5 Things to Know Before Buying A Medical Practice

Are you ready to buy a medical practice? This is an incredibly complicated endeavor, and there’s a high amount of risk involved. One mistake is all it takes to lose a lot of money.

Any real estate transaction is complicated, of course. But with a medical practice, you must deal with the unique challenges and regulatory hurdles of both running a business and providing healthcare on top of everything else.

You need to do your homework. Don’t sign on the dotted line until you obtain answers to the following five questions:

1.       Why Is the Practice Up for Sale?

In the best-case scenario, a well-run, successful practice is being put up for sale, and you just happened to be in the right place at the right time. The physician who owns the practice might simply be looking to get out of the grind and enjoy their retirement with friends and family.

It’s more often the case, though, that a practice is available for acquisition because it is under performing. That’s not a deal breaker, but you need to know exactly what you’re getting into.

Can you trust the seller to provide you with accurate information? Look up online reviews and ask around the local medical community to get a sense of their reputation. You should order credit and criminal background checks on the seller as well.

2.       What is the Financial Situation?

How much revenue is the practice bringing in? What are their expenses? Of the revenue and expenses, how much is non-recurring versus recurring? Is the practice in debt? If so, how much? Ideally, you’ll have financial records going back two or more years to work with.  

There are many moving parts involved with medical practice valuation. Keep the big picture in mind and look beyond the price of the initial acquisition. If one practice will cost you $1,000,000 and is making money now, while another only costs $500,000 but is losing money, you very well might be able to turn a profit on the former investment faster than you would on the latter.

Also, you need to look at the information technology setup. Many physicians – especially physicians near retirement age – struggle to adopt new technology. If you need to replace an outdated system, this will be a considerable investment.

3.       What is the Staffing Situation?

Staffing the practice is another potential expense. If you determine that under-staffing has been a contributing factor to the poor performance of the practice, it could cost you a small fortune in extra salaries, benefits, and employer taxes to bring the staff up to the size you need.

Culture must also be considered. Are you planning to switch the practice’s focus from fee-for-service to managed care, or vice versa? In the case of a physician retiring, is that going to lead to other staff members leaving? In the case of a physician remaining at the practice, are they prepared to start following instructions as an employee? Discuss these issues with doctors and support staff to ensure everyone is aligned with your vision.

4.       Will the Location Work for You?

What’s going on inside the practice will likely command your attention first, but don’t forget about the broader context that the practice is operating in.

Analyze the demographics of the area. Is the population growing or declining? How many competing practices are in the area or planning to move into the area? These factors are outside of your control. Take care to avoid getting into a situation that’s already stacked against you.

5.       Is Your Team Ready?

In addition to asking questions about the practice, you need to ask questions about yourself in order to truly be prepared.  

Do you know how to value a medical practice? You might have a strong legal or accounting background, or maybe you have experience as a practicing physician. It’s unlikely that you have both. Consider hiring a valuation expert who specializes in medical practice acquisitions to help you through this process.

After the purchase comes the transition. Don’t forget about the IT side of healthcare – the improper disclosure of patient information could cost you up to $50,000 per violation. So, it would be wise to add some IT expertise to your team as well.

This isn’t a one-man job. Make sure you have the support you need before you move forward. When you’re properly prepared, your odds of success will be much higher. And, if you want this burden to be taken care of by a professional firm then MedLaunch is the one that can be trusted.