5 Things to Consider When Selling Your Practice

We recently did a practice valuation for a solo internist in a small southern Texas City. She had been approached by an entrepreneurial local physician who was interested in establishing a large group practice that could increase its profitability by adding a number of ancillary services. As we were providing her with the valuation, she was contacted by the CEO of her admitting hospital. They were interested in providing a ready-made practice for a physician just completing her residency and interested in practicing in this community. Our client now had two potential buyers. The bidding for her practice increased its value to nearly 40 percent more than our valuation had reported.

So, if you are contemplating the sale of your practice consider the following tactic: Contact your most likely prospects to let them know that you are considering the sale of your practice and wanted them to know about it before you sell.

•Hospital(s). Let your key hospital administrator(s) know of your plans. They may be forming a group or may want to provide this practice to someone interested in practicing in the community. They may or may not be interested in your staying on as a salaried physician.

• Your competitors. Contact each group or solo practice in your specialty. Let them know of your plans. A likely buyer could be one of these practices that wishes to expand by bringing in a new physician to take over your practice.

Do you own your practice building or have ownership of your office space in an office condo? If so, you now have two sales to make. Here are your options:

• Sell the practice and lease the space. This overcomes resistance to ownership at this time. It also means that you are now the landlord. Following the sale, you could have your property in the hands of a property management company, who would collect rents and maintain the facility.

• Sell the practice and lease the space, with an option to buy at a future date (say five years). If the physician does not exercise the option, you can continue as a landlord or consider finding a buyer interested in investing in rentable space.

• Sell the practice and sell the space. If the practice buyer is not interested in ownership of the facility, consider finding a buyer. This makes sense if you are not planning to remain in the community.

Part of an agreement to purchase your practice may be the preference of the buyer (particularly in sales to hospitals) to have you remain at the practice as an employed physician. There are now two negotiations to consider:

• The sale of the practice

• The employment agreement.

When the hospital becomes the owner of your practice, there is no guarantee that the future performance of the practice will provide you with the same rewards as when you were the owner. We have witnessed hospitals doing a weak job of billing and collections, resulting in reduced collections and weakened net revenues. We suggest negotiating for a compensation plan based on your performance not the performance of the new owners. The model for a fair compensation plan is one based on relative value units (RVUs).

An example of this form of compensation follows:

This family physician produced approximately 10,000 RVUs per year.

The physician’s take-home income was $200,000 (i.e., $20 per RVU).

Therefore this physician deserves being paid $20 per RVU, and not have to depend on the billing effectiveness of his employer.