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Mergers and acquisitions of healthcare practices
Although mergers and acquisitions (M & A) sounds like a subject important only to large, publicly held businesses, a “deal” may be extremely useful to medical and dental practices of all kinds and sizes. A solo doctor moving towards retirement may sell his or her practice. A small group might seek to buy a practice either for general growth or to protect against new competition. Same-specialty practices often merge for cost-effectiveness and/or to deal better with third party payers. And our large healthcare clients sometimes merge and acquire to serve their well-laid business plans.
We have also seen doctors buying back practices they had previously sold to hospitals or physician practice management companies, as well as solos and small groups joining physician-owned networks.
Professional and personal value
Regardless of your type of practice, do not ignore M & A possibilities that may serve you well both professionally and personally. If you have a solid practice in your service area with enough “competition” (colleagues nearby in your specialty), recognize that a bright, young doctor coming into your locale could mean an erosion of your patient base, referral status or even your hospital/operating room set-up. That’s why it is sensible to seek out other doctors (or mini-groups) who might otherwise retire and sell out. Take him, her or them on as short-term partners with an assured buy-out to ease their transition and to keep them from bringing in a potential strong new competitor.If you are one of several small same-specialty practices that struggle with the complexity and costliness of new practice demands and limited reimbursement clout, consider joining together — or joining a doctor-owned network — for some economies of scale.
Any M & A possibilities raise a number of both practical and legal concerns. Foremost among the practical issues is to assure yourself that the personalities involved will mesh comfortably. Seemingly sensible combinations fail more often because of the doctors’ personal chemistry — or lack thereof — than on financial or legal issues.
Price only one factor
In buying a practice, do not be scared off by what may first appear to be a high purchase price. Conversely, if considering sale of your practice, do not be afraid to suggest a high price. Of course, you want to negotiate the price as well as possible, but recognize that if a buyer finances the purchase price over a number of years, it may make it affordable. Many practice sales result in retaining up to 80% of the seller’s patient revenue. Comparing the annual debt service cost to the incremental revenue may make the deal more appealing than you might expect.From a senior doctor’s standpoint, a merger/sale to a neighboring practice provides opportunity for an excellent exit strategy.
You cannot, of course, ignore some important legal concerns. Large group transactions present potential Stark, anti-kickback, Medicare reimbursement and antitrust issues. We have experience in dealing with all of them.
Each one of the legal concerns would merit their own article. The important thing is to be sure they are recognized and appropriately addressed “upfront,” with the assistance of competent advisers.
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2004 Kalogredis, Sansweet, Dearden and Burke, Ltd.
