Exit Strategy: Tips On Selling Your Medical Practice

Carrie Vaughan, for HealthLeaders Media , May 10, 2010

The number of physician-owned medical practices is declining.

In 2005, two-thirds of all medical practices were doctor-owned, but the number is now below 50%, according to the Medical Group Management Association. More physicians are looking to sell their practice in favor of being employed by a larger medical group or hospital. Some are tired of managing the business, whereas others are concerned about the impact of healthcare reform on their practice.

There is an uptick in the number of independent physicians looking to sell their practices, says Carol Carden, principal of business valuation at Pershing Yoakley & Associates, a healthcare consulting firm based in Knoxville, TN. "The way it is different from years past is that last time it was more primary care physicians selling, but now it is more specialists—cardiologists and orthopedists," Carden says. "It is being driven by the Medicare fee schedule because it will cut more and more into their margin."

Whether you are seeking employment or planning to retire, here's advice on getting your practice ready for sale.

Get your books in order
It doesn't matter whether you are selling to a hospital, medical group, or another physician; getting your books in order is one of the first steps physicians should take to prepare their practice for sale.

"Small businesses can put certain expenses through the business that may not be expensed in more corporate settings," says Amy Galloway, director of Ft. Lauderdale, FL-based law firm Tripp Scott, PA. Perhaps a spouse works for the practice on a part-time basis and has a car or cell phone expense on the books. Those types of expenses can impact the net revenue of the business. "One option is to clean up the books by removing expenses that are of a more family and personal nature," Galloway says.

If a physician plans on exiting the business within 18 months, removing those expenses from the books may be the best option so there are no expenses on the books with effects on net revenue that are difficult to explain.

Another option is creating a separate professional association for those expenses, Galloway says. Physicians should discuss with their accountant strategies to ensure that their books reflect as positively as possible how their practice is performing.

Physicians should decrease AR days and make sure their managed care contracts are current. It's important to show the buyer what the practice bills and collects during a 12-month period. "If you have a specialty like neurology, you likely have a very marketable and profitable practice. But if you haven't collected copays or decreased AR days, your books will have a low percentage of billing revenue, and you will get lower bids than what your practice is worth," Galloway says.

Showing what you bill versus what you collect can also help maximize the value of your practice. If the buyer is a corporate provider purchasing plastic surgery practices, for example, it might say your practice won't collect 50% of reimbursement from your managed care contracts. If you have historic data showing you collected 70%, you can command a better price, says Galloway.

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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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