[Editor’s Note: The following post was submitted by Cameron Wood, a physician advocate who works with small and mid-sized physician practices to negotiate their reimbursement rates at NGA Healthcare. Although a smaller and smaller percentage of physicians each year is composed of practice owners, for those docs the practice is a major portion of their financial life and maximizing its value is critical. They often ask me for posts directly aimed at them. Practice owners, today is your day! Mr. Wood and I have no financial relationship.]
Medical Practice Ownership
Owning a medical practice or ASC is like being a C.E.O., patient advocate, accountant, human resources manager, medical healer, and office manager all rolled into one. One job title that most physicians put last in their ever-growing list of roles is that of retirement planner. Ensuring that you have your long term financial house in order is often neglected in favor of dealing with all the short term problems that a medical business faces. The mere act of thinking about early retirement forces physicians to look at all of their business practices and make the hard decisions that always seem to be put off in favor of the daily practice needs.
Planning for the Future
Planning for the future can seem daunting, especially when you’re running the business. Forcing a personal and professional review is the best thing physicians and owners can do to ensure all their hard work, education, and patient care pays off.
The truth is that many physicians retire and feel like the last few years soured their entire career — either because their practice stagnated, they couldn’t find a buyer for the business, they physically couldn’t work anymore but still needed the income, or they just got burned out from having to manage every element of their business.
5 Things Physicians Can Do to Sell Their Medical Practice for an Early Retirement
#1 Negotiate Your Insurance Payer Reimbursement Rates
Every year a practice loses 3-5% of their bottom line due to inflation. Every year your practice needs to make 3-5% more income to offset that loss, let alone increased rent, HR costs, medical equipment, and insurance.
The last thing that doctors usually consider to offset losses is the easiest to rectify — having an experienced negotiator work on your behalf to increase your payer contract rates. The majority of physicians never negotiate their rates, yet even small increases on a few of your top payers can significantly impact the bottom line for your practice.
Finding the right negotiator is vital. So is making sure that you give the process the time it takes to do it right. Any negotiator that tells you it will just take a few weeks is sending a template letter to your people at the insurance company who aren’t the right decision-makers. A true negotiator really digs deep into the details of your practice and your local market. Negotiating your rates is an investment that can pay off more than any other strategy if you find the right service provider.
#2 Ensure Your Business is Set up for an Easy Sale
Every doctor knows that some practice specialties are harder to find a buyer for than others. The hardest practice to sell is one that wasn’t primed for sale in the years before looking for a buyer. Doing the early leg work is always valuable in the short term. Prepping a medical practice for sale is really about budgeting, projecting future expenses, putting money aside for upgrades to facilities, and saving for any unforeseen expenses.
Buyers want to buy a practice that is already a well-oiled machine that is going to make them money from day one. What this amounts to is having very clean and well managed financial statements, patient records, and operational standards. Have your employees outline their job duties, daily tasks, and vendor contacts. Doing so will ensure that in an emergency someone can more easily fill in for an employee, or you can easily hire replacements should they leave the business. This also helps to pinpoint any inefficiencies that might be occurring without your knowledge, and many practices have employees doing the same redundant tasks without anyone ever knowing.
#3 Find Predictable Income Streams
Every financial planner will tell you that retirees need consistent passive income to cover their monthly expenses. A diversified investment portfolio in stocks with dividends, bonds, real estate, IRAs and 401ks are tried and true investment strategies, but they often require significant cash investments that lock up your liquidity for years and even decades.
Your business is your best asset. Making sure your business has the patient volume and consistent income is essential to selling your business. Many sales are financed by allocating a percentage of the annual revenue to the previous owner. Having three to five years of previous revenue charted, and understanding any seasonal challenges will ensure that you know what your practice is actually worth. It will also help you to identify if there are payers that you need to term and replace. ASCs can also focus on finding more sources for patient referrals and increasing their rates prior to a sale.
#4 Make Sure Your Business has a Solid Billing Foundation
The medical billing world is a constant source of confusion and frustration for medical business owners. Who runs your billing isn’t as crucial as how cost-effective and capable they are. Evaluating a medical billing provider is achieved by looking at their industry experience, the ease of the technology they deploy, their fee structure, and their level of service.
Medical billing is complicated, and you’re best served to find a company with ample experience in the field. Coding incorrectly can cost you far more over time than the savings of using an inexperienced biller.
A medical billing company that uses streamlined software that’s easy for you to interact with and understand is also essential. You can’t understand your practice unless you know the information that your billing company should be providing you.
Most billers are compensated by a fixed fee or by a percentage of the amount they collect. The fixed fee model tends to be cheaper upfront, but the percentage-based fee structure incentivizes higher collections. This is why we recommend working with billers to enact a hybrid model that works for your cash flow.
Level of Service
Finally, you have to take a good look at their customer service. You can usually tell how effective they will be as a biller based on how effective they are at communicating their service, fees, and collections strategies.
#5 Make Time to Evaluate Your Practice Every Quarter
Many practice owners only elect to look at their bottom line when they are filing their corporate taxes. That isn’t nearly enough time or information to understand your practice. Owners need to force themselves to sit down and track their profit and loss statement on a quarterly (or ideally monthly) interval. Conditioning yourself to evaluate your business periodically will reinforce all the other positive changes you’re making to your practice. It will allow you to forecast for that early retirement more accurately. Your early retirement plan isn’t just something you set up once and ignore until the day you’re ready to retire, but instead, it takes consistent modification and revaluation.
Many practice owners feel like selling their practice for early retirement is not something they want to telegraph, but hard work and success in life is something that should be celebrated. We’ve found that many physicians that “retire” early, never really stop working. Instead, they work when they want to, and how they want to. Often, they enter the consulting world to help other physicians attain success in their specialties. What better proof of your expertise is there than the fact that you know how to plan, save, execute your business plan, and sell your business at the peak of your career.
Leaving on top is the ultimate way to begin your next “golden” phase of life. Whether it’s consulting, working fewer hours to stay busy, or sipping daiquiris on a beach, it all starts with maximizing your business bottom line through negotiating your insurance payer rates, creating a long term plan to sell your business, creating predictable income streams, securing your medical billing team, and making sure you continually evaluate your practice.
What do you think? Have you sold a practice? What did you do to ensure your practice was ready to sell when you retired? What mistakes did you make? Comment below!