August 11, 2014 | By Keith L. Martin
Whether you are looking to sell to a hospital, grow your provider base, or partner with other practices to take advantage of strength in numbers, knowing the true value of your medical practice has become much more important. But knowing the value is one thing; boosting that value may be the more important piece.
“Value is an important thing to keep in mind, even if you don’t have an immediate desire to sell your practice,” said Daniel M. Bernick, a principal at Plymouth Meeting, Pa.-based The Health Care Group and Health Care Law Associates. For example, noted Bernick, if a practice is looking to bring on a new associate physician, it’s likely in the future that he will want to buy into the practice. You’ll want to know the value of your practice as the valuation will affect compensation during the buy-in period. Another consideration, added Bernick, is simply that “life is unpredictable and you never know when it might be to your advantage” to sell, perhaps to a hospital or other large entity. “Because the market is changing and larger entities enjoy an advantage in terms of negotiating with payers, it may make sense for you to sell your practice to a larger entity,” he said. “If that happens, you are going to want to know what the value of your practice is.”
Bernick noted there are six areas where you can start boosting the value of your practice, starting today:
1. Keep working.
Bernick notes this pertains to an older physician, as any potential buyers will want to see the financials prior to a deal. “If those financials show a declining revenue stream in the past few years it is very discouraging,” he said. “So you want to keep working and keep your revenue up so your practice continues to show good profit and is attractive to potential buyers.”
2. Maintain your “curb appeal.”
Just as you would put a fresh coat of paint on your walls before selling your home, do the same at your practice to spruce things up prior to a possible sale. And it is not just aesthetic items, Bernick noted, it is your practice website — which shouldn’t look “unprofessional or clunky” — and your financial reports on everything from aging of receivables to CPT volume. “To the extent you have professional-looking financials that look as though you are on top of things and are tracking the important aspects of your practice, that plays very well with potential buyers,” he said.
3. Maintain relationships. Bernick said it is important to keep up relationships with referring sources to show patient base consistency and growth, with training program directors to ensure you have good access to qualified physician candidates, and with others, including your local hospital. “The hospital is an important player in your marketplace and may be a potential buyer for your practice,” he noted.
4. Utilize non-compete clauses.
While unenforceable in some states, Bernick notes that most states will allow a “geographically reasonable, properly drafted” non-compete clause for an associate physician, PA, or even nurse practitioner. Without such a clause, you are raising a red flag for potential buyers in terms of your patient base. “If the associate is not subject to a non-compete, the buyer will worry that your associate may, at the time of sale, go into practice on their own or right across the street,” he said. “If that’s a possibility, that will really depress the value of your practice.”
5. Hold off on major tech investments.
If you are considering a sale in the short term, hold off on long-term tech purchases, such as a new practice management system or EHR, said Bernick. One, there’s a good chance you’ll lose productivity during the adoption and integration of new technology, resulting in “a pretty big hiccup in your revenue flow.” Two, it’s likely that the buyer of your practice will have their own systems to integrate, rendering your new purchase — and the time and training involved — virtually useless.
6. Add ancillary services.
If it makes sense for your practice and you have the ability, ancillary services can be a boost to your practice’s value. “Some [services] are more expensive and some are within reason, so if you can add it reasonably and make use of the ancillary service, that’s going to help your profitability and help your curb appeal,” Bernick said.