Probably the two greatest times of stress for urologists are the day they start their practice and the day they decide to leave the practice and put it up for sale.
One of us (NHB) started a practice in 1976. At that time, most urologists continued to practice until shortly before they died-almost with the scalpel in their hand or cystoscope in the bladder. Today, many urologists are seriously contemplating leaving active practice at age 55, 60, or, more traditionally, 65.
Urologists in a group practice, even those with just one or two partners, presumably have in place a well-thought-out and properly drafted contract with buy-out and “phase-down” provisions. For group practices, it is imperative that the members critically review, discuss, and decide whether their contractual arrangements make sense for these times. Urologists who have done so have an exit strategy that is fairly self-executing, effective, and provides the seller with a seamless transition to retirement.
Urologists contemplating leaving practice consider selling for two main reasons:
Both of these are laudable goals. Of course, you want your patients to be taken care of and you want to provide those patients and your established referral base with an avenue of continuity. Wanting to realize value for what you have created and invested in over several decades is also certainly appropriate.
People wishing to sell their home who put a "For Sale" sign on their front lawn without any advance preparation don't maximize the value of their home, and the same is true of medical practices. Regardless of who takes over your practice, you need to prepare in advance to segue your practice to your partner(s) or to another urologist.
The first step is the real estate equivalent of curb appeal or how your practice looks from the outside looking in. If you've been in practice long enough to consider retirement, you want to make sure your office doesn't still have that circa-1963 look. While a total remodel may not be possible or economically feasible, updating the worn carpet, painting the reception area, adding some new furniture, and doing some general housecleaning is usually a good place to start. Potential buyers can be very image conscious, and something that looks old is generally viewed as having less value.
Knowing your practice's finances and ensuring they are in order is the most important aspect of selling your practice. Any serious buyer will ask to examine your books, look at how you run your business, and assess the potential growth and vitality of the practice. They will want to know where the revenue comes from and where it goes.
You should strive to show a stable or growing revenue base, an attractive payer mix, reasonable overhead, and a personal income that is at least stable and hopefully increasing. If your earning capacity is low or has been declining, you need to be able to explain why.
When looking at personal income, don't forget to normalize your income by adjusting for varying levels of non-standard physician benefits and discretionary expenses that often are included in practice overhead. For example, rich retirement plan contributions and expensive cars that are paid for by the practice make your income look artificially low. However, if you explain your rationale for these expenses, your profit and loss statements will look more attractive.
In selling a practice, a solo physician has three basic options: finding a successor physician, selling to another physician group, or selling to a hospital. A fourth option, of course, is simply closing down the practice.
We strongly recommend beginning the process well in advance of the intended exit date. This is critical for several reasons:
First, it is not unusual for the process of recruiting a successor urologist to take several (3 to 5) years. Recruiting is difficult and candidates are in short supply in many areas. Many potential buyers are spoken for well in advance of completion of their training.
Second, the value of a practice often starts to decline when it becomes known the physician is going to retire. This is because the universe of potential buyers knows that patients will seek care somewhere else and the closer you are to retiring, the less likely they will remain in your practice and accept care from your new associate.
Third, while not a pleasant thought, any delay in the exit process puts you at a risk that death or disability will intervene, ruining almost any chance for your family to realize a financial return on your many years of hard work in building a successful practice.
By starting as much as 5 years in advance, you can maximize the likelihood of retaining most, if not all, of the practice’s value. It allows for thoroughly exploring all available options and finding a committed buyer.
When considering the sale of a practice, look at it from the standpoint of potential buyers. Depending on your market, those buyers could include:
Selling a practice is often complicated and most urologists lack skill in this area. So much of the success in selling depends on the specifics of the practice, the physician, and the market-ie, the hospital and physician environment-in which they operate.
Selling to a newly recruited urologist. Recruiting another urologist to acquire and continue the practice may feel like the best option, but in the current environment, this decision can be one of the most difficult, especially with younger physicians. The current generation of younger physicians tends to be risk-averse and lacks interest in the business side of medicine.
Selling to other physician groups. As you work down the list of potential buyers, you should also quietly, subtly, and tactfully look at existing practices (even if you consider them competitors) to see if any of them would like to merge with and/or acquire your practice, acquire your charts and records, and gain access to your referring physicians.
An existing urology group will often be the best potential buyer for several reasons. First, it may have the financial capacity to pay a fair price. Second, it can most easily facilitate the transition by allowing you, the seller, to phase out gradually. Finally, it may have the strongest reason to do the deal-protecting its “turf” so a younger physician with more and newer skills doesn't take over your practice and create a stronger and more formidable competitor.
In our experience, urologists typically refrain from broaching the subject of retirement with their colleagues. They often feel embarrassed to admit they plan to take this step. In holding back, however, they lose out on perhaps their best possible transition opportunity. If you are contemplating retirement, you should feel comfortable quietly raising the thought and flat-out asking a colleague if his or her group would be interested in discussing how you might work together toward this goal.
The key here, again, is to not wait too long. Regardless of professional and personal relationships, any potential buyer will reject paying for something they think they can get for free. What you want to be "selling" is your willingness to transition your patient and referral relationships over a period of time.
Selling to a hospital. In the current health care environment, where over 50% of physicians have become employed by hospitals, this may be a viable option.
Your practice probably contributes millions of dollars of income annually to the hospital, and the hospital would like to maintain this revenue stream. Talking to the hospital CEO or medical director is something to consider.
The local hospital needs urology services. Even in areas where there are multiple physicians practicing urology, these practices are usually full and your departure will likely leave the market with reduced capacity.
Hospitals also know that patients will seek care elsewhere if the market can't absorb the additional demand resulting from your departure. Patients will either go to a competing hospital or leave the community and travel elsewhere for care. Either of these two potential outcomes result in a loss of market share for the hospital, and the obvious solution is to recruit a replacement.
The goal is to negotiate a transitional model where a replacement urologist is recruited and, with the financial support of the hospital, the practice is transitioned to that urologist over a specified period of time.
The hospital could acquire your practice and employ you during this transition or simply provide recruiting support and an income guarantee to your practice to help pay the cost of the new physician's salary. Which direction is taken-selling or remaining independent-will often be driven by the needs and desires of the new recruit. The vast majority of physicians coming out of training today want to be employed, so expect this option to work in most cases if you plan to sell to a hospital.
Selling to a hospital at the end of your career isn't all bad. If you are starting a few years before retirement, you might find employment a welcome respite from the daunting responsibility of managing your own practice. And this kind of transition can result in a stress-reduced lifestyle as you introduce and transition your patients to the new urologist and work less, including less call, while maintaining (or even increasing) your income.
Nearly every urologist will be confronted with the decision on exiting his or her practice. Most of us have very little experience with this process. However, if you follow the suggestions we have provided you, plan in advance, and receive good advice, your exit strategy can be successful and even enjoyable. In the next article in this three-part series, we will discuss practice valuation and how to determine the appropriate amount you might receive from the sale of your practice.
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