market changes? Where do you start? Have you discussed it? Do you take time out to discuss the future? Do you have a forward plan? Only one thing is certain: the future will not be like the past.
Table A
Based on a study of Collaboration: "What makes it work?" by Mattessich & Monsey St. Paul, MN: Amherst H. Wilder Foundation, 1992.
Ingredients for a successful merger – a questionnaire
1. Shared Aims
Both practices see the merger as in their individual interests
2. Shared Values
3. Shared Needs
Other reading on the subject of mergers
BMA guidance on Practice mergers
This twelve page article, although clearly aimed at the private sector, has some lessons:
http://www.unisys.com/eprise/main/admin/micro/doc/BlueprintForMergerIntegration.pdf
And two one page articles:
http://www.ridgehillconsulting.com/article_3.html
http://www.creditunions.com/home/articles/template.asp?article_id=1927
Acknowledgements
With thanks to Andrew Clark for his personal contribution to this article.
