Advice for Selling Your Practice and Becoming Hospital-Employed

October 26, 2010

Thinking of selling your practice and getting a job with a hospital? Here's some advice for doing it right from experts who negotiate the deals.

Thinking of selling your practice and switching to a hospital-employment model? If so, you're not alone. In fact, if you aren't already working as a hospital employee, you're in the minority: Hospital employment among doctors has jumped from 25 percent in 2002 to 50 percent in 2008, according to the MGMA, and is probably even higher today.

"It's happening at an alarming rate," said Ann McFarland, a director at Southwind Health Partners, a consulting firm that specializes in physician-hospital alignments.

McFarland and her Southwind colleague Sherry Gentry offered attendees of the MGMA 2010 conference some advice on managing the sale process.

First, they said, it's imperative for the physicians to understand what a switch to an employment model does not mean.

"It's not just selling out," said McFarland. Doctors who think they will get a huge windfall from the sale, then spend the rest of their careers working at their own pace and paying no attention to the practice will likely be disappointed.

It's an ongoing partnership, not a means to semiretirement. For starters, the amounts that hospitals are paying for private practices today are far lower than they paid during their previous practice buying spree in the mid 1990s. Some doctors expect to be paid for the future value of their patients - often called "buying the charts," or goodwill - but few hospitals will pay goodwill anymore.

Second, said McFarland, "It's not having someone else manage the practice. I really want to stress that. Hospitals do not know how to manage physician practices. So they're really looking for strong professional management within the practices."

What an employment model is, they said, is a legal way for hospitals to underwrite the operations of a physician practice. It also allows the practice access to sophisticated information technology systems that few can afford to acquire and manage on their own.

Other considerations when negotiating a sale:

Make sure you understand clearly the nature of the governance structure of the entity you'd be joining. Successful integrated delivery systems typically have multiple boards or councils of physicians, managers, and hospital executives that set policy at the network level, and can enforce them at the practice sites.

A well-drawn physician compensation plan is crucial to the success of the system going forward. Good plans account for multiple factors, including productivity, collections, and expense management. The days of collecting a straight salary are over: "It's not just, 'We'll pay you because you're with us,'" Gentry said.

Gentry and McFarland also stressed the importance of providing an interested hospital with the data it needs to do its due diligence, but only after the parties have signed a letter of interest, which should spell out what the hospital is looking for. Be transparent, they said, but don't provide the hospital with anything more than what it has asked for. And get your lawyer involved early. "Some practices, they want to save a few bucks," so they wait until formal negotiations have begun to involve their attorney, or even longer.