Thinking of buying a medical practice? You likely have a list of priorities that must be met before you make such a big decision. Location and size of the practice are important, but there are many other factors to take into consideration. The health care accountants at Goldin, Peiser & Peiser recommend the following tips:
- Assess the Practice’s Patients
Think demographics, including the ages of the patients. Know that you will lose a percentage of patients at no fault of your own. To understand how many are likely to stay, consider how many the practice owner personally treats. How many of the other providers are likely to leave? What percentage of the patients live more than 20 miles away? A percentage of them will likely move to a practice that is more geographically friendly. What are the demographics of the surrounding area—are they conducive to growing your practice?
You should also review the insurance plans of the practice’s patients. Will you need to contract with more insurance carriers? How many of them are covered through Medicaid? Finally, gain an understanding of the relationships between the practice’s staff and its patients. They are the ones that most frequently interact with patients. Patients may be more likely to stay with the practice based on such relationships.
- Review the Books. Then Review Them Again.
Working with an accountant with extensive health care experience, you will need to carefully evaluate all assets and liabilities. You will need to understand how the staff is compensated, how many patient accounts are sent to collections and how much business will be necessary to sustain – and grow – the practice. Are there cash flow delays? Will you need to make new hires and/or add new vendors? If you think the providers are undercompensated, you will need to allow for salary increases. Make sure you understand employee benefits, malpractice insurance and expenditures like electronic medical records.
- Obtain an Independent Valuation
A third-party professional can help ensure that the two steps above can be conducted with full transparency. A valuation expert can request any supplemental information from the buyer that will provide those important details that can make or break the deal. For example, what are the lease details? What is the condition of the medical equipment?
Valuation results will help you be better-positioned to make an informed purchase offer. The valuation will also help you assess the amount of the loan you will need to purchase the practice. Finally, by conducting detailed due diligence on the potential acquisition, you can structure the deal in the most beneficial way.
- Question the Practice’s Compliance Record
Are there any recent regulatory or legislative changes that may impact the practice? Speaking of regulatory changes, your accountant will want to review whether the practice is currently complying with all health care laws and regulations, such as HIPPA. How long will it take you to fix any deficiencies? This information should be used in negotiating the purchase price.
Are you already working for the practice you intend to buy? All of the tips above still apply, and you will also want to consider a transition plan. After all, your colleagues will become your employees. The change can be tricky, so you will want to plan to work with the retiring owner to carefully craft your communications with the practice staff. What changes do you plan to make? How will compensation and employee benefits be affected?
Purchasing a medical practice is a significant decision. A team of experienced advisors will help ensure a successful transaction and help you avoid costly mistakes.
Questions about the financial management of your medical practice? Contact the Medical CPA team at Goldin Peiser & Peiser. You may contact Erick Cutler at 214-635-2541 or by using the contact form below.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.