Managing Your Practice

How to sell your ObGyn practice

Your retirement may be a long way off, but the planning pointers presented here can help smooth the transition of your practice when you decide to sell

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For ObGyns, 2 intensely stressful career milestones are the day you start your practice and the day you decide to put it up for sale.

One of us, Dr. Baum, started a practice in 1976. At that time, many clinicians seemed to work right up until the day they died—in mid-examination or with scalpel in hand! Today, clinicians seriously contemplate leaving an active practice at age 55, 60, or, more traditionally, 65.

ObGyns in group practice, even those with only 1 or 2 partners, presumably have in place a well-thought-out and properly drafted contract with buyout and phase-down provisions. For members of a group practice, it is imperative to critically review and discuss contractual arrangements periodically and decide if they make sense as much now as they did at the start. ObGyns who continually revisit their contracts probably have an exit strategy that is fairly self-executing and effective and that will provide the seller with a seamless transition to retirement.

A solo ObGyn who is selling a practice has 3 basic options: find a successor physician, sell to a hospital or to a larger group, or close the practice.

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ObGyns’ choice of practice environment is a big deal

Preparing your practice for sale

Regardless of who will take over your practice, you need to prepare for its transition.

The most important aspect of selling your practice is knowing its finances and ensuring that they are in order. Any serious buyer will ask to examine your books, see how you are running the business, and assess its vitality and potential growth. Simply, a buyer will want to know where your revenue comes from and where it goes.

Your practice will be attractive to a buyer if it shows a stable or growing revenue base, an attractive payer mix, reasonable overhead, and personal income that is steady if not increasing. If your earning capacity is low or declining, you will need to explain why.

Timing is key

We strongly recommend beginning the process 3 to 5 years before your intended exit.

By starting early, up to 5 years in advance, you can maximize the likelihood that your practice will retain all or most of its value. Moreover, you can use the long lead time to thoroughly explore all available options and find a committed buyer.

Selling a practice can be a complicated affair, and many ObGyns do not have the requisite skills. So much of the success in selling depends on the specifics of the practice, the physician, and the market (the hospital and physician environment).

Identifying potential buyers

Other ObGyns. Recruiting an ObGyn to take over your practice seems to be the best option but can prove very difficult in today’s environment. Many younger clinicians are either joining large groups or becoming hospital employees.

Other physician groups. While working your way down your list of potential buyers, you should also be quietly, subtly, and tactfully assessing other practices, even your competitors, to see if any are candidates for merging with and/or acquiring yours and all your charts, records, and referring physicians.

Hospitals. In today’s health care environment, in which more than half of clinicians are becoming hospital employees, selling to your associated hospital may be a viable option.

Your practice is probably contributing millions of dollars in income to that hospital each year, and of course the hospital would like to maintain this revenue stream. You should consider talking to the hospital’s CEO or medical director.

Hospitals also know that, if you leave and the market cannot absorb the resulting increase in demand for care, patients may go elsewhere, to a competing hospital or outside the community. Rather than lose your market share, a hospital may consider the obvious solution: recruit a replacement ObGyn for your practice.

Your goal here is to negotiate an agreement in which your hospital will recruit a replacement ObGyn, provide financial support, and transition your practice to that ObGyn over a specified period.

The hospital could acquire your practice and either employ you during the transition or provide recruiting support and an income guarantee to help your practice pay the new physician’s salary. Whether to sell or remain independent is often driven by the needs and desires of the recruit. As the vast majority of clinicians coming out of training are seeking employment, in most cases the agreement will require a sale.

Selling to a hospital a few years before your retirement can be a plus. You might find employment a welcome respite from the daunting responsibility of managing your own practice. Life can become much less stressful as you introduce and transition your patients to the new ObGyn. You will be working less, taking fewer calls, and maintaining or even increasing your income, all without the burden of managing the practice.

Read about determining your practice’s value

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