Exit Strategy: Tips On Selling Your Medical Practice

Carrie Vaughan, for HealthLeaders Media , May 10, 2010

Bottom line: Physicians need to determine the difference between their asking price versus asset value and goodwill.

Right-size your practice
Physicians should make sure they have the right number of employees for their workload.

"Because of the complexity and nightmare of billing managed care, many physicians have a lot of people in the office who aren't being fully utilized," says Galloway. Perhaps someone comes in on Tuesdays to handle Medicare billing, or a spouse helps out and is paid in cash. There are factors that can make it difficult to determine personnel costs for a trending 12-month period. Physicians should determine the job description and total benefit package for all of their employees.

"It may not mean downsizing staff, but being able to adequately describe how employees are utilized for the company," Galloway says.

Determine how you want to be compensated
It is important for physicians to determine whether their new compensation—most likely some type of productivity-based model—will be equivalent to what they are earning now, says Carden.

"If it is going to be equivalent, they probably won't get paid much for the practice itself because there won't be profit left over to generate value in the practice that they are selling," she explains.

Some physicians may opt to receive a smaller compensation package so that can get more money up front for the practice, Carden says. Knowing what their compensation will be will help physicians determine whether they want to take a larger payment up front.

If a physician plans to sell to a junior partner, he or she may have to fund that purchase, says Galloway. "The junior partner will pay for their share of the practice over time through collected revenue, so the physician won't get the full purchase price in cash," she says. Under that scenario, the physician may want to remain involved in the practice while he or she is still owed money to make sure the practice is being managed properly, Galloway says.

Know your strengths
Similar to selling a house, physicians want to ensure their practice's strengths are showcased. For example, using physician extenders such as nurse practitioners or physician assistants is a selling feature that practices want to highlight. "If they have ancillaries, they should promote that to who might buy it as additional sources of profit," says Carden, adding that if you don't have physician extenders, it doesn't make sense to add them. Any unique training or role in the community, such as team physician for the local high school, is also worth noting to potential buyers.

"Anything that really differentiates you from peers is what you want to bring to the forefront to make the sale as lucrative as you can," says Carden.

Ascertain the best time to sell
For the past few years, there haven't been as many hospitals buying physician practices as there have been in the past, but now that is trending back up, says Galloway. If a physician does plan to sell to a hospital or a new physician in the community, he or she should be prepared to stay on with the practice for a certain number of years after the sale.

Hospitals are buying the physician as much as the practice, and a new physician in the community may want a nine- to 12-month window to help transition patients, she explains. Physicians should also pay close attention to what is going on with the Medicare fee schedule to help them decide when is the right time to sell, says Carden.

Right now, "all of the things in reform are slanted for primary care," she says. "It is not as time-sensitive for primary care as for specialists. Physicians should do as much research as they can to see what is coming down the road because if the prospects are looking bad, it might be better to sell sooner than later."

Carrie Vaughan is a senior editor with HealthLeaders magazine. She can be reached at cvaughan@healthleadersmedia.com.

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3 comments on "Exit Strategy: Tips On Selling Your Medical Practice"

Christopher Majdi (7/7/2014 at 3:44 PM)
Cleaning up A/R may provide a temporary bump but it's not going to make much difference in the practice price. Consistent long term financial performance is going to support the practice valuation. All things being equal it's probably a good idea to aggressively collect the A/R, but there are many more systemic changes that need to be made well in advance of the sale in order to maximize the doctor's value for their practice. - Christopher Majdi http://www.linkedin.com/in/christophermajdi

John Sung Kim (9/20/2013 at 2:26 PM)
We see One Medical coming into local markets and crushing valuations. As for AR, an acquirer often assumes that their own collections and accounting (which they assume are far more efficient) will bring the AR % back up to their curve norm. Disclosure: I work for DoctorBase.com - a patient engagement & marketing platform for medical practices. In data spanning 3 years, 11k practices and 5 million patients - we've seen star ratings and sub-specialty demand have the greatest "X factor" swings in valuation, meaning the 5 star practice in social media will command a higher price than a 3 star practice.

Simon Sikorski MD (10/3/2012 at 10:16 AM)
HMCOE works with quite a few medical practice sales/purchases. Most of our clients got acquired by health systems in NJ over the past 2 years. Average practices need to be turned around over a period of 2-3 months to become more profitable by attracting more profitable patients. The practice then puts the data from the increased profits into forecasts to increase the sale price or to enhance interest by buyers. The secret to proper valuation at that point is to sustain the profitability. On the other scope of work, once a practice is acquired a new practice needs to increase its volume of patients. Putting together medical marketing into the practice purchase/sale is a smart way to go




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