Problems with account receivables can affect practice purchase price - Medical Economics
Q: I am looking to sell my practice, but I'm getting offers that are much lower than I expected. My practice brings in plenty of money, but the buyers are claiming that my accounts receivable do not warrant the purchase price I am requesting. Could there be other reasons?
A: When selling any business, accounts receivable is essential in the calculation of a purchase price. That being said, each practice is different, and your practice's valuation will depend on a variety of other factors (office space, partners, length of time remaining on lease, equipment, type of practice, patient base, etc.)—so you may want to ask yourself whether something else is in play here.
Maximizing the sales price will require you to understand the unique aspects of your practice's accounts receivable. The term "accounts receivable" simply means the amount of money owed to the practice for services performed or items provided, generally computed on a monthly basis. Many times, people implicitly include the collections rate in their calculation of receivables.
The collections rate is the percentage of accounts receivable actually collected. Frequently, this rate does not factor in account receivables collected more than 90 days in arrears. If your practice staff members are lax in collecting payment and often allows payments to go uncollected for longer than 90 days, their actions may be having a serious effect on the valuations arrived at by potential purchasers.
Another issue possibly affecting the offers you are receiving is the routine waiver of copayments for patients. Copayments are part of your accounts receivable, and failure to collect them not only results in noncompliance with state laws, but also lowers your overall practice collection rate.
Moreover, prospective purchasers may be concerned that the practice's patients will be unwilling to pay their copayments once the practice is transferred, making it difficult for the purchasers to collect copayments; they run the risk of driving patients away just by requesting the copayment amount (as is required by law in many states).
A successful practice will focus on capturing receivables at all times, but especially when looking to sell. Maximizing the amount of receivables captured comes down to office policy. If some types of claims routinely go unpaid or take longer than normal to get paid, find out why and rectify the situation by, for example, beginning collections actions, especially where the practice is aware that patients have kept insurance reimbursements instead of assigning them over to the practice.
Remember, your practice is a business, and its value needs protection. To maximize a potential purchase price, protect your practice's value.
Answers to our readers' questions were provided by Jennifer Kirschenbaum, JD, healthcare department manager for the law firm of Kirschenbaum & Kirschenbaum, P.C., Garden City, New York.