Should I buy a practice or start my own from scratch?

Many docs in our google group have purchased a practice, while others have started their own. Everyone’s situation is different, as in some geographic areas it might be harder to start from scratch than others. While some practices are very well run, my fear is others aren’t so well run and I’m not sure what I’m buying. If I bought a inefficient practice and had to replace the staff and implement a EHR it would be painful. So in general I’m in favor of starting your own from scratch. If you are considering purchasing definitely read this post on practice valuations.

There are certainly many advantages to purchasing a practice. It saves time for finding a building, finding equipment, hiring staff, implementing a EHR. And you already have a established patient base. If the area is difficult to credential with insurers, and the contracts are based on the practice TIN and can be transferred to the buyer, or especially if there were narrow network plans (assuming reasonable reimbursement rates) that would otherwise be closed, that would definitely be of value.

One of the biggest advantages is probably initial cash flow. Many folks that started from scratch report taking six months to generate positive cash flow, and taking no salary or profits for the first year. It’s more of a cushion to be able to have positive cash flow from day one. And Ho Sun’s recent posts have described how hard it was for him to initially (straight out of training with no job) get a loan for his startup. But what you lose in the short term you might handsomely make up for in the long term.

Conversely, the arguments for starting from scratch on your own include: if the location is in a stagnant area, the equipment is from 1980 and the stratus OCT and A scan need to be replaced with a Optovue and Lenstar, the practice is over staffed and has poor collections practices and a EHR that all the staff hate, you would have a lot of work to do, perhaps just as much as starting on your own.  You’ll have to recreate the steps to start a practice. 

Very importantly, you should determine if the culture of the practice is a good fit. Many folks in our thread have commented to try not to change things too quickly the first year. If the doc that’s leaving is seeing 60 patients per day and you want to leave at 4 PM to pick up your kids, it may not be the best fit. Conversely, if the staff are used to having every Friday afternoon off and your goal is to be the busiest cataract surgeon in town, it may not mesh well.

The staff there may be excellent. Or they may be stealing from the practice; I personally know of two docs who have had to fire their biller from the practice they purchased, for embezzlement and failure to follow up with claims.

Even the attitude towards billing may be important. If the existing practice outsources their billing, or staff is used to writing odd balances, if you want to run a tight ship and collect at the time of service it maybe a shock to them as well as the patients.

Finally, the way the transition of the existing doc to the new one may be an issue. The best scenario we’ve heard of is the retiring doctor being hired as a consultant to personally introduce the new doctor to every patient and give his blessing. We’ve also heard of doctors who sell their practice and then are emotionally unable to let go, and overstay their welcome, so attorneys have to be called in to enforce the contract! It’s probably best to speak directly with who you’re purchasing the practice from to see if they will be cooperative in any transition; if there are any concerns probably best to have them leave immediately after the sale. A restrictive covenant for the doc that is selling the practice to not open up next door is probably a good idea.

Additionally, in our google groups we’ve had docs purchase a practice to use as a satellite office or perhaps to employ another ophthalmologist or optometrist.

Here are the questions I would ask before purchasing a practice:

-What were the total collections last year? Number of patients seen? Collections per patient?

-What is the overhead percent, has it been trending up or down and why?

-What is the number of staff? What are their roles? I would interview all of them one on one as if I were trying to hire them, to get insight both on how the practice is run as well as their personalities and the culture of the practice. How much are the staff paid and is this aligned with regional norms? Is there a office manager, most of our google group agrees that one isn’t needed for solo ophthalmology practices- we delegate tasks to our staff, but always remain in charge.

-What was the collections ratio of insurance allowed amounts? Is the billing done in house or outsourced? What is the average days from charges sent to payment? What percent of the accounts receivable is over 30, 60, and 90 days? How much was sent to collections last year?

-What is the surgical density? Is the doctor selling the practice performing similar procedures and cases that you will? Since I don’t do lasik I wouldn’t want the city’s lasik king’s practice for free.

-Does the practice have a EHR? For ophthalmologists, is the EHR compatible with the IRIS registry for MIPS quality reporting? (We will have a post on MIPS and how to avoid penalties).

-Did the practice meet meaningful use for EHR and PQRS (now MIPS). If not you get a 4-9% haircut on Medicare payments in future years, and it’s a huge pain in the neck to switch or implement EHRs.

-Is the equipment up to par for your standards and the way you wish to practice, or will a lot of it need updating and replacing? Enough exam lanes and space to grow?

-What percent of patients are new vs returning? What are the referral sources (primary care doctors or especially reputation of practice in community- self referred patients carries more goodwill than optometric referrals, which are more loyal to a specific doctor).

-Is the practice stagnant or still growing? How are they advertising?

-is the location of the office favorable? Heavy competition in the area would lead to higher goodwill. Read Ho Sun’s posts about how he selected a location. Can you and your spouse see yourself living here the next 15-20 years? (We’ve heard of solo docs selling a practice, then moving somewhere else and either buying a practice or starting from scratch, but this is a expensive and time consuming proposition.)

-How many years are left on the lease? What is the relationship with the landlord? When the lease is renewed are rates expected to significantly go up?

-is there a optical shop? What will the purchase price be for the optical? Usually this is is separate from the practice.

-Where are surgical cases done, at a ASC? Are there other ASCs in town to choose from? Is the ASC run efficiently, is the equipment good, and is there a opportunity to buy in? If so does the current practice owner feel that the financials of the ASC are favorable? (Any ASC buy in would be completely separate from a practice buy in, save for the rare instance where the practice owns the ASC.)

-How does the owner plan to handle the transition? Will they immediately leave, or hang around? What role will they have and for how long? Will there be competition with the current owner to see patients and for surgical cases? How will the former owner and now your employee be compensated?

-What is the payer mix? Is the practice credentialed with Medicare Advantage HMOs or capacitated plans? Credentialed with Medicaid plans? If so this guarantees the practice a steady stream of patients, but if the reimbursements are too low you may find yourself running on a treadmill, which in my personal opinion defeats the beauty of going into solo practice.

-What is the reputation of the practice? Try speaking with primary care doctors, other ophthalmologists, or reps.

Even if you don’t get answers you like for all of the above questions, you need to know what you’re in for, and by letting the seller know you’re a informed buyer, you may be able to better negotiate the purchase price.

You also should strongly consider adding a clause that if there is a audit on the previous doc and money is recouped, the money comes back from the seller- otherwise you might be on the hook for someone else’s upcoding.

The bottom line is that for many folks buying a existing practice works, but as I’m typing this I’m realizing for me the best way was to start my own practice and shape it the way I wanted to, rather than potentially overpaying to fix someone else’s mistakes and change the inertia of a business. And when I was seeing four or five patients per day I used the time to learn everything I could about practice management, so when I get to 20-25 patients per day my practice runs like a well oiled machine.

Have any of you purchased a practice? Were you happy with the decision or what did you feel could be done differently?