How Mergers and Acquisitions Affect Employees

Mergers (the consolidations of two companies) and acquisitions (the purchase of one business by another business) affect the employees of both companies in many ways. Medical practices and medical companies need to understand how mergers and acquisitions affect the employees from many different vantage points starting with who stays and who may be let go, the workload of the employees after the merger or acquisition, employee benefits, and the overall morale of the new single entity.

According to an M & A software company based in Chicago, some of the employee considerations the new company must consider are:

The effect on the employees of each medical practice or business

The new management will need to review the following employee concerns which include advantages and disadvantages for the new practice and the employees:

• The roles of the employees. Some employees may be let go. Some jobs will have been performed by the same employees in each venture. For example, if two medical practices merge, each practice may have had its own billing clerks, receptions, managers, and compliance personnel. When the companies merge or one is acquired, decisions need to be made about which employees might be discharged, what each employee might do that the employee did before the new company was formed, and what new duties each employee may have. The owners of the companies involved in the merger or acquisition might offer severance packages to help employees decide who leaves the company rather than just having the new owners fire any employees.
• Cultural concerns. When two medical practices merge each practice will have had their own way of doing things. Some practices may be more outgoing with patients and with each other than other practices. Some practices may encourage questions while others prefer following the rules.
• Wage differences. The employees in the new company will likely talk to each other about how much each employee earns. If two employees are doing the same type of work, the new practice will need to take steps to narrow the wage differences or clarify why there are differences.
• Overall change. Any changes can upset employees. Some employees may be able to adjust. Others may have difficulty adjusting.
• New opportunities. Bigger practices may allow for new job opportunities for the medical staff within certain fields of practice and across different fields. There may be new opportunities on the administrative side also.
• Training. New practices should review what medical and non-medical training is available to help employees adjust to the new practice.
• General anxiety. Some employees may look for new employment as soon as word of a merger or acquisition spreads. Many employees are likely to be anxious about working with new medical professionals the employees don’t know and new administrative staff the employees don’t know. The owners of the new practice need to take steps to address these anxieties.
• Advancement opportunities. Some practices may have prioritized seniority while other companies may have prioritized results. The new medical practice or company needs to decide what standards will apply to the new entity.

Employee rights

Medical practices and other medical businesses need to review with experienced healthcare lawyers the rights of their employees. Employees generally have specific employment rights if the employees have a written contract of employment. Employees may have additional rights based on state law and the requirements of the state or local medical boards.

These rights may include the length of time employees must be notified before their contract is terminated, any severance benefits, and any other contractual or compliance requirements.

How employees benefit when practices or companies merge or become larger due to an acquisition.

The employees of a new business are likely to benefit financially and career-wise in many ways. These benefits may include better salaries, new roles, an enhanced reputation, more job security, more room for advancement, and in other ways.

What questions are the employees likely to have?

Some of the common questions employees are likely to have for their employers include:

• How will my employee salary, benefits, severance package and paid-time off change?
• Will there be new job opportunities at the same or different locations?
• Will my job duties change?
• Will I need to be retrained?
• How should I speak with patients about the transition?
• What is the timeline for the transition?

Landrum, a human resource company, provides some guidelines for reviewing employee benefits when companies merge or one is acquired. For example, employers need to understand the Employee Retirement Income Security Act (ERISA), the Affordable Care Act (ACA), and the Internal Revenue code (IRC).

Understanding Employee Benefits Challenges in Mergers and Acquisitions

The new company will need to review many different employee benefits issues including how each practice or company prior to the merger/acquisition handled:

• Pay
• Health insurance
• Retirement benefits
• Sick leave
• Vacations
• Other benefits

The review should include an analysis of which benefits the employees value most.

Employment compliance issues when companies merge, or one acquires another include:

• Health insurance plans need to comply with the Internal Revenue Code. The new owners need to review such terms and conditions as the payment of premiums and what health insurance benefits are provided, notice requirements, and the “timely deposit of employee contributions”
• The various plans have various fiduciary requirements
• Many other legal obligations

Generally, the owners of the new business and their administrative staff should have a plan for managing the first 100 days – so that employee concerns and anxieties are addressed – and that there’s clarity about the full range of employee benefits.

Unique medical practice concerns when practices merge or one practice acquires another

Medical practices have unique concerns that should be reviewed with our healthcare lawyers. These concerns include HIPAA, the corporate practice of medicine, Stark Law and the Anti-Kickback Statute (AKS), medical board compliance regulations, patient requirements, the lines between practicing medicine and the business at the new company, and many other compliance requirements. One possible solution our lawyers will review with you is the use of a Managed Service Organization (MSO) to ensure clarity between the medical practice and the medical business.

For a two-part discussion of the key considerations when merging a medical practice, please see the following articles:

• Key-considerations-when-merging-or-acquiring-a-medical-practice-part-one/
• Key-considerations-when-merging-or-acquiring-a-medical-practice-part-two/

Strategies for Successful Benefits Integration

Landrum recommends focusing on the following employee benefits issues regarding mergers and acquisitions:

• Aligning the business objectives. An integration leader should “understand the strengths, weaknesses, culture, and operating practices of both companies to identify synergies and potential conflicts.”
• Developing a transition plan.  The plan should prioritize communication with employees about their benefits starting with answering all their questions, having meetings to discuss the transition, creating a call center/hotline, having online resources, and using newsletters to keep the employees informed.
• Using information technology. The new owners need to think through how to merge their current software and how to align the software with the new medical practice or business. The new software should address the benefits of the employees to ensure that benefits continue and that any new benefits are made available in a timely and clear manner. The software can help analyze the pros and cons of the different benefit plans
• Evaluating the current health insurance plans. The plans need to be reviewed to ensure consistency or integration of deductibles, contributions, and coverages. The new employer may need to provide COBRA continuation coverage. The new company also needs to review how to continue or manage any wellness plans each company provided before the merger or acquisition.
• Retirement and profit-sharing programs. The practices/companies need to review these plans for the medical staff and the administrative staff.
  • Generally, both the medical staff and administrative staff can have retirement plans. The new company needs to decide whether to keep the individual plans, merge the plans, terminate the plan of the acquired company, and many other issues. There are many practical and legal issues that need to be reviewed.
  • Generally, only the medical staff can have profit-sharing plans. The new company will need to review what incentives the new company wants to provide to the medical staff in the new venture – as compared to any incentives in the old practices/companies.

At all levels, employee involvement and feedback before, during, and after the transition should be encouraged.

Medical practices and medical companies that merge need to review a range of legal compliance issues and many different practical issues starting with how the new merger will affect the employees. Many of these issues also apply to practices and companies that acquire another practice/company. These issues include human resources, employee benefits, cultural concerns, and the benefits and downsides to the new venture for both the employers and the employees.

Medical practices and companies considering a merger or acquisition should contact Cohen Healthcare Law Group, PC to discuss their legal and healthcare compliance requirements. Our experienced healthcare lawyers advise medical businesses about healthcare compliance laws and regulations issues.