Over the last 10 years due to the increased risk and more time and money that is necessary for regulatory compliance, more and more hospitals and healthcare groups have acquired smaller, physician-owned practices.
Physicians once owned two-thirds of all U.S. medical practices, but many have since decided to sell their practices in exchange for employment stability and a steady paycheck.
However, there are a number of factors to keep in mind for both physicians and hospital systems when it comes time to buy or sell a practice.
Here are five recommendations on what buyers and sellers should consider before an acquisition occurs?
1. The seller’s motivation
Physician practice groups can face looming costs for employee benefits, malpractice insurance and required innovations like electronic health records. Does the practice have the resources to cover these expenditures, or does the group need a capital infusion? Does the group need help developing a transition plan because one or more of its principal members is nearing retirement? Staying up-to-date with information technology, third-party billing and changing pre-authorization requirements can also overwhelm some practices.
2. Non-financial factors
- Consider if any of the current physicians or key staff members will be unhappy and would leave if the deal were to go through, potentially taking patients with them.
- How will the compensation physicians make as employees compare with what they are making as practice owners
- Do the compensation structures provide performance incentives that align with desired outcomes?
- Is there any history of fraud in the practice, and would any of those liabilities extend to the buyer?
3. Specialty practice or Primary Care?
Some buyers prefer to add primary care practices to provide their hospitals and specialists that can provide additional sources and services to patients. Others look to augment their capacity in medical specialties, which tend to have higher reimbursement rates. The acquisition of primary care or specialty medical practices may become part of a larger strategic decision when multiple hospitals consider forming an accountable care organization.
4. Post-merger integration
Most hospitals have an individual or team that is dedicated to serving as the liaison between the physician practice groups and the rest of the organization. This administrator or team needs to be able to work on behalf of both the hospital and the physician practices and be able to negotiate issues effectively and fairly. Buyers looking at the deal should consider who could fill this role.
5. Cash-flow considerations
Buyers should be prepared for possible cash-flow delays, depending on whether the acquisition is structured as a stock or asset purchase. In a stock purchase, buyers typically assume the tax ID or provider numbers of the physicians, which allows them to start billing under those credentials immediately. However, when making a stock purchase, buyers also assume all risks associated with the practice, including hidden liabilities and past fraud. In an asset purchase, on the other hand, buyers typically have to “re-credential” the physicians, which requires obtaining new billing numbers from Medicare, Medicaid and other third-party payers. However, these buyers rarely have to assume responsibility for any liabilities or past fraud. Conducting detailed due diligence on the acquisition can help a buyer structure the deal in the most beneficial way.
Learn More about Opening a Practice
Hiring important employees is just one step to opening a new dental practice. Now that you have read some basic tips and things to consider you are ready to start a practice. After you have found a place that meets your needs you will still need to make on offer, secure financing, sign the practice sale agreement and lease, and complete the purchase. As you can see a lot of important factors go into this decision. Make sure you are being properly advised. Practice Advisors 360 is the nation’s leading dental advisory company. Contact us today at (844) 360-8360 or visit us online at practiceadvisors360.com