By Bhagwan Satiani, MD, MBA, FACHE(R), FACS, and Jessica L. Bailey-Wheaton, Esq.
Bhagwan Satiani, MD, MBA, FACS, Professor of Surgery Emeritus and Academy Professor, The Ohio State University College of Medicine, Columbus, OH; and Jessica L. Bailey-Wheaton, Esq., Senior Vice President and General Counsel, Health Capital Consultants, St. Louis, MO; present tips and considerations for buying a surgical practice.
The number of employed physicians has increased significantly over the last decade. In a recent study by Avalere, supported by the Physicians Advocacy Institute, 3 out of 4 physicians now are employed by the corporate sector, health systems, and hospitals.1 Even though the number of physicians in private practice has dropped to 26% in 2021, physicians still own 46% of practices in the United States.2 This reversal in practice ownership over the past few decades has occurred because of difficult economic conditions, including inflation, debt, work force shortages, burnout, professional isolation, and compensation stability, as well as the increasing administrative burdens in healthcare. Concurrently, plentiful capital in the hands of private equity and health insurance companies has allowed them to buy out medical and surgical practice owners looking to get out, with the hope of profiting in 3–7 years when they sell off the practice.3
However, there are a significant number of surgeons who like the features of a private practice. These features include clinical and business autonomy, more productivity and satisfaction with electronic medical records, and the ability to preserve the traditional relationship with patients rather than being on the clock.2 Indeed, in a survey of 1,354 adults, nearly 74% associated the increase in hospital acquisitions with fewer options for patients and increased costs for care at existing hospitals.4 The independent surgeons also prefer the ability to adapt to the changing healthcare landscape quickly and more efficiently rather than a bureaucratic employment model.
A buyer for an existing surgical practice can vary from an individual to a larger, single-specialty or a multi-subspecialty surgical practice. Since the cost of doing business is increasing, a larger or “super” group may be able to leverage their size with economies and efficiencies of scale, including contractual negotiations with insurance payers.
Before reviewing the details of the financial and legal parts of the purchase or buy in of a surgical practice, it is important to be clear about the goals and priorities in evaluating the choice of the existing practice.
Particularly for a first-time buyer, the priorities are somewhat similar to buying a house, albeit with the addition of the market (volume of patients) and the revenue estimates derived from the existing patients. These factors include the practice type and culture (if buying a share in the practice), geographic location, patient population, and size specific to the surgical subspecialty. The advantage of buying an existing practice is that if employees and patients are already in place and digging into the financials shows a profitable enterprise, one has a chance of improving the efficiency of the practice with new ideas.
A buyer must have a good idea of the parameters of what one is looking for, such as location, size, referral area, hospital affiliation, price range, and, if important, any teaching opportunities.
There are many pros and cons associated with buying into an existing practice depending on whether it is a solo practice or a single- or multi-specialty practice. For instance, you may feel uncomfortable with business decision-making or nervous about complex surgical procedures to start with and may prefer to join senior colleagues in a larger group and/or single-specialty group.
Typically, once there is some clarity about the type of private practice and geographic location, the search should start at least 6—and preferably 12 months—prior to starting work. Most leads are obtained through colleagues, residency or fellowship mentors/faculty, specialty websites, and journals. Even if there are no surgical practices for sale in locations you prefer, it may be possible to make an offer to an attractive practice run by an older surgeon or surgeons.
Most times a recruiter will not be necessary unless there are specific conditions or needs that make it difficult to find the right opportunity. Recruiters either work for hospitals or health systems (in-house) or for recruiting companies (headhunters). A few large private practice groups also use recruiting companies. Going through a recruiter does not cost the buyer and their services are paid by the employer or seller.
Whether one is intending to buy an existing solo practice or buy into a surgery specialty group, there are important nonbusiness items to check (see Table 1). These include:
Table 1. Decision to Buy
Components
Legend:
EMR = Electronic Medical Record
HIPAA = The Health Insurance Portability and Accountability Act of 1996
AKB = Anti-Kickback Law
The complexity of buying a part or the entire practice can vary in complexity from a simple due diligence process to a very detailed intricate financial and legal process with accountants, attorneys, and valuation experts all needed to achieve a satisfactory conclusion.
Let us start first with a brief outline of the typical transactions and the process to follow once you have decided on the surgical practice and the owner has agreed in principle to sell all or part of the practice to you.
Equity |
Asset |
“Assets” of the Practice are sold
|
Equity (aka Stock/Membership Unit) Sale
|
Type |
Details |
Corporate due diligence |
|
Compliance due diligence |
|
Tax due diligence |
|
Financial due diligence |
|
Human resources due diligence |
|
Information technology (IT) and intellectual property due diligence |
|
It is important at the start to be clear about the acquisition strategy and goals to define the type of practice that is ideal for the long-term success and happiness that one desires. Essentially your goals drive the strategy, which then becomes the roadmap for your acquisition initiatives and will serve you well. You are only as good as your team, so be sure to recruit your team—whether that legal counsel, compliance, broker, valuation professional, and/or financial planner/accountant—at the outset so that nothing is missed.
Bhagwan Satiani MD, MBA, FACHE(R), FACS, is Professor Emeritus of surgery at The Ohio State University in Columbus.
Jessica L. Bailey-Wheaton, Esq., is Senior Vice President & General Counsel at Health Capital Consultants in St. Louis, MO.