Launching, Buying, Selling, Merging
Whether you’re buying, selling, merging or launching a practice, the economic downturn requires abundant caution and doing your homework with fervor. That’s the advice of two practice-management experts, Rhonda Sides with Crosslin & Associates in Nashville and Edward Carter with Medical Practice Solutions in Murfreesboro.
“I have always given that same advice, but it just means more now,” Sides said, adding that several factors — not just the economy — are driving physicians to sell, transition to an employed relationship with a hospital, or simply retire. Financial security in this troubled economic environment is one reason; reduced reimbursement, rising costs, complex regulations and the need for technology upgrades are other motives.
“They need to be focusing on market share and referral relationships and quality of care rather than demos of patient-reminder systems. I think it’s gotten overwhelming, while their compensation is going down,” she said. It’s like the managed-care scare years ago … but worse, she added.
Physicians, particularly primary care doctors and some specialists, are seeing their lifestyles erode, and most aren’t living with the same financial security they enjoyed just 10 or 15 years ago.
Launching a Practice
One unfortunate consequence of the economy is fewer young physicians launching their own stand-alone practices. In fact, Carter said he doesn’t recommend it right now. He said that advice is “primarily driven by the general economy and the availability of financing. Banks are taking closer and closer looks at their loan packages, and that is affecting doctors just like it’s affecting every other segment of the economy.”
Instead, Carter said, it’s probably better to enter into an employed situation for three to five years. “Hone their skills, build their speed and learn as much as they can about the business side where they’ve landed,” he said. “Then they can use that knowledge to launch out on their own.”
Should a physician entrepreneur want to take the plunge, and some still do, Sides had some tips:
- Restrain spending personally and don’t live paycheck to paycheck.
- “Don’t spend a ton of money making your practice look like a palace.”
- Seek independent, expert advice if you plan to tackle internal billing. Do the same to choose and implement an electronic medical records system.
- Focus on identifying opportunities in the market and building a referral base.
- Know your financial system. In particular, physicians should regularly check their accounts receivable and explanations of benefits from third-party payers. Neglect, she said, is “one of the most disastrous things I do see.”
Selling, Merging and Buying
Fear, Sides said, is prompting physicians to make snap decisions, and emotion shouldn’t be a motivator. “The advice I give them is to really spend time and effort and evaluate the deals – evaluate collaboration deals, evaluate merger deals, evaluate employment deals,” she said.
When a hospital comes courting, that can be particularly stressful, since hospitals usually have a restricted timeline. “That presses the physicians to feel like they have to make really quick decisions without doing their homework,” she explained.
Valuations of a practice can be tricky, and usually what physicians believe their practice is worth doesn’t coincide with the hospital’s numbers. No surprise there, but Sides said she encourages clients to consider more than the dollar signs. “What you have to look at is what you’re giving up versus what you’re going to get. What benefits do you gain versus your current situation?” she said. She recommended a checklist examining current compensation, lifestyle, stress level, quality of patient care and employee satisfaction. “Do that internally. You don’t share that information; you do it for yourself,” she said.
Here’s what one of her clients discovered: “They weren’t sticklers about being entrepreneurs anymore. That’s one of the biggest things … do you want to stay an entrepreneur or do you not? More and more are deciding that maybe it’s just not worth it.”
A physician or group nearing retirement may prefer to sell the practice to one or more younger physicians. “In an ideal situation, the new physician will come on board three to five years before the retirement of the senior physician, so there is plenty of time to introduce the patients to the new physician and for them to reach a comfort level,” Carter said. Such a transition leads to better patient retention and a firmer financial footing.
Carter added that he has been asked to shut down a few practices, and that’s no easy feat. Ideally, he said that should take about 18 months.
Finally, there’s a silver lining to today’s economic cloud: Opportunities abound for mergers and practice purchases. Good deals are out there for practices to expand their reach. “If you don’t want to be an employee in a big organization, and you want to maintain your own autonomy and entrepreneurship, then I think now’s the time to shop for practices that would just rather move on,” Sides said. “Maybe those physicians don’t want to be part of a big organization either, and they’d prefer to work for five more years for somebody else and then retire.”
Practice Management Tips
As negative economic forces bear down on a practice, Carter and Sides have some tips for better practice management. “We are coaching our clients on the importance of every new patient. They have always been important to the practice to keep it stable or growing, but that is particularly true now,” Carter said. That means ensuring that the first call from a potential patient is handled by a staff member who’s trained to take the call and who knows how to be warm, welcoming and informative. “It’s important not to put those callers on hold, and that they not be treated as a commodity,” he said.
Carter also recommended practices be particularly frugal and re-examine all spending categories — from office supplies to labor — renegotiate purchasing deals and avoid overtime.
Sides added, “If you’re staying on your own, really invest in competent people who are savvy and experienced in practice management, as well as who understand all the technology issues.”