To Sell or Not to Sell? Four Crucial Steps Private Practice Owners Need to Take Before Answering This Question

As health reform initiatives start getting phased in, many larger healthcare organizations will be looking to buy private practices — and practice owners will be tempted to sell. And no question, sometimes selling is the smartest thing to do. But not always: I absolutely believe that well-run private practices will still be able to thrive in the future.

The real risk is in making a knee-jerk decision based on incomplete data or even fear. Practice owners owe it to themselves and their colleagues and employees to take all the time they need to be sure they’re making the best possible choice.

There are four critical things you need to do while you’re still in the “deciding” phase:

• Make sure your practice is in prime financial shape. Most medical practices provide excellent patient care, but all, nonetheless, struggle with the business side of things. (That’s why I wrote my new book, “Excellence with an Edge“.) You need to make a deliberate effort to get the metrics that determine your productivity — RVUs, expenses, A/R, and so forth — in good shape. You also need to make sure your management and marketing practices are getting the results you expect and deserve.

Needless to say, this may not be an easy task. But regardless of the decision you make, it’s absolutely necessary.

If you end up deciding to sell, you need to be able to prove that your practice is financially sound. And if you decide not to sell, you’re going to have to be ultra-competitive in order to thrive in a tough new economy. So either way, this is a must-do.

• Get a good handle on your value. The issue of value goes beyond basic financials like your current accounts receivable and balance sheet. It also has to do with whether or not you’re a good source of revenue for the purchasing entity. You should also focus on contribution margin: the amount of money your practice will add to the hospital’s bottom line.

If you’re a primary care practice with a full roster of patients, you might be a great source of referrals for a hospital. These referrals will, in turn, create more revenue opportunities for the entity that is buying your practice, beyond the direct value of the primary care visits. Understanding your revenue potential will help you negotiate the best possible price.   

• Decide what to centralize and what to de-centralize. If you decide to sell, which tasks/responsibilities should you turn over to the new partner and which ones should you keep? For example, you might decide to centralize laundry, legal, and medical records because your partner already has good mechanisms in place for those services. On the other hand, you might decide to keep billing in-house because your patients like the way you do it and it works well for you.

The saying “If it ain’t broke, don’t fix it” comes to mind. Before you make your decision, carefully think through what you do really well, and what could be done better by your prospective partner. If you decide to go ahead with the partnership, you’ll be better prepared to hammer out the details of your agreement — and you won’t risk losing the things that have made you successful in the first place.

• Think through the political implications of your decision. Allowing yourself to be bought can open doors for you…or it can cause doors to slam shut. That’s why it’s smart to carefully evaluate how this move will affect your standing in the medical community. Will potential referring physicians see you as a “sellout” or come to view you as a part of a big faceless conglomerate? Or will you get referral sources you’ve never had before? And what about patients? Will they take you more seriously once you’re aligned with a respected name — or worry that you’ve lost the personal touch you’re known for?

It might not hurt to have critical “off the record” conversations with key players, such as some of your big referrers, before you pull the trigger. And don’t fall prey to the temptation to talk only to people who will say what you want to hear. The goal should be getting as much objective feedback as possible so you can make an informed decision.

Ultimately, selling a practice that you may have spent years nurturing is a momentous decision — and it’s one that requires input from both mind and heart.

The advice I’ve offered here will help you analyze the rational side of the to-sell-or-not-to-sell question. But there’s an emotional component, too. So do your homework and make sure there’s plenty of evidence to support your final decision—and don’t discount the way that decision makes you feel.

Michael T. Harris, MD, is a nationally recognized expert in the field of gastrointestinal surgery. He has helped pioneer the use of minimally invasive (laparoscopic) surgical techniques for Crohn’s disease and colitis and has one of the largest IBD practices in the nation. Dr. Harris is currently a vice chairman of the Department of Surgery at Mount Sinai, responsible for the management of Surgical Associates, a 45-surgeon faculty practice. His own practice consistently scores in the 99th percentile nationally on patient satisfaction surveys. Dr. Harris is also an officer of the Mount Sinai Hospital Medical Board, and serves on the Board of Governors of Faculty Practice Associates, the 840-physician multispecialty group of The Mount Sinai School of Medicine. He created and is the course director of the popular “Business of Medicine” elective, one of the first courses of its kind for medical students in the country. In 2009, Dr. Harris was awarded the National Leadership in Medicine Award by Studer Group® and a Gold DOC Award from the Arnold P. Gold Foundation for humanism in medicine.