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Is my practice sellable?

August 23, 2012

Question:

Jennifer,

I am thinking about my 3-5 year plan and that includes no longer practicing.  Is my practice sellable?  I've been hearing a lot of talk that hospital and large practice models scoop up solos for guaranteed employment, only, and no sale price.

Thanks for your comment.
Dr. T

Answer:

Excellent question, and the answer will absolutely depend on who you ask.  It's true that local hospital systems and mega-groups are offering many practitioners employment at a guaranteed salary (usually for 3 years) and absorbing their practices for little or no cost.  Owners may be receiving a lump sum (de minimis) for tangible property.  The problem with this model is that the guaranteed salary is only for 3 years, and you have to continue working!  Practitioners are not being compensated for their good will.  If after the 3 years are up, there is oftentimes nothing stopping the hospital system from terminating the practitioner.  That practitioner may also have been coerced to sign a restrictive covenant.  The patients are now in the hospital system and the practitioner is now prohibited from practicing in the same geographic location.  Of course these terms I have discussed above are general and not necessarily terms you may be presented should you consider a hospital system or mega-group.  I have worked on hospital deals where devices are built into the deal documents to theoretically allow for patient attrition back to the practitioner should the arrangement not work out.   If you are considering joining a hospital or mega-group, it is imperative that you work with counsel on deal terms, structuring and contracts associated with the deal.  Any time you are taking an action that impacts your practice's structure, it is paramount that you discuss same with your competent healthcare attorney.

In general, the market for selling a practice has changed dramatically over the past few years, however, that does not mean there is not a market for your practice.  The best opportunity for sale is often an internal one.  Do you have partners or associates who may be interested in maintaining your patient population?  If so, you may have an obvious purchaser interested in buying you out in a lump sum, payout, severance or other arrangement.  As you have specified you are looking towards your 3-5 year plan, you may want to take steps now to ensure you have a buyer when the time comes.  Approach your associate, see whether he/she is interested in being a practice owner.  However, before doing so, or bringing in an associate and introducing him/her to your patients, be sure to enter into a contract with a restrictive covenant and non-solicitation provision so that if your intended arrangement does not work out, you do not end up losing patients to your intended heir. If you are a joint-owner in a practice, talk with your partners and see what their exit strategy is if you have not already done so and agree upon a course of action . (Buy-out upon retirement, expulsion, voluntary surrender, etc. should be addressed in your partnership, operating or shareholder agreement.  If you do not have one in place, work with counsel while times are good to plan prior to times going bad.)

Approaching a practice broker is another option.  Brokers are still in business, despite the rumors, and there are still buyers looking to walk into a functioning practice, including larger practices using M&A as a growing tactic.  Definitely worth exploring if you are considering retirement and do not have associates or partners.  See what you can get.  Test the waters.  There is no reason to walk away from practice without some compensation for good will, if it can be helped.  Your patients and relationships have value.  I encourage you not to close your doors without considering sale.  If you would like to discuss in greater detail or strategize, call (516 747 6700 x. 302) or email me.


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