Why timing is everything when exiting practice

By Jonathan Ford Hughes | Fact-checked by MDLinx staff
Published September 14, 2022

Key Takeaways

  • Selling your practice is a complicated decision that requires the right timeline and planning.

  • Working with an attorney can help navigate the ins and outs of selling.

  • Be aware of what selling your practice will mean for your pay and your responsibilities as a physician.

Had enough of being your own boss? Maybe you’re thinking about retiring. Perhaps you’re weighing whether it’s time to hand off the administrative burden of running your practice. Regardless of your reasoning, if you’re a physician in private practice, the timing of your sale is everything.

That’s according to David Hochman, a Chicago-based attorney with the law firm of Roetzel and Andress. Most of Hochman’s clients are health care providers. 

“Selling a practice is rarely a decision that can be made and implemented successfully without an appropriate timeline and planning,” Hochman says. “If a physician is thinking about retiring, he should begin to investigate how he could transfer his practice and to whom. While it may take a few months or less to actually negotiate and close a practice sale, finding a buyer can take much longer.”

But don’t wait too long, Hochman cautions.

"The worst-case scenario—the physician dies before selling his practice. When that occurs, most, if not all, of the intangible value of a practice disappears."

David Hochman

Creating a timeline and planning

That begs the question of what does a successful practice transition timeline look like? In order to answer that question, one question Hochman asks a physician is, how long do you want to keep working?

“The continued involvement of the selling physician after the sale is often an important element in the transition process,” Hochman says, adding that it may affect the practice value, with longer physician employment increasing it. 

“But how long a physician works for the buyer after a sale, and his duties during that period vary from transaction to transaction.”

For example, in most states, a medical practice must be owned by a physician, not a layperson. If a doctor is selling a practice to a private equity investor, the selling doctor may be needed as the owner of the practice after the closing.

In other transactions, payment of the full purchase price may be tied to the selling physician’s continuing employment for the buyer for a period of 2-3 years after the sale. 

Advantages and disadvantages

Hochman says that you also need to think critically about what life and work will look like if you work for the buyer after the sale goes through. Neither will be business as usual. Think, responsibility without authority, at least on the business side of things.

"Physicians who are used to making practice management and practice financial decisions will no longer have that authority. For some, that change is difficult to accept."

David Hochman

The doctor is also going to take a paycut, albeit one that is softened by profits from the practice sale. A potential aggravating factor: Although the doctor’s pay has been reduced, their clinical responsibilities may be unchanged. If a doctor is generating income for the buyer in excess of the compensation and benefits they receive, it is effectively a reduction to the purchase price. 

“These negatives have to be weighed against the benefits a physician receives from a sale,” Hochman says.

Working with an attorney

Naturally, an attorney would recommend working with an attorney during a practice transaction. However, there are reasons for working with an attorney—especially one with practice sale experience. 

“In the sale or purchase of a medical practice, there are federal and state healthcare regulatory issues, which would not be encountered in the sale of a non-healthcare business,” Hochman says.

"Many times, there are complicated tax issues as well as real estate, labor, retirement plan, and employee benefit issues."

David Hochman

While you might avoid some or all of these hurdles in a doctor-to-doctor sale, a physician likely will have to clear them when selling to private equity or a major healthcare organization, such as a hospital. One way or another, lawyers will be involved, so it pays to get your attorney involved early.

Most importantly, you’re going to want an attorney who is experienced in this area. While many attorneys can handle such a transaction, they may not be well-versed in physician practice sales, Hochman says.

“A lawyer may be a very good attorney but he doesn’t know the business of healthcare.”

What this means for you

Selling your practice starts with formulating a timeline. How long do you want to work in order to fulfill the contractual obligations of the transaction? Longer? You may get more for your practice. Shorter? You’ll get less, but you’ll be out of the game sooner.

Share with emailShare to FacebookShare to LinkedInShare to Twitter