There is no doubt that the state of healthcare in this country is changing again. Many physicians are realizing that in order to keep up with these changes, key business decisions will need to be made in the near future. In fact, increasing numbers of physicians are entertaining the idea of selling their medical practices to hospitals or large health systems.
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Explore This IssueNovember 2014
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Earlier this year, Main Street Rheumatology Group (actual name withheld) was approached by a local hospital that was interested in acquiring the mid-size rheumatology practice. The practice’s owners were conflicted about whether this was a route they wanted to pursue. Although they had enjoyed the independence of being their “own bosses” for the past decade, they expressed concern that the business of medicine had changed, and it was becoming increasingly expensive to practice medicine independently. The owners also wanted to grow their practice, but they had difficulty with recruitment. Ultimately, the practice’s owners decided to sell to the interested hospital and work for the hospital.
Whether you are selling your rheumatology practice to other physicians, a multispecialty practice, a hospital or a health system, the basics of the transaction are the same: who is purchasing from whom, what is being purchased, when is the deal going to occur, and how much will you receive? Of equal importance is the compensation formula you will need to work within the new system. When selling your practice to a hospital or health system, there are additional and unique deal points that need to be negotiated.
When considering the sale opportunity, it is important to evaluate early how your practice group will fit with the hospital’s or health system’s global plans. Prior to the hospital’s acquisition of Main Street Rheumatology Group, the hospital was not well established in rheumatology. The hospital’s primary interest in the practice was that it wanted to enhance its presence in that area of medicine and capture revenue associated with ancillary services generated by the practice. To Main Street Rheumatology Group, this meant the hospital was committed to growing that practice area and would allocate resources to marketing and developing the newly acquired practice within the hospital’s community. Because this was important to Main Street Rheumatology Group’s owners, specific provisions were added to the purchase agreement outlining the hospital’s marketing commitment to growing the practice and specific milestones for the hospital to accomplish.
The contract terms governing the relationship post-sale are often of equal or greater importance than the terms governing the sale of the practice.
Although the purchase price for a medical practice is of key importance, the postacquisition business arrangement with the hospital or health system should also be negotiated and memorialized in writing. When a hospital or health system purchases a medical practice, it is not just acquiring the patient base and equipment, but the talent as well.