When considering selling your practice, you should always be prepared for an opportunity, and the best way is to always run your practice in a condition to be sold.
In life, we never know when opportunity will knock. And that’s just the attitude that Todd Rodriguez, co-chair of the health law practice group at Fox Rothschild, says physicians should take when thinking about selling their medical practice. That is, run the practice in a condition to be sold.
“Keep your staff at an appropriate level and know who’s doing their job well,” Rodriguez says. “In terms of practice finances, keep an eye on overhead. Think about how the practice would look if you sold it. And as you pay expenses, and as you pay down debt, do it in a way that makes the practice attractive.”
In other words, keep the practice in sell mode.
Rodriguez says that one of the biggest factors in medicine today is that the landscape is changing so quickly. Imagine being a specialty practice and one of your biggest referral sources is purchased by a local hospital — those referral sources will go away overnight.
“Physicians wake up one morning and realize that they’re not prepared to deal with that change, because that’s a big hit in terms of lost revenue,” Rodriguez says. “They may have to sell — and I’ve seen more than one sale go down the tubes because the buyer comes in, looks around, and the practice is too much of a mess. They don’t want to deal with it.”
Rodriguez defines “mess” as a practice not being run efficiently or billing not being done in a timely manner. And even if the buyer is still willing to go ahead with the sale, he or she may be a much less willing buyer, and you, as the physician, may end up with a not-so-ideal sale.
“It’s a rude awakening, and it can happen very quickly,” Rodriguez says. “That’s why, in my opinion, you should always run your business in a condition that is ready to be sold.”
Assess the sale
The second important consideration is to make certain you really want to sell it, and to whom. Rodriguez explains that the environment today is different from the 1990s when organizations like physician practice management companies were competing with hospitals to purchase primary care practices.
Today, more often than not, medical practices are turning to hospitals for stabilization, because the practice is having difficulty recruiting or reimbursements are down. According to Rodriguez, the danger here is that some hospitals are not prepared to buy, and run, primary care practices.
“They’re two very different types of businesses,” says Rodriguez of running a hospital and running a medical practice. “One is almost like a hotel, where you have beds and equipment, so it’s very capital-intensive, and the other is a profession, where you’re dealing with people every day and the perceptions of what people think of their doctor.
Most importantly, he adds, is that it’s important for physicians to recognize how things will change if they sell their practice to a hospital. And the biggest change is the mental aspect. It’s going from being an entrepreneur and calling your own shots to working for someone else.
“If you have the luxury of really sizing up who your potential partners may be, you absolutely have to think about whether they have a consistent philosophy with your philosophy,” Rodriguez says. “Are they committed to supporting your practice once you sell it to them? One of the most telling things that I find as a lawyer representing doctors when we sell to hospitals is the negotiation process. Ideally, you want a hospital that is very open to trying to structure a unique deal that really accommodates the practice and the nuances of the practice, and tries to preserve the best things about the practice without being too heavy handed.”
Looking to the future
Lastly, it’s important to promote the future potential of the practice. In other words, what the practice will be able to accomplish the sale. Rodriguez says to accomplish that it’s essential to have a plan, which should be looked at annually.
“Take a day, go somewhere with your partners, and have a strategic planning session,” Rodriguez says. “Define what the practice is, what you want it to be, and how do you plan to get there. Doing that will enable you to move in the direction that you define, as opposed to a direction that is defined for you.”