Thinking of Selling A Medical Practice? What Physicians Need to Know
Today's post was authored by FHW member Sue Nolan.
To sell or not to sell is a question many practices and their physician owners will face in the coming year. Uncertainty over the effects of health care reform, coupled with concerns about declining Medicare reimbursement rates, is leading many physicians to reconsider being in private practice. At the same time, hospitals are purchasing practices in preparation for creating Accountable Care Organizations (ACOs).
In light of the uncertainty, it is difficult to know what decision is right for a practice. However, if an eventual sale is being considered, there are steps practices can take now to be prepared for the due diligence process, a lengthy and important process during which the purchaser tries to understand exactly what is being sold and the financial condition of the practice.
In order to help be prepared for a sale, physicians should consider the following:
Productivity of the practice. A practice should take steps to maintain or even increase its productivity during the period it is preparing for a sale. Productivity is frequently evaluated by looking at the work relative value units of each physician. Thus, a practice should be prepared to have this information available to a purchaser.
Profitability of the practice. A practice should maintain or improve upon its profitability. This can be done by paying attention to reducing expenses where it seems practical, delaying major non-essential purchases, promptly billing for professional services, and collecting accounts receivable.
Books and records to confirm financial condition of the practice. Purchasers generally request the financial statements and tax returns of the practice for the past year, and often for the prior two years as well. Financial statements for the past year should contain both a balance sheet (also known as a statement of assets and liabilities) and a statement of revenues and expenses.
After the jump - additional considerations for physicians
Be prepared to pay off liens secured by assets. If the practice has a loan that is secured by the practice’s assets, the practice must be prepared to either pay the loan off prior to closing or have the purchaser deduct the amount owing on the loan from the proceeds of the sale and forward monies to pay off the loan at closing. Equipment leases are generally secured by the leased equipment. If a purchaser will continue to operate the practice from its current location, the purchaser will usually assume the leases on any equipment it will be using.
Be cautious about entering into contracts for EHRs or software. Prior to acquiring any EHR software or other software, the practice should make sure that the license agreement for such software permits the license to be transferred to a purchaser. Otherwise, the purchaser will not be able to use the software and the practice may not be able to recover anything for its value.
Inventory of assets, contacts, and leases. The practice should create an inventory, by category, for all of its assets and contracts.
Employees. A trained workforce in place is a valuable asset. Purchasers will want to see a list of employees, their job classifications, dates of employment, and salary.
Compliance. Purchasers will inquire about whether a practice or one of its physicians is currently being audited by a government program or other payor. If this is the case, the practice should resolve such an audit well prior to the sale.
Purchasers are also concerned about whether a practice currently has a privacy program and security program that comply with HIPAA and whether there have been any breaches.
Assemble a team of advisers. A practice should begin consulting with an attorney and a certified public accountant early in the process of preparing for a sale.
Consider an appraisal. A practice may want to obtain an appraisal for the purpose of getting a realistic idea of the value of the practice prior to making a decision to sell the practice. However, an additional appraisal will most probably be performed by a prospective purchaser to determine a purchase price in accordance with and in compliance with the requirements of laws governing physician self-referrals.
For more information about selling a medical practice, physicians should consult with an experienced health care attorney.
