Selling Your Practice to a Hospital
While an increasing number of physicians are interested in selling their practices to a hospital, it is important to remember that the sale of a practice takes extensive planning. Whether you are interested in selling your practice due to the challenges of maintaining a private practice, to capitalize on strategic opportunities, or for other reasons, you need to consider a number of issues. This article does not discuss all issues that should be considered, but touches on several key considerations as a starting point.
The first of these issues is how to value your practice. You must strategically assess the value of several areas of your practice to ensure that the sale takes place on favorable terms. You will want to value the practice’s tangible assets. Some tangible assets may have depreciated substantially, while others may be quite valuable. Keep in mind that the tangible assets of your practice are the cornerstone of its value. Furthermore, intangible assets will frequently be a major source of the value of the practice. For example, the value of extensive medical records, a well-trained staff, or a recognizable trade name may significantly increase the value of your practice.
It is also important to plan how you will approach the issue of goodwill. A strong goodwill valuation can make the sale of your practice much more lucrative; however, hospitals are increasingly less willing to consider goodwill as a factor in valuation. Significant challenges abound related to goodwill.
Consider the degree of control you desire to keep over the practice. For example, you will want to consider to what extent control over physician recruitment and termination within the practice is a priority. Additionally, you will need to consider what control you want to have over staffing levels generally, as well as budgetary control. Keep in mind that the extent to which the hospital promises to guarantee your compensation usually comes with a trade-off in terms of the extent to which the hospital will want control over your practice. The trade-offs can result in seller’s remorse a few years later.
Given the sale of a physician’s practice implicates several potential concerns in terms of compliance with federal law. The sale must comply with all applicable rules and regulations. Consideration must be given to Stark and Anti-Kickback Laws. Violation of these laws carries severe civil and potentially criminal penalties, and may lead to Medicare/Medicaid exclusion.
Give substantial consideration and attention to how physician compensation will be calculated. Also, give significant attention to the terms of any employment agreement with the purchaser.
Finally, do not forget to consider whether your practice and the hospital share a consistent long-term strategic vision. Plan an exit strategy in the terms of the sale. You will want to consider what the terms of any potential non-compete agreements are, how the financial details of your exit will be accomplished, and a number of other issues.
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