How to Buy Into a Medical Practice

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Find your place in a medical group
Find your place in a medical group (Image: lovely doctor image by Paul Moore from Fotolia.com)

Fifty years ago, the typical physician could simply "hang out his shingle" upon graduation from medical school to begin his practice. The complexities of a modern medical practice and the business risks that weren't covered in medical school are making the solo medical practice business model almost obsolete. Physicians are increasingly opting for either employment with hospitals or joining a physician-owned medical group. They may begin as employees with the goal of becoming an equal shareholder, participating fully in the business and operational decisions that impact the future of the group. This article describes the steps involved in buying into a physician-owned medical practice.

Things You'll Need

  • medical license
  • legal advisor
  • tax advisor

Find a Group that Fits

Physicians usually have choices about where and with whom to practice. Find a group that matches your selection criteria for location, specialty, size, character and market position. Explore their overhead efficiency, management effectiveness and professional collegiality as well as their medical quality.

Ask about the buy-sell agreement during the recruitment phase. Most physician-owned groups are organized as either a professional corporation, professional association or limited liability professional corporation. The legal documents for each model will be slightly different, but the group should have a written agreement that spells out the terms of buying in or selling out of an ownership position. They may be reluctant to share the document with you, but they should at least describe the patterns that have governed recent buy-sell transactions, including when an ownership position might be offered, how the value is determined and how it is paid.

When the time for a decision comes and you are committed to accepting the group's invitation to become a shareholder, ask for the documents you will need to sign and the calculations for determining the value of the practice. The value should be "fair market value." The most commonly used definition of fair market value is located in Revenue Ruling 59-60. This revenue ruling defines fair market value as "the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts." The value may be calculated by the group's accountant or by an independent appraiser familiar with medical practices.

Negotiate the terms of your agreement if the initial offer is unacceptable. The value and terms of the buy-in should be within the range of what was described to you at the time of your recruitment, but it should also reflect current market conditions if they have changed significantly. Keep a positive tone in your negotiations, but make sure they are fair to both sides. When negotiations have concluded, ask for the documents you will need to sign.

Get advice from an independent accountant and an attorney to review the documents you received from the medical group. Make sure you understand the tax consequences and legal ramifications of the agreement, including the steps you need to take if you want to sell out.

When the documents are signed and you are fully engaged as an equal shareholder, participate fully in the decision-making process with the group. Volunteer for committees, attend board meetings, read the correspondence for shareholders and get acquainted with the management team. Act responsibly as a shareholder.

Tips & Warnings

  • Look for books and articles on the business valuation process, especially related to the medical profession. Compare your offer with the experience of your medical school and residency peers, and to the other options available in the community.
  • Legal documents should always be taken seriously. Don't try to be your own attorney unless you are fully qualified to do so. The turnover rate for physicians is estimated at 9 percent, which is an indication of discontent in the industry. Choose your partners carefully.

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