Sell Your Practice to a Hospital? Read This First

Neil Chesanow; Jeffrey J. Denning

Disclosures

May 22, 2013

In This Article

Introduction

With the future of healthcare uncertain and many physicians, particularly soloists and those in small groups, feeling vulnerable, this may seem like the perfect time to sell your practice to a hospital or insurer. Both are in the midst of a shopping spree for physician practices.

In 2011, a survey sponsored by MedSynergies found that 70% of responding national hospitals and health systems planned to employ more physicians in the next 12-36 months.[1] Physician groups being snapped up by community and regional hospitals have become a staple of local news.

Jeffrey J. Denning

What's going on? And what -- if anything -- should you do about it? For answers, Medscape spoke with practice management consultant Jeffrey J. Denning, a partner in the Practice Performance Group in La Jolla, California, about the risks and rewards for a small or solo physician practice in selling to a hospital in the current market.

Denning advises even doctors who are having trouble paying the bills to refrain from acting precipitously. Instead, he urges you to pause, take a hard look at why you want to sell, and take an equally hard look at who you want to sell to rather than allow yourself to be ruled by herd instinct, as happened in the late 1990s, with unhappy results for both the hospitals and the doctors involved. Here's his perspective on what to do today.

What Hospitals Seek in a Physician Practice

Medscape: Are many of the physician practices you represent seeking to sell to a hospital?

Mr. Denning: Yes, we are increasingly helping clients with their exit strategies. As it gets more difficult to sell space in a medical practice to a physician, they seek any reasonable alternative.

Medscape: What's driving hospitals to acquire physician practices at such a rapid pace?

Mr. Denning: They need a feeder system, and that's a pretty common motivation for a hospital. I worked for a hospital in the Central Valley of California. They're a 1-hospital town, but they're near a couple of other good-sized towns. They had to buy up as much primary care as they could to protect their specialists who do the admitting and the work. If the primary care people drift away or fail, they have no one to vet patients.

To sell a practice to a hospital, it has to be something the hospital wants and needs. That means it's better if the practice is a success story. But if it's a success story, the doctor should be reluctant to part with it. Where these deals are tricky is that the hospital will do anything to get the doctors in. They'll live with the situation for a year or two before they start making changes in the practice -- but that's all. So negotiating the physician compensation package is crucial to making it work for the doctors.

Medscape: Do some doctors go into this thinking they'll be semiretired and won't have to work as hard?

Mr. Denning: If you look at their behavior after they've joined, the answer is yes. Most physicians contemplating doing this are at that age anyway, so even if they're not overt about it, often they've already starting scaling back, which is contrary to our advice, which is to go out in a flash. If you're trying to sell your practice, sell it in your best year.

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