Questions to Ask on Taking Over a Practice

January 1, 2008

I know a physician with a well-established practice. Two years ago, he started another practice. He drives back and forth every day; it takes about 40 minutes. He’d like to sell me the second practice so he can spend more time with his family. He says he has around 500 patients and that the practice pays for itself. He will give all the financial information to my accountant and lawyer. The rent is expensive. On the other hand, there is a hospitalist in that community so I could stop doing rounds. He told me, “Make an offer.” Do you have any ideas of good questions I should ask?

Question: I know a physician with a well-established practice. Two years ago, he started another practice. He drives back and forth every day; it takes about 40 minutes. He’d like to sell me the second practice so he can spend more time with his family.

He says he has around 500 patients and that the practice pays for itself. He will give all the financial information to my accountant and lawyer. The rent is expensive. On the other hand, there is a hospitalist in that community so I could stop doing rounds. He told me, “Make an offer.” Do you have any ideas of good questions I should ask?

Answer: Well, I’d start by asking yourself if you want to live and work in this other community for personal reasons, too. Moving is stressful. Then, I’d suggest hiring a consultant experienced in practice valuation and start-ups to advise you on the pricing.

Look closely at the numbers the physician provides; you need to empower yourself here:

  • Look line item by line item at his costs. Since you’d be working more hours, some of your expenses will be higher, so factor that into your evaluation.

  • Ask for documentation of productivity - patients-per-day or RVUs. Can you at least match his productivity?

  • What conveys with the sale? Computer equipment? Software? Patients are not required to stay with you, so you’d best make sure you get more for your money than the right to take over his lease.

  • Do you like his staff? Would you keep them? If not, factor in hiring costs.

  • If the lease seems high, do you even want that location? Is the lease breakable? Look concretely at other possible locations. Are they actually cheaper?

  • What, exactly, is he proposing he would tell his existing patients? That you are his hand-picked successor? Or just that some other body will be in his space? What he says will affect how many patients choose to stay with you.

  • Look at the density of physicians in your specialty in the area. Is there a need for another physician? (Hint: Try calling some of the practices as a patient and ask when the next available well-visit is. If it’s more than a month, that’s good; everyone is overbooked.)