Selling Medical Practice to a Hospital

Hospital Integrations and Medical Practice Sales - (Also read our updated article on Health care reform and Accountable Care Organizations)

Blog Entry (June 1st, 2010):  The number of physician practices which are sold to hospitals and other healthcare entities has varied widely over the last few decades. In recent months there has been increased talk regarding hospitals making these purchases... In the annual meeting of the NSCHBC, great sessions were offered regarding a number of issues concerning medical and dental practices. One particular session discussed hospital-physician integrations and the sale of medical practices to hospitals. It was surprising to hear that the volume of these hospital deals have been picking up, but as expected, hospitals are largely unable to pay physician sellers for the full market value of their practices (largely comprising goodwill). Articles written in the AMA News and Daily Dark were also written recently about physician practice management companies getting back into the game and buying medical practices. But the volume of these deals pales in comparison to the acquisition mania of the 1990's and they mostly seem to be inpatient practice purchases. Corporate deals and larger-entity acquisitions are still happening but have not picked up major traction as many had expected.
Large corporate buyers and other healthcare entities may be cautious in an uncertain regulatory and reimbursement climate. However, physician-to-physician practice sales still seem to be flowing at a steady rate. The ability of hospital purchases to be successful depends on how the selling doctor is able to function (or not) within the structure of the acquiring entity. It is often difficult to give up the autonomy of a private practice and work under the direction of a larger entity, even with the added security and economies of scale available to the seller. Also crucial is how the post-sale physician compensation agreement is structured. It will be interesting to monitor the staying power of these deals and see whether they will unravel over time. The changing dynamic in regional markets dictates much of this. It may be a good option (or the only option) for some practices to sell to hospitals, but for the ones which are more marketable it is generally better to sell to another group or individual physician buyer. Hospitals can't pay sellers for goodwill value like other buyers can. Most physician sellers continue to seek all-cash transactions for the sale of their practices and are largely able to receive these deals from buyers who can obtain practice acquisition financing. As long as private party transactions continue in number, the volume of hospital purchases at lower valuations will not increase exponentially as many have speculated. Many retiring doctors who hear about these transactions may wonder if selling their practice to a hospital is a viable option. The answer truly depends on a number of factors but many of the determinants are ultimately related to the accurate assessment of the fair market value of the practice.