Selling a Specialty Medicine Practice

Where the patients come from

Most specialty patients arrive because someone sent them. A buyer will want to see the referring physicians by name, how many patients each one sent, and how long each relationship has lasted. A practice that receives most of its volume from a handful of primary care offices has a concentration problem, even when those offices have been loyal for twenty years. The question a buyer asks is whether those referrals follow the practice or follow the doctor who built the relationship.

That is why the founder's role gets so much attention. If you are the person the referring offices call, a buyer will ask how the relationship moves to a successor. Introductions, joint visits with the incoming physician, and a stretch where you stay on and make the handoff in person all help. Our post on owner dependency describes the general pattern, and in a medical practice it shows up with more force than in most trades.

Direct-to-patient sources count too. Practices that draw from their own website, from patient word of mouth, or from employer and urgent care relationships have a second leg to stand on. Buyers like to see the mix written down, month by month, so they can tell whether a good year came from one new referral source or from steady growth.

Procedures, ancillaries and the schedule

Specialties differ in how they make money. A dermatology practice might split its revenue among medical visits, surgical procedures and cosmetic work that patients pay for directly. A gastroenterology practice depends on the endoscopy schedule and sometimes on an owned surgery center. A cardiology group may run its own imaging, stress testing and monitoring. Buyers sort these lines apart, because each one has a different margin and a different risk.

Ancillary services are often where the value sits. In-house imaging, pathology, infusion, physical therapy, allergy testing and similar services can add profit beyond the physician's own work, and buyers will ask who owns the equipment, who staffs it, and whether the volume would continue under new ownership. Rules on how physicians can refer to services they have an ownership stake in are complicated and vary by situation, and your healthcare attorney confirms what applies to your arrangement before a buyer ever sees it. Buyers will have their own counsel review this part closely.

The appointment book tells a buyer more than most summaries. Wait time for a new patient, the share of the schedule filled, how many procedure slots go unused and how many exam rooms sit idle are all facts a buyer can read. A practice with a long wait for new patients may have room to add a physician. A practice with open slots every afternoon has a different story to explain.

The physicians who stay

A practice with one doctor is valued differently from a practice with five. When there are several physicians, a buyer wants to know who they are, how long they have been there, how they are paid, and whether any of them is planning to leave. Employment agreements, compensation formulas and restrictive covenants are read with care. A buyer wants the physicians who generate the volume to commit to the new ownership, usually for a stated period, before the deal closes.

Midlevel providers, the nurse practitioners and physician assistants who see follow-up patients and do minor procedures, are part of the picture too. They extend the capacity of the physicians and they are worth something in their own right. Buyers want to know how their work is billed and who supervises it. Rules on supervision and billing vary by state, and your attorney confirms what applies.

Nonclinical staff matter more than owners expect. The office manager who knows the billing office, the front desk that handles prior authorizations, and the medical assistants who room patients quickly keep the schedule full. If your best people are rumored to be leaving, the price moves. We keep the sale confidential until a buyer is serious, and how we market a business confidentially covers what that looks like.

Payer contracts and collections

Buyers read payer contracts closely because a practice can look strong on revenue and weak on rates. They will ask which insurers the practice contracts with, what share of revenue each one accounts for, when each contract renews, and what the reimbursement terms are. A practice that depends on one payer for most of its income faces a risk if that payer changes its terms. A practice with a healthy mix of commercial, government and self-pay patients is easier to finance.

Some payer contracts follow the practice, some follow the physician, and some require the payer's consent to continue after a change in ownership. Enrollment and credentialing for each physician can take weeks or months to sort out. Starting that conversation early with your billing staff saves time later. Buyers also look at the accounts receivable, the aging of unpaid claims, the denial rate and the write-offs. A billing office that cannot show these reports slows the deal.

Whether the sale is of the entire practice or its assets matters here too. Our post on asset sales versus stock sales explains the trade-offs, and your attorney and accountant will weigh in on how the practice is structured.

Records, space and what has to transfer

Expect a buyer to ask for several years of tax returns and monthly financial statements, collections by physician and by procedure code family, the payer list with renewal dates, the equipment list with age and service history, and the employment agreements. They will ask for malpractice insurance history, including whether the existing policy is the kind that needs tail coverage when the practice changes hands. Your insurance agent can explain the options, and who pays for that coverage is something to settle early in negotiation. Our guide to getting your financials ready for a buyer walks through what a clean set of books looks like.

Patient records move under strict privacy and retention rules, and the way they transfer depends on how the deal is structured and on state requirements. Your attorney handles this, and buyers expect the records system to be in good order, whether the practice uses a current electronic health record or a patchwork of old ones.

The lease matters because a specialty practice invests in its space. Procedure rooms, imaging suites, surgical suites and specialized plumbing or shielding are expensive to rebuild. A buyer wants enough term remaining and the right to assign. Our post on the lease as part of the deal explains why the landlord's consent often takes longer than anyone planned. Facility licenses, accreditation for imaging or procedures, and equipment registrations also need attention, and rules vary by state.

What sinks these deals

The most common failures are visible early. The founding physician plans to retire on closing and has told nobody who will take the referrals. A key physician leaves after hearing about the sale. Payer contracts need consent that takes months. Billing reports and the tax returns do not match. A related-party arrangement, such as a building owned by the doctor or an imaging company owned by a spouse, was never put on paper at a fair rate. Each can be fixed, though each is far easier to fix before a buyer asks.

Getting ready

Start by learning your own numbers. Know your referral sources, your collections by service line, your payer mix and your physician productivity. Tidy the employment agreements and the lease. Bring the billing office to a place where it can produce clean reports on demand. Talk with your best physicians about their plans, in confidence and well ahead of a listing.

We value a practice from its own records, prepare the materials a buyer and lender will expect, and screen buyers before they see the name. If you want to see how a buyer is likely to read your practice, the page on selling a specialty medicine practice is a good place to start, and Business Advisors of America is glad to talk it through with you.

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.