 By Stephen C. Fitzer
BCMS CEO/Executive Director
For physicians in transition, including those coming out of residency, leaving the military, leaving a partnership with other physicians, changing venues or other circumstances that cause them to consider options, the questions are many.
Physicians ask, “Should I go to work as an employee of an existing practice, work as a medical director of an insurance company or other corporate entity, buy into a physician partnership, start my own practice, go into research or join ranks with other physicians wanting to start something new?”
There are many options to consider. In this article, let’s consider some thoughts about buying into a practice and/or starting up a new practice.
Physicians study medicine because they want to practice it. Medical school overwhelmingly focuses on the practice of medicine with minor emphasis on the business of medicine. Therefore, if a physician wants to practice medicine in today’s environment, the business side of a practice must be studied either through business classes, mentorship, on-the-job training, the use of business advisors or perhaps a combination of the above. Knowing what issues a physician faces in deciding between buying into a practice versus starting a practice may be helpful if a change is in the offing.
Buying into a practice means understanding the value of the practice. This would be a good time to go back and read my February article about valuing a practice. There are lots of ways existing practices offer opportunities to transitioning physicians. Some will hire a physician as an employee for a period of time to see if they are a good potential partner, some offer ownership right away, some require money upfront and some finance a buy-in.
Often, solo practices may want to sell the whole practice to a physician for either immediate ownership or they let the new physician join as an employee for a while with the idea of taking it over later. Whatever the arrangement offered, physicians should always remember that this part of medicine is all business. It is strongly urged that both buying and selling physicians seek professional assistance from those who do this for a living. Making deals or trying to do a transaction without professional help is a recipe for disaster.
If you buy into a practice, you need to know what comes with the practice. Will all the employees stay? Do you even want them to stay? If employees leave (including physicians), how does that impact the patients (clients) who come to that practice for care? What about location? Is it an area where you want to work? Is it an owned or leased building? If leased, is it transferable or cancelable? Is the monthly space cost fair? If it’s owned by the seller, what is a fair rate for the space? Is it a requirement to lease from the seller of the practice? What kind of corporation is it? Do you want to keep the same kind of corporation or set up a different type? Are you buying the corporation or only buying the assets of the corporation? What’s the difference between buying assets and buying a company? What about uncollected billings? How are those billings valued? Are there any current loans to the entity? Are the practice assets used to secure any loans? There are hundreds of questions to ask. That is why experienced professionals are needed to help physicians either entering or exiting a business.
When considering a business, whether as a buyer, seller or as a new start up, think of it in terms of where the revenue comes from and how it is spent. On the expense side, the biggest expense a service business has is personnel. Personnel costs include compensation, benefits and payroll taxes, and typically represent 60 percent of the cost of operating a service business.
Other major ongoing costs include rent/lease payments, malpractice insurance costs and supplies and equipment. Initial start-up costs of equipment and site preparation may be high and financing needs to be carefully negotiated. Financial success comes when every part of the business is attended to during the set-up, with conservative forecasts for cash flow. Remember, it is usually easier to gear up the service volume than it is to gear it down.
The revenue side of medicine has become very complicated. The less revenue based upon reimbursement rates for Medicare/Medicaid, the better. Unfortunately, studies show that 75 percent of all insurance companies now link their payments to Medicare rates.
Physicians MUST study reimbursement for the medical services they will provide before either buying into a practice or starting up a practice. There are so many issues to consider including coding, negotiating with insurance companies, bundling of services, what insurance, Medicare and Medicaid will or will not cover, insurance co-pays, self-referral issues, capitation, PPM’s, HMO’s, PPO’s, HSA’s, etc. A physician must learn about these facets of being in the medical business before taking the plunge. |
