For some time, you have thought about expanding your practice. However, you haven’t taken things much further because the right opportunity hasn’t appeared. Now, the micro-economic climate in your market is rapidly changing and a nearby practice may be put on the market soon. It looks like it would fit in perfectly with your plans for expansion, but before you make an offer, you need to proceed with care.
Consider the Big Picture
Review the financial projections for the practice you plan on buying. Revisit your assumptions about patient numbers. Determine how long it will be before the practice begins paying for itself. Look into potential staffing issues.
Clarify What You Are Buying
Before considering what may be an appropriate purchase price, other important aspects of the sale — structure, payment terms, tax allocation, collateral, and post-sale employment of the seller — must be discussed. Be sure that such items as accounts receivable, deposits on equipment, and property leases are discussed as part of the negotiations. Determining exactly what’s included in the sale will minimize potentially costly future disputes.
Benchmark the Asking Price
Work with a professional advisor to determine whether the asking price is in line with recent sales of similar-sized medical practices in your region. You have more room to negotiate on the asking price if you have recent sales data for comparison purposes.
Determine the Type of Sale
Will it be an asset sale or stock sale? If it’s a stock sale, you generally will not get a tax deduction for any of the purchase price since stock is not a depreciable asset. The seller is, however, able to pay tax at capital gains rates. An asset sale may be more advantageous for the buyer from a tax perspective, as assets can be depreciated. Depending on the tax allocation of the purchase price among the assets acquired, you may be able to dramatically reduce the after-tax cost of your purchase by taking all the available write-offs from depreciating the assets included in the sale. In addition, an asset sale excludes the practice’s liabilities.
Select the Method of Financing
Some lenders are more aggressive in seeking out business, so you should be willing to work with out-of-state and out-of-region lenders to get the best terms.
Have the seller finance part of the sale because it creates an incentive for him or her to cooperate on any of the many issues that may arise after the sale is completed. Just be aware that the seller may expect a security interest in the practice, including its future receivables.
Use an Escrow
The typical sales agreement contains numerous assurances, known as “seller representations and warranties,” promises from the seller that all statements about debts, assets, and tax liabilities are true. However, if the sale is for cash, it may be wise to negotiate to hold back part of the purchase payments in an escrow fund to protect your interest in case any representations turn out to be untrue.
Be Aware of Pre-sale Practice Expenses
All of the practice’s bills should be paid off before the transfer occurs, if practical. Adjustments can be made at the time the sale is closed.
Use a Covenant Not to Compete
If retirement is not the motivation for the sale, it is generally advisable to negotiate a covenant not to compete. The covenant should be reasonable as to the duration of the covenant and any geographic restrictions.
We Can Help
If you are planning the purchase of another medical practice, either now or in the future, we strongly recommend that you talk to us first. We can help you review the financials and help protect your interests throughout the process. To schedule a complimentary consultation with a CIG Capital Advisors professional, click here.
Many medical and dental practice owners were surprised to find their offices closed by statewide shutdown orders preventing non-essential medical and dental services. Even as states reopen elective healthcare, practices may find a drastically different market for services. That demand uncertainty for medical and dental services, coupled with the threat of future intermittent care stoppages, makes this a good time for physicians and dentists to focus on boosting their practice’s cash flows in order to better prepare for the short- and long-term future of healthcare during a pandemic:
Telehealth is a great ancillary service to add to your practice. More than ever, it should be incorporated to boost your practice’s revenue stream.
Centers for Medicare & Medicaid Services (CMS) has issued temporary measures to facilitate the use of telehealth services during the COVID-19 Public Health Emergency. Included in these changes is the ability to bill for telehealth services as if they were provided in person. Another temporary change allows providers to deliver care to both established and new patients through telehealth.
In addition, CMS has also expanded the list of covered telehealth services that can be provided in Medicare through telehealth.
Providers may provide telehealth services to patients through commonly used apps that normally would not fully comply with HIPAA rules. Some of the more popular examples of these apps include FaceTime, Zoom, or Skype. However, the platforms should not be public-facing, such as Facebook Live.
Healthcare providers may also reduce or waive cost-sharing for telehealth visits during the COVID-19 Public Health Emergency.
Coverage for telehealth services may differ throughout the various commercial payors as well as from state to state.
Chronic Care Management
The popularity of Chronic Care Management (CCM) services has been increasing in recent years, especially as providers are realizing that they may bill for services they would regularly provide free of charge.
Chronic Care Management is defined as the non-face-to-face services provided to Medicare beneficiaries who have multiple (two or more), significant chronic conditions. Rather than being exclusive to physicians, other clinicians, such as Nurse Practitioners and Physician’s Assistants, may also provide CCM services; however only one clinician can furnish and bill for any particular patient during a calendar month.
The practice must have the patient’s written or oral consent and use a certified EHR to bill CCM codes. The creation and revision of comprehensive electronic care plans is a key component of CCM.
CCM incentivizes a higher standard of care for patients with multiple chronic conditions and offers an additional $42 to $139 per patient per month based on time and complexity.
U.S. Department of Human & Health Services (HHS) Provider Relief Fund
The Provider Relief Fund is provided to support healthcare providers fighting the COVID-19 pandemic. The funding supports healthcare-related lost revenue attributable to COVID-19.
Providers must accept the HHS Terms and Conditions and submit revenue information by June 3, 2020 to be considered for an additional General Allocation payment. All facilities and health care professionals that billed Medicare FFS in 2019 are eligible for the funds. It is important to note that these are grants, not loans.
A physician can estimate his or her payment by dividing 2019 Medicare FFS (not including Medicare Advantage) payments received by $484 billion, and multiplying that ratio by $30 billion.
Paycheck Protection Program Loan Forgiveness
The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll. The main attractive feature of this program is the ability to have some if not all of the loan proceeds forgiven. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. If a laid-off employee declines an offer to be re-hired, the forgiveness amount will not be reduced, however it is advised to get written confirmation of the fact.
The forgiveness portion of the loan consists of money used for payroll, rent, mortgage interest, or utilities. A reduction in payroll may reduce the amount that may be forgiven; 75% of the potential forgiveness amount should be used for payroll.
It may be in your best interest to review the PPP Loan Forgiveness Application to help you understand how the forgiveness portion will be calculated. We advise you to review with your accountant and/or legal counsel before submission to the U.S Small Business Administration.
Creative solutions and persistent actions to boost cash flow may help your practice overcome the COVID-19 crisis. Contact a CIG Capital Advisors Business Advisory Services professional to look for ways your practice might be able to increase cash flow amid the pandemic.
Chronic Care Management
HHS Provider Relief Fund
Payroll Protection Program
Your medical or dental practice may have to adjust to a “new normal” as states slowly return to broader care permissions after weeks or months of tight, lockdown restrictions. Have you taken advantage of the programs offered to help medical and dental practices survive and what changes can you make to help ensure your practice thrives in a post-lockdown environment?.
Here are some management aspects dentists and physician-owners may want to consider in planning for financial resiliency amid the global disruption brought by the pandemic:
Cash Flow Summary
With so much uncertainty, being able to visualize your cash flows for the next 12 months is crucial. Taking proactive measures to forecast your incoming cash flows will allow you to implement a strategy early on and to timely take appropriate steps. The process includes analyzing your historical revenue stream and collection rates with an objective to forecast your future collections. Reviewing your procedure mix will help you determine what the impact of delaying non-essential procedures will be to your top-line.
Expenses should be adjusted to reflect cost management strategies and cash inflows from government establishments and banking institutions should be factored in to estimate cash balances throughout the pandemic as well as into the recovery period. Conducting a sensitivity analysis may also be beneficial to envision best case/worst case scenarios.
During the COVID-19 crisis, CMS has significantly expanded access to telehealth services for Medicare beneficiaries. This includes the easing of many of the stringent regulations set place by various government entities. Time should be spent reviewing the latest changes, highlighting the different opportunities available to you, and researching different telehealth platforms to see which is most appropriate for your practice.
Due diligence should also be conducted to highlight services that you may virtually perform and bill via telehealth. Disseminating the service to your patients as well as the general public is key to optimizing this tool.
Insurance companies don’t typically pay out as fast as many dental and medical practice managers would like. Understanding tools available to healthcare providers during the crisis could allow you to speed up your collection process. For example, CMS is expanding its payment acceleration program and HHS has announced a provider relief program. Your billing staff may also be utilized to effectuate collections through aggressive A/R management.
Having a handle on your expenses is one key to sustaining a positive cash flow. A first step may be to look into your historical expenses as a percentage of revenue as well as the year-over-year trends. Recent changes should be taken into consideration as well to prudently forecast your budget.
Fixed expenses are typically the biggest threat. However, there may be options available to you depending on the language in your contracts. Review the contracts and agreements you have in place and look for ways to renegotiate with an objective to defer or abate payments. It may be in your best interest to terminate some agreements.
Grant and Loan Opportunities
Keeping businesses up and running is almost just as crucial to owners as it is to the economy. For that reason, there are many grants and loans available to assist you with perfecting your payroll, rent and other costs. Time should be spent pinpointing your situation, reviewing various programs available to you, and working with your financial institution and accountant to pursue loan programs, grants, and line of credits to supplement your cash reserves.
Business Continuity and Recovery Planning
Having a Business Continuity Plan in place is imperative not only to weather crisis times but also to transition back to what many are calling the new normal. This involves reviewing your remote work capabilities, adjusting staff tasks to keep them engaged, increasing oversight of vendors, and other organizational modifications.
Let us help
As experienced medical and dental practice business advisors, we can dig deeper into your numbers and show where you can make changes that will improve your practice’s bottom line. Let us help support your practice’s resiliency by scheduling an initial complimentary consultation at www.calendly.com/yhai.
Medical practices, dental practices, small and rural hospitals and larger healthcare systems alike are feeling the effects of the COVID-19 pandemic. Recent regulatory changes, like the $8.3 billion emergency funding measure that expands Medicare reimbursements for telemedicine and the prohibition of all non-essential medical, surgical, and dental procedures during the outbreak, have upended the planned revenue cycle of nearly every U.S. healthcare practice or business. How can medical practice owners, dental practice owners and other healthcare managers adjust the financial and operational levers of their business to better weather the economic turmoil caused by the pandemic?
Financial steps to take:
- Put together a 12-week cash flow statement to understand better how you can manage the disruption, assessing what should be coming in and what you must pay and can delay paying, including evaluating the best approach to manage your staff given the circumstances.
- Billing staff should work remotely in order to continue billing as usual and connect with insurance companies. Their time should be used to follow-up on past billings and accounts receivables.
- Reach out to your bank to determine if/when you can setup or increase a line of credit for your business.
- Contact your accountant for up-to-date financials and clarity regarding whether you will be paying your sales/use and withholdings taxes as normal or taking advantage of your state’s relief, if applicable.
- Look for state and federal programs you may qualify for, including the SBA’s Economic Injury Disaster Loans.
Operational steps to take:
- Consider employees carefully. Can non-essential staff work remotely or even be laid off or furloughed to find work elsewhere through a healthcare staffing company, given that many large systems are currently understaffed? Use web conferencing to hold staff meetings, utilizing services such as Zoom, WebEx, Skype, Google Hangouts and/or FaceTime.
- Move to telehealth when possible, as CMS changes are allowing increased telehealth reimbursements. Using video visits for patients with compromised health can help them avoid coronavirus exposure. Chronic medicine can be delivered to patients’ homes. Of course, when moving to telehealth solutions, notification to patients and training staff members is necessary.
- Prepare for patient visits by securing the doors and screening patients before entry. Provide hand sanitizer, face masks, and gloves and take basic sanitary precautions that can make a difference:
- Disinfect all surfaces, equipment and door knobs between patient consults.
- Shared resources should be kept clean.
- Proper hand hygiene.
- Waiting-room chairs are placed six feet apart and social distancing respected during interactions as possible; alternatively, you can allow sign-in/call-in at the entrance/via phone and ask patients to stay in their car in the parking lot and call them when you are ready to take them back.
- Deal with elective procedures by rescheduling to a later date. Serve patients when you believe it medically irresponsible to delay but disclose the risks, and keep them separate from patients coming in for non-elective procedures. Please note the difference between necessary elective procedures and not-necessary elective procedures.
- Update your website and phone greetings to communicate your current processes and availability.
Medical practices, dental practices, and small and rural hospitals are more likely to weather the pandemic storm by taking positive financial and operational steps now to mitigate business losses and emerge from the crisis in an even-stronger market position. For individual steps your medical or dental practice or hospital should take, schedule a complimentary phone consultation here or join our webinar, “Managing a Healthcare Practice through the Pandemic: Finance and Operations” on Thursday, April 2 at 12:30 p.m. by registering here.
When you manage your medical practice’s cash flow effectively, you can helpprepare your practice to weather both strong and weak economic times. The key to managing cash flow is the cash flow projection — a forecast of your practice’s cash receipts and expenditures.
A cash flow forecast shows the anticipated flow of money entering and leaving your practice on a monthly (or weekly) basis. With the help of this information, you’ll be able to create strategies to handle your practice’s cash surpluses and deficits and to control your overhead.
Creating a Forecast
The first step in creating a forecast is to examine your accounting records and historical patterns. For each income and expense category, project monthly cash receipts and expenditures. When you combine your practice’s cash balance at the beginning of the month with the projected net cash flow for the month, you can see if you will have a projected cash surplus or deficit at the end of the month.
Let’s say, for example, your projection for October indicates that cash expenditures will exceed receipts by $9,000 and you have an $8,000 cash balance at the beginning of October. Your deficit for that month is $1,000. Update your forecast monthly, if not weekly, using actual financial data.
What To Do with a Projected Deficit
If your projection indicates future cash flow deficits, you’ll need an action plan to deal with them. For example, you might use a line of credit, obtain a short-term loan, take steps to speed up the collection of money owed to your practice, or reduce expenses.
A line of credit will help you even out fluctuations in cash flow. A good accounts receivable tracking system should identify overdue accounts so that you can quickly follow up with delinquent patients and insurers. Stay on top of delinquent accounts with frequent calls and letters.
Reducing your practice’s expenses is another effective strategy for handling projected deficits. Some expense-reducing ideas to consider: an energy audit, a comprehensive review of purchasing policies, a reassessment of your practice’s space requirements, and a review of your current compensation practices.
Maximizing a Surplus
A surplus allows you to pay down a line of credit or invest in short-term or liquid instruments. Your bank most likely offers a variety of cash management services, such as an automated investment sweep, that can help your practice make the most of its excess cash.
An Important Tool
Cash flow projections can identify periods when cash may be tight so that you’ll have time to secure additional credit or take other steps to address the problem. CIG Capital Advisors medical practice management professionals can help identify and prioritize various measures that will help your practice run more efficiently. Specifically, we can help you review your current cash management practices and suggest possible improvements. Click here to schedule an initial complimentary phone consultation with a CIG Capital Advisors professional.
Financial statements are to accounting what CT scans and X-rays are to the medical profession: the financial health of a business or medical practice can be assessed by analyzing its financial statements. While most dentists would prefer to focus on dentistry rather than the business of dentistry, it can be beneficial for dentists (or any physician-owner) to familiarize himself or herself with the basics of financial statements.
Learning how to read financial statements allows a physician or dentist to see where the practice’s money came from, where it went, and where it is now. Dentists and physicians will want to be aware of the following three basic financial statements:
- Balance Sheet. The balance sheet provides detailed information about your practice’s assets, liabilities, and shareholder’s equity. It is a snapshot of the financial status of your practice as of a certain date. Assets are things the practice owns that have value. Assets may include physical property, such as office buildings and equipment, cash and investments, receivables, and intangibles, such as goodwill. Liabilities are amounts the practice owes to others. Liabilities can include items such as taxes owed to the government, bank loans, and money owed to vendors. Shareholders’ equity is the amount the practice would have left over if it sold all its assets for the amount appearing on the balance sheet and paid off its outstanding liabilities. This equity belongs to the practice owners.
- Income Statement. An income statement shows how much revenue your dental or medical practice generated over a specific period, usually a year. It also shows the costs and expenses that went into earning that revenue. The bottom line is the practice’s profit or loss for the reporting period. Pay close attention to the practice’s operating expenses, such as rent, utilities, and supplies. A practice that experiences a net loss may look to reduce its operating expenses in an attempt to return to the black.
- Cash Flow Statement. The cash flow statement reports the dental or medical practice’s inflows and outflows of cash during the reporting period. A cash flow statement tells you the net increase or decrease in cash. Cash flow statements are generally divided into three parts: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.
As experienced advisors, we can help you dig deeper into your numbers and show you where you can make changes that will improve your practice’s bottom line. Contact a CIG Capital Advisors medical practice management professional today for a complimentary initial consultation.
CIG Capital Advisors’ managing director Yusuf Hai authored a recent article for Fierce Healthcare where he discusses how physician-owners can assess growth metrics in their medical practice and make adjustments that may affect the practice’s value with an eye toward a future sale:
The average primary care physician sees more than 20 patients a day, according to a 2018 survey of nearly 9,000 doctors by the Physicians Foundation.
That, along with the 11 hours they devote every week, on average, to paperwork, helps explain why 78% of those same physicians told surveyors they feel burned out at least some of the time.
Often times this adds up to physicians being too busy with day-to-day responsibilities to have time left over for running the business end of their medical practice, let alone for crafting strategies to drive long-term practice growth, or to consider their legacy as they chart a course toward future retirement.
Ask most physicians about their hopes for the future and they might say that, of course, they want to grow their practice and increase revenue.
It’s one thing to set that as a goal. It’s quite another to determine how and what kind of growth—and how much—will best suit a particular medical practice and its individual members.
Difficult as it may be, the reality is that growth won’t just result from hard work and hopes. Physicians who are truly serious about strategic growth or maximizing the practice’s value with an eye toward a future sale have to invest in the process—possibly even setting aside an entire day or more for business building.
Either way, the process always begins with something already familiar to doctors: diagnostics.
Given the physical and emotional demands of their profession, it’s little wonder that some physicians look forward to retirement. However, many other doctors nearing retirement age are reluctant to turn their backs completely on their profession and would rather find a way to ease into retirement.
What should you do if retirement is on the horizon but you would prefer to transition gradually into retirement by working part-time? Here are some things to consider if you are thinking of cutting back on your work hours:
1. Review Your Finances
First off, determine if you can afford the reduction in earnings that reducing your work hours will entail. Pay particular attention to any debt you are carrying (mortgages, etc.). Ideally, you don’t want to be overly burdened with debt once you are no longer practicing full-time.
A review of your current net worth can give you a clearer picture of your overall financial standing. Net worth takes into account the value of all your assets as well as your outstanding liabilities.
If you’ve been funding a tax-favored retirement plan, hopefully you have accumulated sufficient assets to provide a steady stream of income for all the years you may be retired. If you still haven’t met your goal, you’ll want to determine if your earnings from part-time work will allow you to comfortably continue adding contributions to your retirement plan. You’ll also want to determine when you can start taking penalty-free withdrawals from your plan(s) and project what your tax situation will look like. These are all issues we can help you assess.
2. Look at Your Options
If you are part of a multi-physician practice, talk to your colleagues about what arrangements can be made for you to start cutting back your hours. You may need to revise your practice agreement to incorporate a new compensation arrangement. Typically, such arrangements are based on the productivity of the part-time physician less a share of practice overhead expenses.
If you are a solo practitioner, you may find it hard to practice part-time without creating problems with your current patient base. Patients may feel that you can’t deliver the type of patient care they expect if you are practicing part-time. Bringing in a physician assistant may be helpful. However, recruiting another physician who would eventually take over the practice may be the most effective route for solo practitioners.
Give careful consideration to the financial arrangements you make with the new physician. When it comes time to sell, you’ll want to have a formal purchase agreement that outlines all of the rights, obligations, and responsibilities of the buyer(s) and the seller. It should also include a valuation of the practice.
3. Consider Malpractice Insurance
Don’t ignore the issue of malpractice insurance when you are weighing the pros and cons of going part-time. You need to be certain you will be covered during your part-time years and after you stop practicing completely. “Tail coverage” can protect you against any malpractice claims that may be filed against you after you retire.
CIG Capital Advisors Can Help with Retirement Planning
Whether you are serious about transitioning to part-time work or are simply exploring your options, be sure to consult with us. We can help evaluate your personal financial preparedness for retirement and assess the need for other steps, like medical practice valuation or a partnership exit strategy. Schedule a complimentary consultation with a CIG Capital Advisors professional to discuss your specific situation at www.calendly.com/yhai.
Lay the Groundwork
Start by taking a critical look at your practice’s current financial condition. Identify areas of weakness. For example, does your medical practice experience poor collections or weak cash flow? How do your staffing levels compare to those of similar practices? Issues such as these can reduce the appeal of your practice. It’s to your benefit to deal with them well before you put your practice on the market.
You’ll want to have a realistic appraisal of your practice’s potential worth before you put it up for sale. Tangible assets, such as medical equipment, computers, and furniture, are relatively easy to value, though they generally make up only a small part of a medical practice’s total value. Goodwill is an intangible asset that can be difficult to value. But there are methods that can be used to establish a reasonable estimate.
Identify Potential Buyers
You may receive an unsolicited offer. If you don’t, consider reaching out locally or contacting a broker who specializes in selling medical practices. An experienced broker can identify and contact qualified potential buyers.
The speed with which a sale may occur may largely depend on the deal you’re seeking. Do you want a buy-out that will let you continue to practice as an employee? In that case, looking for a group practice, hospital, or other corporate buyer may be the best route. If the sale goes through to one of these entities, you will be able to continue to work in medicine without the responsibilities of ownership.
If retirement is your goal, you may opt for a gradual buy-in by a physician who will take over your practice. Typically, this arrangement requires you to employ the prospective buyer and, under the terms of the deal, after a trial period of a year or two, offer a partnership with a documented exit arrangement for you. This arrangement could be in the form of a severance package.
Review All Offers Carefully
If you receive an offer, your focus should be on the would-be buyer’s financial condition and the payment terms if you plan on retiring. If you plan to continue working at the practice with the individual or entity who may buy it, you should carefully review all ramifications, including transfer expenses and malpractice terms involved in the sale.
Apart from satisfying yourself about the financial and legal issues involved in the sale, you should also feel that you will be able to fit into the potential buyer’s organization and that your advice and input will be welcomed. Remember, whatever way your medical practice’s sale is structured, there will be tax implications.
The business advisory team at CIG Capital Advisors can help you evaluate potential medical practice sale offers and determine the terms which might make it the right deal for you. Schedule a complimentary consultation with one of our business advisory professionals today.