(Re-posted with permission of the authors and Vertess)
The instability of the healthcare market and anticipated reimbursement changes under TrumpCare have created some challenging questions for specialty practice physicians who are planning for retirement:
- How do I best prepare myself for a transition?
- Will I be able to sell my practice to another physician or buyer?
- What is my practice worth if sold today?
First, the good news. Physicians will continue to be interested in acquiring other practices when it makes strategic and financial sense to do so. In addition, new types of buyers, such as private equity groups (PEGs), are now very interested in buying into specialty practices.
Now, the bad news. Most physicians have only a vague idea of what their practice is worth. They tend to rely upon their own “guesstimates” based on conversations with their peers (“So, what do you think it’s worth?”), informal and often questionably relevant market data (“Trends Show Declines in Some Markets”), and worst of all, unappealing offers from potential buyers hoping to take advantage of your ignorance.
In other words, the core question behind the three questions listed above is:
What’s the true current value of my practice?
This question is not easily answered because the starting place for such an analysis is dependent upon what you want to achieve for yourself, your family, your partners, and your employees. To complicate matters further, specialty physicians often have a strong passion for their work and their impact on the community.
These emotional issues are impossible to translate into dollars and cents, yet they can greatly influence what your practice is worth … to you! And since you’re the one who’ll be selling, that personal value is the baseline from which you will make the decision to sell, as well as the price that you’ll accept for your practice.
Only after you’ve come to understand your personal and emotional attachment to your practice will you be ready to understand the more dispassionate way that a potential buyer is likely calculate the value of your practice.
Buyers tend to estimate the value of a practice based on the return on investment (ROI) they can reasonably expect if they acquire all or part of what you have created. These 9 factors are, at the least, what they will use to evaluate your practice’s value, so these are the factors you should assess with professional assistance in advance:
- Current and future trends: What trends in the regulatory environment, reimbursement, and technology are likely to impact my practice value?
- Practice-specific payer mix: How is my payer mix situated to maintain or increase value?
- Credentialing: Do we have the right credentialing in place to satisfy payer expectations and maximize reimbursement?
- Performance metrics: Are performance metrics in place and do we regularly manage billing and receivables with trained staff?
- Financial accounting quality: Do we conduct regular audits to meet/exceed all standards so we are not vulnerable to regulatory audits?
- Technology: Is our technology up to date, including a fully integrated EHR?
- Support staff: Would our support staff be considered a “value add” to an investor or buyer?
- Location: Is(are) our location(s) suitable for attracting new patients? If not, can we relocate without losing current patients?
- Scalability: Can my practice be scaled by an entrepreneur who wants to expand the existing operation and possibly gain synergy by combining with another practice?
Of all these questions, savvy buyers consider the final one the most important because, in a sense, it incorporates all the others into one long-term goal. Potential investors, of course, are greatly concerned with maximizing future value.
The challenge in selling a specialty practice is that you, the seller, want to be certain that the buyer understands that behind all those numbers is the passion and dedication that you’ve put into your practice. You don’t want a buyer who’s just interested in making money; you want a buyer who’s interested in continuing the positive impact you’ve had on the community.
In our experience, you’re far more likely to find and select the right buyer if you have multiple offers from multiple types of buyers. Your goal is to find the right buyer who will pay you what your practice is truly worth. You want a buyer who understands that your practice’s value is more than mere dollars and cents.
Note: This issue features a guest co-author, Karen Zupko, Founder of KZA, an international healthcare consulting firm based in Chicago. KZA has consulted with more than 1,000 specialty practices on issues ranging from coding and billing to revenue cycle management and marketing. She can be reached directly at firstname.lastname@example.org.
If you want to find out what your healthcare company is worth and what you can do to increase its value going forward, please email David at email@example.com.