To sell your practice or not: The decision facing most physicians today

I took my eye off the ball for just a little while, and guess what happened? When I looked again, I discovered that familiar solo practitioner or small group physician medical practices are on the verge of disappearing. Going the way of the dinosaur.

At least, that’s what the pundits are saying.

In a recently published nifty newsletter, STAT Monthly, I read:

Primary care physicians and other specialists will continue to be the target of acquisitions by larger health and hospital systems. Physicians will begin to transition to a more consumer based patient orientation model (i.e. concierge medicine, cash-for-services, retail) in order to replace lower reimbursements or opt out of third party reimbursement models entirely, or alternatively, these physicians will shift to become a employee of a larger system..

Now, I see this once, and I figure this is someone just spouting off. But these observations have been cropping up repeatedly in the healthcare trends literature for the last couple of months so I have to believe that there may be some truth to these predictions.

I’m becoming convinced that it’s time to pull your head out of the sand if you are a) not on the verge of retirement b) not independently wealthy or c) not fresh out of medical school and pre-programmed to understand that the future of medical practice is different.

As a practicing physician, it appears you’re facing a major fork in the road. Either you will seek a sugar daddy with pockets deep enough to buy or somehow take over your medical practice (described in the article as “complex employment arrangements, or some form of asset lease or acquisition as opposed to an outright purchase”), or you you will bravely go it alone and eschew all forms of payment other than cold, hard cash or shiny plastic.

This has the makings of a Morton’s fork dilemma for the many of you who just want to be left alone to practice medicine, and do it your way!

If you’re a physician with an entrepreneurial go-it-alone spirit, perhaps this is the time to declare your independence from all third-party payers and go the concierge medicine route – or maybe just the cash-only practice.

And if you’re a risk-averse type, saddled with a huge mortgage, three kids in private school, and two car payments, now is the time to start looking around for a handy “Big Daddy” buyer,or at least someone to rescue you from the loneliness of being one of the last remaining raditional medical groups.

Philippa Kennealy is a family physician and certified physician development coach who blogs at The Entrepreneurial MD.

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  • Dave Chase

    As is the case with any business entity, it is advisable to get a 3rd party valuation assessment of one’s practice as part of financial/retirement planning. Unfortunately, most conventional independent family practices aren’t well served by sticking with the status quo. Fortunately there are alternatives.

    A friend of mine helps health systems value primary care practices they may acquire. The primary value ascribed to the practice is a trained staff and any real estate they own. Beyond that there is some referral value. In contrast, a practice that has X patients paying $Y for Z months has dramatically more value. Unless one’s dream is to work for a health system, a Primary Care MD had better make plans to alter the status quo. Staying on the insurance-driven hamster wheel only assures a practice that declines in value.

    The alternatives that remove the 40+% insurance bureaucracy “tax” are better for the patients and the practitioners. I would encourage primary care MDs to study models such as Qliance for a roadmap.

  • soloFP

    Around 60% of the primary care docs in my area are owned by hospitals, with more joining each month. The two local standards to buy a practice are either a per chart fee for active patients or to buy the practice for the current accounts receivable. Most primary care docs sell for around $100,000 per doctor for a strong, established practice. Some docs are so deep in overhead and dept that they simply agree to join the hospital-backed practices for a flat annual salary with productiong bonus incentives.
    I am independent and have looked into joining a hospital group. The downsides include increased coverage of 20+ doctors’ patients on weekends/holidays, increased overhead by requiring an office manager at each pracitce, increased MA/front desk staff requirements, and less control on which patients I can see. The upsides include not having to take care of the day to day decisions and not having to run a practice.
    A final noted downside in my area is that if you don’t meet your monthy production numbers, you only have a one year initial guarantee of employment and then get a 30-90 day warning of losing your job, if you can’t bring in enough revenue. The no compete clause means that you would have to leave the area, if fired from one of the hospital-backed practices.

    • buzzkillersmith

      I worked for 4 years at a hospital-owned heath system in urgent care. For me the worst thing was not financial–it was psychological. Having to deal with the MBAs running things was rough. They would hire lousy staff and docs that I had to work with and had no interest in assuring quality of care. I had no power to assure it among the other docs. I felt that a lawsuit was bound to happen and I would get dragged into it no matter what I did. The MBAs had no interest in sharing a bit of their power. They enjoyed lording it over the docs. Of course there was and continues to be a revolving door in docs. We quit 8 years ago and my wife, who also worked as a doc there in family med, has yet to be replaced. Two of our doctor friends there, a married couple, tell us it has gotten worse. They’d leave but their mortgage is too far underwater.
      I understand that a lot docs are having a hard time, but think twice before getting bought out, as it is often leads to a non-sustainable situation. Or use it as a transitional strategy with the aim of relocating to greener pastures or retiring.

    • ninguem

      If these were law practices, it would be considered unethical to put a noncompete like that in an employment contract for a lawyer. The Bar association would sanction a lawyer who put a noncompete in a lawyer’s emplyment contract.

  • http://www.isicomponents.com Robin

    Wow, an up and coming physician is not left with much of a choise, is he/she? And how many newly graduated doctors are NOT saddled with for starters, humongous debt due to college loans?

  • Budget

    >>saddled with a huge mortgage, three kids in private school, and two car payments>>

    That’s tough. Let’s see:

    1. Public school, or if college age, student loans
    2. Keep the cars for a few years once they’re paid off, and choose more affordable models next time
    3. Downsize the house when the kids leave home, or sooner
    4. Create a budget and live within your actual means, not the means you think you deserve. Almost everyone in this country has seen a decrease in real income that’s likely to be permanent, and physicians remain in the top 10% for income – easily.

  • soloFP

    If you make more, you often spend more. That said I have been saving since I started my own practice and live conservatively.
    Coming out of residency and working 80 hours a week for around $45k makes the hospital group practices with a guaranteed salary of $150k-$180K look very attractive until 3-4 years into the practice you realize your income has not significantly increased the the hospital owner is skimming off your profits with in group referrals, hospital admissions, MRIs, CTs, physical therapy, and other highly profitable items that require a primary care referral.
    I agree with the above post, the accountants and MBAs come in and use you to make maximum profits. In my area, the “best” docs are the ones who see the most patients each day and make the most money. Seeing lots of patients does not necessarily equal quality care.

  • Marc Gorayeb, MD

    There’s a third way: merge your practice with like-minded physicians in the same specialty, and maintain your larger group’s independence from all the non-physicians who want to use you to achieve their own agenda. Your power with respect to hospitals, insurance companies, and government will increase, and you will get to choose who runs your business.

    • ninguem

      Are you describing an IPA?

  • Alice

    Ninquem compared law firms which remInded me of a Sherman Anti Trust suit a business owner I know launched. Wouldn’t that figure into these situations (the person I know won her case and the settlement was tripled…I did not agree…but I was not on the jury). And one wonders if collective bargaining would help doctors who could form groups and pay lawyers to do what they do well…so doctors could continue doing what they do well? Just some ignorant thinking aloud. I am sure if these questions roll through my mind others are interested in the answers. It is part of what makes the Internet interesting…..we come out of our cloistered shells to see, and appreciate, and learn the inner workings of others….and hopefully, come out with a better understanding.

    • ninguem

      I’ve seen noncompetes enforced in medical employment contracts, in rural areas. The result was the loss of that physcian. A critical loss in a rural area. Patients had to travel long distances for healthcare, because another doctor, or a hospital, felt it’s business interests outweighed the public’s interest in accessing healthcare.

      The Bar associations find these noncompetes unethical in their field, and it must have survived legal challenge to be the rule all over the country.

      Surely the Medical associations can do the same.

      It would be nice to see physician ethics rise up to the level of lawyers. But I’m not holding my breath.

  • http://Www.twitter.com/alicearobertson Alice

    Medical associations? Like the AMA?

    • ninguem

      The associations. AMA, State medical associations. They don’t have the force of law, but they have some force.

      Pick a State Bar Association. How about Colorado. From the Bar Association Website, code of ethics.

      RULE 5.6. RESTRICTIONS ON RIGHT TO PRACTICE

      A lawyer shall not participate in offering or making:

      (a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or

      (b) an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.

      COMMENT

      [1] An agreement restricting the right of lawyers to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer. Paragraph (a) prohibits such agreements except for restrictions incident to provisions concerning retirement benefits for service with the firm.

      [2] Paragraph (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.

      [3] This Rule does not apply to prohibit restrictions that may be included in the terms of the sale of a law practice pursuant to Rule 1.17.

      I have yet to see a Bar Association that does not have such a rule.

      Take that same language. Substitute the word “physician” for “lawyer”. Put it in the Medical Association Code of Ethics.

      “An agreement restricting the right of PHYSICIANS to practice after leaving a [medical practice] not only limits their professional autonomy but also limits the freedom of [patients] to choose a PHYSICIAN”

      I have seen communities where that exact thing happened. Two come to mind offhand. Noncompetes were enforced, doctor left, local patients had to travel long distances to find another doctor. One was between two doctors, another was between a hospital and a doctor. The hospital employed the doc, the doc did not like the business management, wanted to work independently (and still refer to the hospital!)

      The affected doctors were perfectly willing to stay in the community, just practicing independently. Both stories made the local newspapers and got some statewide attention.

      A rural community, no choice but to refer to the hospital anyway, whether the doc is employed or independent, he’s still sending work there. Doesn’t matter. This is like kids who take the ball and go home.

      A position statement like that, from the associations, would go a long way in helping fight noncompete battles. All we get are mealy-mouthed statements like “discouraged”. No, say it’s unethical, for the same reason it’s unethical for lawyers to do it.

      Several states already void noncompetes. in medical employment contracts, by statute. It should be all of them.

      • http://Www.twitter.com/alicearobertson Alice

        I know this is true because a huge hospital system here has bought up everything. Since you are doing a good job sharing about the constriction of doctors…I will share that as a patient it makes it difficult to change doctors. If you do not like Dr. Smith (alias used for the characters:) and you change to Dr. Brown you are suspect. Your electronic medical records will be read by all future doctors. When I read the parts we are allowed to see there are often lies. Once a director said I loved Dr. Smith. I asked him about that…why did I switch if I loved the guy? Then there is Dr. Records who placed false notes in an effort to protect the hospital system. He had them removed saying they had no place there. I share this because these are wide spread and it hurts your image. In truth, regulation that is intended to help often has the huge side effect of damage unforeseen.

        I was told doctors sign extremely binding contracts, but some did sue. I know my doctor calls lawyers a “necessary evil”, but I am not sure the public has a lot of sympathy for either occupation. That is a huge hurdle to overcome because each side makes money off insurance companies in vastly different ways. I do support tort reform…but worry…just as I realize the current healthcare frenzy will make help a segment and hurt another segment. No matter which we go in this healthcare maze someone gets hurts to help others.

  • arf

    “……..Alice……I will share that as a patient it [hospital-physician consolidation] makes it difficult to change doctors……..”

    Bingo.

    There was a consolidation in my rural county. Independent rural hospital in a tax-supported healthcare district. They wanted some economies of scale. A Catholic hospital organization tried to come in. I’m not Catholic; I was impressed by the anti-Catholic bigotry in some quarters. Lots of protests. Finally the organization said you don’t want us, fine.

    In the chaos after that, another nearby hospital moved in.

    I warned everyone. Let the Catholic hospital organization in, you have competition between them, and the nearby big hospital.

    Now one hospital organization is the only show in town for a three-county area. Hospitals, clinics, specialty care, on and on.

    As soon as they got their monopoly, they turned on you like a rabid dog. Not that anyone listened to me.

    I saw them run out any independent specialist that threatened their employed specialists. Actually, some of the principals were quite explicit about it, saying in so many words the pie was too small to slice up, they will run out the doc. They succeeded.

    Slowly but surely, all the back-office work got consolidated out of town. Hospitals are big employers in a small town. They telerad a lot of their X-ray stuff out of the area during the day, let alone after-hours.

    They brought in midlevels to replace doctors, and even used the specialty terms to describe the midlevels. A nurse-practitioner with an interest in arthritis treatment is called a “rheumatologist” in advertising. Until someone dropped a dime to the Medical Board……ahem…..

    You don’t like how they do business, you want to set up on your own. You have to leave a three-county area, pack up the spouse and children, and leave the patients in a lurch. Patients want to find you, you become a non-person like the old Soviet Union. “We don’t know where he went.” Of course they do, the staff is not allowed to say. I know, I wanted to send patients to the specialist’s new location, for continuity. I had to play detective.

    And I tell people. If they treat the doctors like dirt, what makes you think they’ll be fair to the patients?

    All State Bar associations are quite explicit about it. Noncompetes inhibit the ability of clients to access lawyers.

    And you know how hard it is to find a lawyer………

    Noncompetes **DO** inhibit the ability of patients to access doctors, and I’ve seen real-live examples.

    A few States void them, by statute, but most States allow them. Yes, you can fight it, but the cost of litigation usually causes the doctor……..usually junior, usually paying off school debt, to just back off and leave.