Uccession Planning for Practice Value and Continuity of Care
This Important Process Simply Cannot Be Overlooked
By James T. Krupienski, CPA
Every doctor or dentist has a finite timeline to how much longer they will continue to practice. How successful the result is when one reaches the end of that timeline has a lot to do with how successful they are in navigating the waters in between.
Succession planning is an area that can be handled in a number of different ways. However, regardless of how its handled, it must be handled. This article is going to look at various aspects of succession planning, including why it can be so important, the types of succession that can take place, and, finally, certain best practices on how to tackle the process.
Why Planning Is So Important
At some point, the time will come when you will want, or need, to stop seeing patients. What happens to your practice and your patients at that time? The answer to this question, while different for many, is why succession planning is so important.
One aspect of why this is so important is the direct correlation to your retirement goals. The most critical aspect of this correlation is when it will occur. Following closely is this question: when you retire, will it be complete retirement, or do you want to continue to work to some level? For those looking to control the outcomes of both topics, planning for how you will get there is critical.
The other aspect of succession planning involves those catastrophic events that are often out of our control. Even from the earliest stages of your career or practice, not giving some thought to this topic can only lead to failure if something were to occur. Unfortunately, those impacted most by ignoring this impact of succession planning would be your family and patients. While purchase-and-sale agreements are not what is being considered here, having discussions with those closest around you will only help to make this process smoother if the unexpected were to take place.
Types of Succession
Succession from a medical practice or career can be done in a number of different ways. The simplest is to just wind down seeing patients, close your doors, and sell off any remaining assets that the practice has. In this case, there is no real transition – just a winding down of affairs. When this occurs, it is most commonly seen in solo-provider-type practices.
Smaller practices, including those of sole providers, have another option if they are not really looking to sell, but want to make sure their patients are taken care of. This would involve transitioning to a larger organization, such as a large practice or hospital setting, and closing the practice but seeing patients instead as an employed provider.
In this case, you will be allowed more time to transition the care of your patients, while minimizing the headaches of practice ownership throughout the terms of the employment contract.
For any size practice, there is the concept of internal transition that can be considered. For this to be successful, the practice must have the ability to recruit another provider into the mix. Additionally, the remaining providers after retirement need to be in a position to carry the patient load. This is generally accomplished by bringing in or recruiting another provider, looking into the use of mid-levels where appropriate, and, sometimes, the retiring physician staying on board as an employed physician for a period of time.
A practice also has the ability to sell outright to another entity. Most commonly, this is either to a local competitor, a practice looking to expand into your geographic region, or one of the local hospitals. However, there has been a recent uptick in the number of practices looking to sell to private equity groups. While not a fully inclusive list, practice types that have been the target of private equity groups include dental practices, dermatologists, physical therapists, and ophthalmologists, to name a few.
In these instances, a private equity group is looking to pull together a large group of similar practices to obtain sizable economies of scale. Generally, management and other administrative functions come under the umbrella of a common management entity, which helps to eliminate redundancies in work being performed, while also streamlining the delivery of services into a common model. As a result of this, many times they may make offers to purchase at multiples that are higher than the more traditional models.
Tackling the Process
Now that we understand why succession planning is important, and the different forms that it can take, how do you go about tackling the process? The first and most important step is to give yourself time. At a minimum, a time period of five to seven years should be considered. However, this is generally only the case in smaller practices looking toward a one-time transition. For larger practices looking at ongoing continuity, this is a task that should always be part of strategic operations — even being part of the initial startup and buy-in as well as employment agreements.
To plan out an appropriate succession plan, one first needs to consider what the ideal end results would look like. From there, talk to your team to get their input and seek out their assistance. This also includes your professional team of accountants, lawyers, and benefit providers. As part of this process, it is important to gather some baseline as to what your practice may realistically be worth. Often this can be one of the most significant holdups in designing a plan — the disconnect between what a practice may realistically be worth and how much the owner feels it is worth after pouring years of sweat equity into it.
The final aspect of the plan should be to maximize the value the practice can earn. This can be done in several ways. The first is to not slow down in seeing patients, as practice values are often determined by practice revenues. Next would be to investigate the operational and technological aspects of the practice. A practice running off paper charts and records will be less valuable than a practice running a high-functioning electronic medical record system that is compatible with the local hospital system. Finally, consideration should be given to the structure of the management of the practice. For those practices transitioning internally, a well-run management team will help to ensure stability and success after the transition.
Every provider and practice has its own timeline — and there is no wrong or right answer as to how long that timeline should be. But all practices should give consideration to succession planning. A thoughtful, timeline-appropriate plan will not only ensure fewer headaches for the provider when the time comes, but also fewer headaches and stress for their patients, staff, and family members.
James T. Krupienski, CPA is a partner with Holyoke-based Meyers Brothers Kalicka, P.C.
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Source: https://healthcarenews.com/practice-succession-planning/
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