Selling a Primary Care or Family Practice

What a buyer is paying for

The patient panel is the starting point. This is the group of patients who treat the practice as their regular source of care and come back for visits. A buyer will ask how many active patients there are, how that figure is defined, how many new patients arrive each month and how many leave. A practice with a full schedule, a short wait for new appointments and a growing panel looks very different from one where the owner has been quietly cutting back hours.

Next is the payer mix, which is the breakdown of who pays for care. Commercial insurance, Medicare, Medicaid, direct pay from patients and any membership or concierge arrangements each reimburse at different rates and with different paperwork. A buyer will want collections by payer, not only charges, because what was billed and what was paid can differ widely. The contracts with each insurance plan matter, including the rates, the term and whether the plan will keep the new owner in network. Practices with a healthy share of commercial payers and good contracts usually value higher than ones that rely on a single plan with low rates.

Revenue also comes from more than office visits. Many practices bring in money from lab work, vaccines, minor procedures, imaging, care management programs for patients with chronic conditions and annual wellness visits. A buyer will examine which of these add margin and which cost more than they bring in. They will also ask how well the practice collects what it bills, since a long delay between a visit and payment ties up cash.

Providers, staff and the owner's role

A buyer will ask how much of the revenue is produced by the owner's own patient visits. If the owner sees most of the patients and leaves after the sale, the practice loses most of its income. For that reason, sales in this field nearly always include a transition period in which the owner stays on and introduces patients to the new provider. Our post on how long you stay after selling covers what that tends to look like.

Associate physicians, nurse practitioners and physician assistants make the practice more transferable, since patients already see someone else. A buyer will look at their contracts, pay, tenure, credentials and any restrictions on leaving. Credentialing is a detail owners miss. A new provider has to be enrolled with each insurance plan before the practice can bill for their visits, and the process can take months. Plan for that gap in cash and ask a buyer how they intend to handle it.

Front desk, medical assistants, nurses and the practice manager keep the office running, and patients know them. A buyer will want a roster with roles, pay and years of service, and they will ask which of them are likely to stay. A practice manager who handles billing, scheduling and payer relations is worth a lot to a buyer and may be the person whose departure worries them most.

Records, systems and what a buyer asks to see

Expect a request for several years of tax returns, monthly profit and loss statements and a balance sheet. Beyond that, the buyer will want collections reports by payer, an aging report on unpaid claims, productivity reports for each provider, and a summary of patient visits by month. They will ask for lease documents, equipment lists, malpractice insurance history and any claims, compliance policies, audit letters from insurers, and a list of the software that runs the practice.

The electronic health record system matters in two ways. It is where a buyer will pull the visit data they need to check your numbers, and it is also the home of patient records, which carry strict privacy obligations. Sharing records with a buyer before closing has limits, and your attorney confirms what applies and how to do it properly. In many cases a buyer sees summary reports with no patient names until the deal is nearly final.

Books need to match the system. When the collections in the billing system disagree with the deposits in the bank account, a buyer will stop and ask why. Our post on getting your financials ready describes what a buyer looks for, and a quality of earnings review is a useful step for a practice with more than one provider.

What has to transfer

Most of what transfers in a medical practice is regulated, and rules vary by state. Many states limit who may own a medical practice, and in some of them a buyer who is not a physician must use a particular structure to take over the business side. Your attorney confirms what applies in your state, and a buyer will have an attorney who has done it before. Payer contracts may need the plan's consent or may have to be replaced. Medicare and Medicaid enrollment, the practice's billing numbers and each provider's credentials are handled by the buyer according to the structure.

Patient records are a separate question. Records belong in the care of the practice, patients have rights to them, and a closing agreement has to say who keeps them, how long and how patients are told about the change. Notice to patients is usually part of the plan. The lease, equipment leases, supply contracts, the phone number and website, and any lab or imaging arrangements all need review. If the owner also owns the building, see our post on selling a business with real estate attached.

What tends to sink a sale in this field

In the practice deals we see, the common problems are consistent. The owner produces most of the revenue and does not want to stay long. The billing is messy and the buyer cannot tell what is collectible. A payer contract will not follow to the new owner. A new provider's credentialing takes longer than the buyer's cash supports. The ownership structure for the buyer does not fit the state's rules and the deal has to be rebuilt. Or the staff learn about the sale from a patient and several leave before closing, which is a good reason to read our post on when to tell employees.

Getting ready

Start by learning your own numbers by payer and by provider. Clean up billing, write off accounts that will not be paid and reconcile collections with the bank. Ask your attorney early about who may buy your practice in your state and how records are handled. Bring an associate provider into the practice well before you sell, and give patients a reason to see them. Look at your payer contracts and find out when each one ends.

We prepare a valuation from the practice's own numbers, assemble the material a lender and buyer expect and screen buyers for capital and clinical experience. The page on selling a primary and family care practice shows how we approach it, and a call with us is a good next step.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.