Are you considering partnering with a Management Services Organization (MSO) vice, merging your practice with another, or selling to a hospital? Recently, more private practice physicians approach me about “selling” to private equity or “joining” an MSO. There is often confusion about how these two are related and what it means to join a MSO. The structures of MSOs vary greatly, as well as the management services they offer; laws that vary by state may further complicate the design structure.
This article will attempt to give a high-level overview of two common structures: a MSO that takes ownership (partial or full) of a medical practice, and a MSO that provides business services without taking any ownership.
For starters, most MSOs are very particular about the practices they purchase. Aside from being specialty-specific, they have specific parameters when it comes to size, revenues, location, number of offices, and so forth. If your practice meets what they are looking for, you may be in a position to entertain offers from an MSO as well as independent buyers (i.e. other practices or hospitals). You can expect a sale to an MSO to be different from a traditional sale in these main areas: time frame, due diligence, financing (or payment of the purchase price), and transition structure.
Established MSOs will have a team of individuals dedicated to acquiring practices. Their primary job will be to dissect all of your practice data to determine if your practice represents a sound investment for them. This process is often very time consuming and demanding on the seller and his or her advisors (consultant, attorney, and accountant).
In a traditional sale, it is common for the seller to be completely cashed out for the purchase price at closing. A full cash payment is less common in an MSO acquisition. Often, the MSO will make a portion of the purchase price contingent on either the seller staying on as a practicing physician in the practice for a period of time after the sale (an earn-out), or on the performance of the practice for a period of time after the sale (a performance-based buyout). If so, it would be prudent for you to learn as much as possible about the company, its principals, its private equity investors, history, performance, etc. You should also speak with current and former selling physicians.
In most MSO acquisitions, the MSO will require the seller to stay on and work at the practice for two to three years or longer. These work-back requirements may be tied to a purchase price payout or cash penalty if the seller exits early.
Post-Sale Working Arrangement
One of the first things you should consider is: do you want to keep working after the sale? If so, for how long? Another consideration of selling to an MSO vs a hospital or merger with another practice is: how well you deal with loss of control? Some of these transactions may convert you to an employee, not an owner, may set your work hours and vacation schedule, and may decide who will be on your staff. You may be required to change referral patterns or change a number of outside vendors. For some physicians this does not matter. For others it will cause endless aggravation. Before you sell to a MSO, find out what will change, and do some honest self–reflection.
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