Nick Hernandez, MBA, FACHE

Negotiations are essentially human interactions seeking to discuss deals. Physicians often call me when they want assistance negotiating a deal (perhaps for a 

 with another practice, an acquisition by a 

 matters). Sure, there is experience involved, but these are learned skills which everyone can practice and benefit from over time.

This article will cover just some of these tactics and skills which physicians may want to utilize the next time they find themselves in need of negotiations.

First, note that it is common to feel like you are “bad at negotiating” as indeed the very idea of negotiating often makes many of us feel uncomfortable, awkward, or anxious. Fundamentally, negotiation is actually not about money, or deal terms, or even “winning”, but rather about creating a relationship where both sides get the best result. The central rule of every negotiation is to create agreement between parties with different interests and objectives. All that's required of you is the ability to provide value to the other party and the willingness to step out of your comfort zone to get things done.

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Jumping straight into negotiations is ill-advised. Before you start negotiations, you need to have a clear idea of what your priorities are. There are lot of ways to organize these, but the easiest way is to rank what you want from highest to lowest priority as this helps you stay clear on exactly what’s most important for your specific needs. It is easy to enter a negotiation thinking one thing, only to agree to something far less than you had hoped for. By writing down a list of your priorities in order, you can be sure the items at the top of the list stay in place, and you only compromise on the lower items.

Once you have a solid understanding of your priorities and those of the other party, you need to create the offer. I have found that most physicians discover this during the negotiation process, but you’ll be more powerful if you can plan this in advance. The more prepared you are before you walk into the negotiation, the better you will be able to make your decisions. Doing your homework will give you ideas on exactly what the other party wants and needs. If you have to make a decision on the spot in your negotiation, you’re going to struggle to make the right choices each time. Instead, decide ahead of time exactly where you’re willing to compromise, and where you’re firm.

Equally important is to remember that price is not the only factor. For example, if you are merging your practice with another entity and you have nurse practitioners currently in your group, it may be very important that those personnel are maintained in the transition. Or, if you are allowing another physician to buy into your practice, you may want to maintain some control over certain voting rights. Perhaps your practice maintains a presence at skilled nursing facilities and as part of the sale of your group to the hospital, you want to be able to continue to see patients at those nursing homes. These are all illustrations of items that have nothing to do with the “negotiation price”.

Based on your strategy, you should have some firm “lines in the sand” at which you are willing to walk away from the deal. To be clear, this is not that you must have everything your way, otherwise it would not be called negotiation; however, you have to know what your deal breakers are. If you don’t draw a firm line in the sand before you invest your time and energy into a negotiation, you are at risk of eventually losing track of what is good for your practice and will end up making concessions that hurt your own interests. Not all deals are meant to get done.

To go a step further, think about what the other party’s walk-away point is too. So often, we get caught up in what we need and what we want. But think about what is going to happen if the other party does not get this deal done, because that allows you to find out where they are flexible and where they are not.

To be blunt, close your mouth and just listen. Using silence in negotiations is a skill. Don’t go into a negotiation feeling like you should do all the talking. Sometimes the best thing you can do when negotiating is to keep quiet. For example, if the other party presents a ridiculously bad offer then waits for your response, just keep your mouth shut and let them drown in awkward silence.

When you want your point of view acknowledged, acknowledge theirs first. You should be listening and asking lots of questions. To be fair, this is where experienced consultants add a lot of value because they have seen many deals and know which questions to ask. The goal is to understand what the other party’s circumstances are. What are their constraints? What are their timelines? What are they up against? It will help you frame how to get to the right results. When you acknowledge their point of view first, it helps bridge the gap and they will be more receptive to hearing your point of view. Remember to listen carefully for potential flexibility the other party may have.

Oftentimes, negotiations become heated. While there are ways to de-escalate them, it’s much easier to keep a steady composure no matter what happens. My suggestion is to remain steady throughout the negotiation and look to perceive exactly what the other party is communicating. You should strive to keep both positive and negative emotions in check. Also, clarify any communication you don’t understand immediately so that your emotions don’t run wild based on your own misinterpretation.

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Even if you opt not to use a consultant, make sure you do not negotiate by yourself. Negotiations consume time and energy and the longer you have been engaged in the process, the more emotionally invested you become in making a deal happen. No one is immune to this, which is why it is important to have someone else with you during the discussions.

Negotiations in the healthcare space can be difficult to manage properly and are often twisted with misunderstanding and miscommunication. Unfortunately, when it comes to negotiations, we usually think we’re better than we are, and we end up settling in the negotiation process. But that doesn’t need to be true for you and hopefully you have picked up a few tips in this article.

Lastly, keep a perspective on the fact that you may continue to be practicing in the same community after your negotiations (whether they were successful discussions or not). While it may make sense to be firm in the midst of the negotiation, always have a limit on how tense the negotiation is (another good reason to have a calm-headed consultant by your side).

, a consultancy specializing in strategic healthcare initiatives for physician practices. His firm helps devise and implement strategies that will allow practices to remain competitive and solvent. E-mail him

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Mastering the art of negotiation

With the everchanging healthcare landscape and the increasing competitiveness among physician practices and hospitals, many physicians are looking at acquiring other practices and bringing them into the fold. Unfortunately, I have often seen physicians who would like to jump to valuations or due diligence of a medical practice without having first established their own strategy as it relates to potential acquisitions.

If your practice doesn't already have a strategic growth plan, make one.

Growing for growth's sake really doesn't make sense for you or for the potential target. Instead, think about practices that might be interesting to acquire, geographies that might be important, capacity that might enhance operations, or perhaps even technology that could be transformational.

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You want to consider what you need before looking at opportunities, because after the acquisition the integration follows, and that can be an extremely difficult process if there was no strategy beforehand. The discipline of articulating a strategy will guide you in finding and assessing acquisition targets.

What is your vision for where you want your practice to go? In developing your acquisition strategy, you should consider your goals (What is it that you want to do?) as well as your experience (What have you already demonstrated the capability to succeed at?). It is imperative that these two areas are fully thought out and written down before proceeding.

As a physician owner, you need to know what strategic outcomes you ultimately want from engaging in acquisitions and consider the implication to both you, as the buyer, as well as the practices that may want to sell. Developing an acquisition strategy requires knowing what makes your practice successful now and what a potential acquisition can add to make your business even better in the future. This strategy will help you clearly define the value proposition for both buyer and seller, as well as the value drivers that should guide acquisition decisions. In this instance, the value drivers are essentially capabilities that add worth to the practice.

Practices are continually bought and sold as a result of an opportunity being made available or because of a strategic plan. As the buyer, you are acquiring an established practice that’s hopefully making money and has patients and employees already in place. You also know that if you buy a good practice, you have the opportunity to make it a better one. From time to time, things come your way that are more opportunistic. Ask yourself, is the downside risk significantly less than the realistic upside opportunity? Are the seller’s goals aligned with what you want to do? Look at the fit. Will integration require a fundamental change in either practice? Unfortunately, the answers are rarely black and white thus the importance of having an underlying acquisition strategy.

When your desires and experience intersect with a good acquisition strategy, you have the foundation for your plan. It is now time to look at opportunities, by first defining the parameters of the practice you want to buy. What are the characteristics of the medical practice that you propose to buy? Items such as practice size, location, price range, and patient catchment area are just some of the key areas to initially think about.

What is your plan to grow the new combined business? You should include both top and bottom line growth in your discussion. Are you looking for a troubled practice where you can create value or a practice that's already on a fast growth trajectory? Do you foresee additional acquisitions? If so, what are the attributes of the prospective add-on medical practices. What will the new combined business look like as your plan moves forward?



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Once this exercise is complete, you will be in a position to start targeting the right practice. There are two ways of targeting a medical practice: find one already listed for sale, or approach a physician owner of a practice not for sale, and make an offer. Some key questions you want to keep in the forefront of your mind are:

How does the target make you, the buyer, better?

How do you make the target better? Most often you’re buying the producer (the physician) so alignment with his or her personal goals is absolutely critical.

What are the risks that could impact the future success of the business? What is your plan to deal with them?

The process of buying a medical practice can be narrowed down to one very simple question: Is the practice you’re buying actually the 

 that you think you’re buying? Some purchases are more straightforward than others. If you have a thorough understanding of the practice you are buying, then the process will be smoother. It is extremely important to remember that when you encounter an opportunity that does not align perfectly with your original strategy, return to the key questions that defined it. Local market dynamics may change your own practice and thus there may be a need to alter your acquisition strategy. There is nothing wrong with that. In fact, I am a firm believer that strategy should be fluid and ever-evolving. Just make sure that as your acquisition strategy changes over time, the practices you acquire still make your business better and more valuable.

Essentially your strategy will become the roadmap for your acquisition initiatives and will serve you well at every stage. Thoughtful development of an acquisition strategy should tell you as much about the medical practices you should not pursue as those you should. You can use your refined strategy to help locate medical practices, seek investors and lenders, assess the value of practices, and structure deals. Most importantly, as you get caught up in the heat of the chase, it will help you to assess whether the deal that you're working on is really going to be right for you.

The challenge is to stay true to your strategic direction, not allowing yourself to be distracted by acquisitions that don’t keep you on the intended path. Physician owners often make mistakes here. All the work you do to meet and evaluate practices, only to walk away, is not wasted. It’s part of staying true to the thesis and testing and achieving your long-term vision for your business.

If your practice doesn't already have a strategic growth plan, make one

Strategy checklist for medical practice acquisitions

Any private practice physician understands the difficulty of starting a practice from scratch. The countless hours and sleepless nights one must endure to achieve a successful practice is what truly makes these physicians entrepreneurs. However, it is also necessary to accept the fact that keeping the business alive is just as difficult, if not more so. In most cases, crucial decisions should be made in order for the practice to move forward, including potential buyouts as part of a growth strategy or exit strategy. This is one case where mergers come in.

Mergers and acquisitions (M&A) is an umbrella term that covers quite a lot. For this article though, I am narrowing it down to just mergers; that is, two or more practices “joining together” as compared to a practice being “bought out entirely”. If you are a physician practice owner who is considering a merger at some point, it is vital to learn more about this process early in the game. As I have written about in previous articles, while a merger can prove vital for your practice, the business will definitely go through some changes in order to stay relevant and profitable. Mergers are a principle way for some practices to expand. If you do so, however, there are certain traps you must avoid.

Trap: Failing to reach a meeting of the minds

Each owner may have an initial idea of what he or she wants to accomplish with the merger, but together they may fail to flesh out the details to achieve their goals. For instance, one may be older and views the merger as an eventual exit strategy. That’s fine, but this can mean the older owner may have a conservative approach to the business and may not want to spend money on expansion. The younger owner may be more willing to take risks and may disagree on the direction of the practice in this situation. If both owners have failed to discuss their expectations candidly, they will probably become frustrated and unhappy after the deal has closed, which can undermine the success of the merged practices. Many physicians use consultants here early on to help facilitate these discussions and ensure the two practices are truly open about their desires and intentions.

Trap: The inability to mix company cultures.

One practice may have very talented personnel; the other has more name recognition, which can translate into greater marketing success. Or one practice may bring capital to the table that the other needs for expansion. Even though on paper a merger may seem like a good idea, owners and employees of the two practices may not mix well. One team may be used to autonomy; the other may thrive under micromanaging. Make sure that your proposed marriage with another practice won’t suffer from incompatibility.

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Trap: Failing to clearly establish who gets what.

Rarely is a merger a 50-50 proposition. Carefully allocate each owner’s percentage before committing to the merger. Give consideration to pre-merger accounts receivables as well as any promised/expected bonuses that have not yet been paid before a merger is completed.

Trap: The inability of one owner to cede the last word.

One of the key issues for physician practice owners when two practices merge is who will call the shots. Until the merger, each owner has been supreme within his or her practice. Decide who will be in charge when the merger is completed. Make sure each owner knows which one has the final say. There are ways to have these decisions rotate for fairness and also ways to deal with tiebreakers. These are critical components of your governance documents.

Other issues to settle before the merger include:

: Will one name survive? Will you create a new name?

: Decide in advance how many representatives each former practice will have on the new board.

: When practices merge, there is duplication of functions and you need to avoid redundancies. Negotiate before closing the merger who will stay and who will have to leave.

Trap: Failing to bring in professionals at the outset.

Physician practice owners may shake hands on a deal before even talking with a consultant or their accountants and attorneys about the merger. This mistake can be critical. A seasoned consultant can help owners think through the structure of the deal as well as (and perhaps more importantly) the shape of the practice after the merger.

Trap: Incurring unanticipated liabilities.

What you don’t know can hurt you in a merger. When deciding whether to merge with another practice, be sure to do your due diligence and check for any debts, judgments or potential judgments, payroll and other taxes, contracts with suppliers, employment contracts with staff, and other obligations you may incur. Again, here is where an experienced consultant is well worth the cost. Due diligence can be very time consuming.

If your practice has one type of retirement plan and the other has a different type of retirement plan, decide which plan will be used by the new company. This and other benefits will be uncovered and evaluated during due diligence by your consultant, and as previously mentioned there will need to be a plan put in place before the merger is consummated as to what these benefits will look like post-merger

You don’t necessarily have to merge in order to grow your practice. You can gain many of the advantages that a merger offers while retaining your autonomy simply by deciding to work closely with another entity. You may be able to accomplish your goals via a joint venture with a hospital, for example. Of course, any arrangement outside of a merger can have some legal healthcare implications, so you should certainly talk with a healthcare attorney before proceeding down one of these avenues.

M&A is a powerful strategy that practices have been using for decades. As long as it is done correctly and with enough preparation, you’ll be able enjoy its benefits, in the long run, should you choose to do it. Use your outside professionals early on and the road to future success will be laid out much more clearly.

If you are a physician practice owner who is considering a merger at some point, it is vital to learn more about this process early in the game. 

Traps to avoid with physician practice mergers

For many physician owners, their practice is like their child. As such, they invest the majority of their time and resources into ensuring the business stays healthy and has opportunities to grow and maximize its potential. Few focus on preparing for that inevitable moment in the future when they will have to hand their baby over to someone else.

 is a critical concern for a business of any size, it could literally be a matter of life or death for a physician practice. Physician-owned enterprises are particularly vulnerable because business discussions can be complicated or derailed by the emotions involved in addressing such difficult issues such as aging, death, and financial affairs. To ensure that the medical practice you worked so hard to build and nurture continues to thrive after retirement or death, you must develop a succession strategy that enables an orderly transition of both ownership interests and management responsibilities while minimizing complications between the partners. Additionally, your succession strategy must provide for economic support of all relevant parties involved.

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While there is no “one size fits all” succession planning solution, and the details will vary according to the distinct dynamics of your situation, the following are key considerations as you embark on developing a succession strategy:

 Ideally, it is best to begin this process as far in advance as possible. This will give you the opportunity to explore all of your options and prevent hasty decision making that can undermine the stability and value of the business. 

 This might be the most challenging aspect of this process for physician practices. As I have written about before, there are many considerations in the selection and grooming of a physician partner. You may have a physician in the practice that does not have the interest or skills to take over the practice. Therefore, to ensure that you place your practice in the best possible hands, I recommend making a rigorous and honest assessment of the relative strengths and weaknesses of all potential heirs. 

 in physician succession planning can be well worth your investment here. Engaging such an outside expert to conduct this analysis to help make objective and rational decisions regarding the best future interests of the practice and to de-emphasize emotional attachments (as well as any potential family politics) will ultimately be effective for the succession strategy.

It is also important to remember that management and ownership are not necessarily one and the same. Thus, it may be in the best interests of the practice to appoint an employee to take the business to the next level. Even if physician owners are not holding the business operations reins day-to-day, they will still retain an ownership interest and exercise the requisite level of control via various governance mechanisms (partnership meetings, executive control, voting shares, etc.).

the right legal structure for transferring your business.

 There can be significant financial implications and tax consequences with ownership changes. Furthermore, there are numerous legal methods for transferring your business. As a result, the experienced consultant you engage should be pulling in your accountant and attorney at the appropriate times so that together, the team can advise you on the correct direction and appropriate steps. No two medical practices are the same and you should be leery about professionals approaching you with any sort of template or preplanned outcome.

The best option for you and your business will indeed depend on a host of needs and circumstances particular to your practice. In the past, I have written on several transactional methods. Two common avenues are for physicians to 

 This creates cash for you to use as you ride off into the sunset. The sale would be based on fair market value (FMV) after a valuation is performed. Potential buyers include other physicians or practices, hospitals, or private equity-backed MSOs (management services organizations). Depending on how the sale is structured and what all is included, there could be various tax implications.

 prearranges the sale of the practice to another physician partner. This agreement enables you to maintain control until the occurrence of a triggering event that the agreement specifies. At that time, the buyer typically becomes obligated to purchase your remaining interests from you. There are many different ways that buy-sell agreements may be constructed and I cannot say I have ever seen two that are exactly the same, but this is a simplification of generally how they work.

 Though trimming expenses is always a key concern for physician practices, skimping on succession planning today can jeopardize financial security for you and your family and threaten the continued viability of the business you worked so hard to build. As you saw from the brief overview in this article, there are substantive complexities to managing this process. It is strongly recommended that you begin by contacting a seasoned consultant with experience in succession planning. As I mentioned above, that individual should be bringing in other professionals (i.e. attorney, accountant, financial advisor) throughout the process so that collectively a sound succession plan will be constructed.

Terminating the Physician-Patient Relationship

When you first begin working with the consultant, he/she should be devising a strategy based on your timelines. Some physician owners I work with want a rapid exit and thus we work to create a diligent plan that allows for such a departure from the practice. Other physician owners are looking at an exit some ten years from now. In those cases of a future planned exit, I recommend that the succession plan be updated every two or three years. There is so much change in the healthcare industry as well as local competitive factors and also internal physician partner dynamics, (not to mention any personal changes in your life), that a periodic review of the strategy is definitely warranted. Good luck! Your patients, referring physicians, and employees are counting on you to have a strategy to hand off the baton.

Four tips for ensuring a smooth transition of ownership interests and management responsibilities while minimizing partner complications.

Author | Nick Hernandez, MBA, FACHE

Founder & CEO at ABISA, LLC

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