There are many elements for physicians to consider when they ponder selling their medical practice. Healthcare attorney Steve Shaber and business transactional lawyer Dave Krosner of North Carolina-based Poyner Spruill LLP note that a physician who chooses to sell their practice may not want to actually retire for several more years.

Chances are that a buyer will not pay a material amount to merely access a retiring physician’s patient list. As such, according to Dr. Naveed Saleh, MD, MS, selling a practice while securing a position with the new owners is ideal. This not only affords the selling physician continuing income, but it also lets patients adjust to any administrative changes that occur with new ownership while still remaining under the care of a trusted physician with whom they have a pre-existing rapport. Besides, when a physician sells their practice, it is generally considered a common act of goodwill to ensure that their patients remain at the practice under its new ownership.

Both Parties Should Consider All the Facts Involved

Krosner notes that in the absence of a sales transaction, retiring physician-partners usually only get paid a share of their pre-retirement accounts receivable. If the retiree partially owns the practice’s building, they will typically be bought out at around fair market value, which would generally be the only other material payment that the physician realizes. However, when a physician opts to sell their practice to a third party while remaining employed by the new owner in the short term, the physician will see proceeds that would not have been obtainable if they had simply retired.

When it comes to the fair market value of a practice, Krosner states that, in a nutshell, it’s the number that a willing buyer will pay a willing seller when both parties know all the facts involved. In other words, the value is somewhat subjective, dependent upon the potential buyer. For instance, a hospital would value a medical practice differently than would a private-equity backed management services company that specializes in back-office medical practice operations.

According to Shaber, much of the value in a medical practice ultimately lies in its hard assets. For example, the practice’s office building may possess a seven-figure value, or the practice may own expensive medical equipment. Ultimately, the sale amount of a practice largely depends on the nature of the buyer. Krosner notes that in his experience, for instance, private equity-backed groups are generally open to paying more of a premium than are hospitals.