Selling a Medical Practice to a Hospital

The number of physician practices which are sold to hospitals and other healthcare entities has varied widely over the last few decades. In recent months there has been increased talk regarding hospitals making these purchases. In the annual meeting of the NSCHBC, great sessions were offered regarding a number of issues concerning medical and dental practices. One particular session discussed hospital-physician integrations and the sale of medical practices to hospitals. It was surprising to hear that the volume of these hospital deals have been picking up, but as expected, hospitals are largely unable to pay physician sellers for the full market value of their practices (largely comprising goodwill). A piece in the AMA News was also written recently about physician practice management companies getting back into the game and buying medical practices. But the volume of these deals pales in comparison to the acquisition mania of the 1990's and they mostly seem to be inpatient practice purchases. Corporate deals and larger-entity acquisitions are still happening but have not picked up major traction as many had expected. Large corporate buyers and other healthcare entities may be cautious in an uncertain regulatory and reimbursement climate. However, physician-to-physician practice sales still seem to be flowing at a steady rate. The ability of hospital purchases to be successful depends on how the selling doctor is able to function (or not) within the structure of the acquiring entity. It is often difficult to give up the autonomy of a private practice and work under the direction of a larger entity, even with the added security and economies of scale available to the seller. Also crucial is how the post-sale physician compensation agreement is structured. It will be interesting to monitor the staying power of these deals and see whether they will unravel over time. The changing dynamic in regional markets dictates much of this. It may be a good option (or the only option) for some practices to sell to hospitals, but for the ones which are more marketable it is generally better to sell to another group or individual physician buyer. Hospitals can't pay sellers for goodwill value like other buyers can. Most physician sellers continue to seek all-cash transactions for the sale of their practices and are largely able to receive these deals from buyers who can obtain practice acquisition financing. As long as private party transactions continue in number, the volume of hospital purchases at lower valuations will not increase exponentially as many have speculated. Many retiring doctors who hear about these transactions may wonder if selling their practice to a hospital is a viable option. The answer truly depends on a number of factors but many of the determinants are ultimately related to the accurate assessment of the fair market value of the practice.

Entering practice – Buying a medical practice or starting-up fresh?

Many new graduates completing residencies and fellowships seek guidance on how to start a medical practice or buy a practice. Prior to program completion it is advisable for prospects interested in medical practice ownership to extensively research and evaluate all available practice options regardless of their first inclination. After further research some doctors simply discover that medical practice ownership is not their ultimate desire and they may prefer to work as employed physicians. It is important to look at a variety of market indicators including available job openings for doctors, statistics on the best cities and states to practice medicine, demographic information on medically underserved areas, current listings of medical practices for sale, and the type of assistance available for financing a practice start-up or acquisition. When pursuing the independent practice route it is vital to get grounded in basic accounting and the management aspects of running a small business. Though medical practices differ greatly from the average small business, a practice is still subject to many of the same factors influencing other small businesses. Business skills are not typically acquired in medical training and finding a balance between business management and clinical practice can be tricky. Regardless of the practice decision made, proper due diligence and learning opportunities related to physician employment, practice purchase options, and startups take sufficient time. For those who set their heart on ownership the difficult decision of whether to buy a practice or start one from scratch can be challenging. Depending on the availability of opportunities on the market it may be more practical to buy a medical practice instead pursuing a start-up, or vice versa. The decision to start-up versus making an acquisition is also dependent on where the doctor is looking to practice medicine and how they envision building their private practice. Buying an established practice with existing patients and cash flow is often cited as a better option than beginning fresh, but a start-up medical practice can be equally rewarding and profitable.

Multiple objectives when deciding to sell a medical practice

The decision to sell a medical practice can be based on a number of factors. A medical practice sale may be driven by retirement, financial considerations, employment opportunity, lifestyle issues, or other transition objectives. Finding a buyer for the medical practice and arranging a successful sale is often a crucial milestone towards reaching the next step. The particular objective of the seller and his/her time-frame will dictate how the medical practice broker will put together a selling strategy and may determine the type of deal structure to expect. A seller needs to be firm but flexible. It is important to obtain the ideal price and terms for the practice but not to shut-out a potential deal by ignoring buyer desires and the market realities for selling a medical practice. This is where the communication and trust between practice broker and seller becomes crucial. A broker's expertise (or lack thereof) can ultimately affect the saleability of the practice and reflect in the final price and terms obtained. Balancing personal and professional objectives with sound business decisions is the difficulty which practice sellers face. In short, practice owners should take the following into consideration when selling:

• Reason for selling the medical practice
• Personal and professional objectives related to the sale
• Time-frame to achieve objective
• Price, terms, and time-frame desired in a deal
  
• Flexibility or rigidity in obtaining desired price, terms, and time-frame
  
• Decision to work with a medical practice broker / medical practice consultant
• Expertise, trust, and communication of the broker / consultant and seller