Solo practice options

[DrBodacious]

So, I am looking at starting a solo practice. I was wondering if any of the private practice guys have any comments / suggestions on my situation.

To recruit me to the area, the local hospital group is guaranteeing up to 505 k to cover overhead and my salary. I also get payed about 30k a year to take call. The area has a pretty high need for a new ent.

They also have extra help available for equipment purchases where the pay back most if the cost over 5 yrs.

I have 2 options :

Buying a solo practice from an ENT who wants to retire within 6 months. Pros: His practice is in a great location, with real estate that has a very high potential for appreciation. He has some experienced people that would want to stay on. I would save money getting all of his used equipment. The price for the outfitted, but somewhat dated, equipment is $100k Cons: they practice is old and not too cosmetically attractive. It was built in the early 80s. Some of the equipment still needs to be replaced. I will need to buy an EHR. The initial offer for buying the practice included a $100k "business" (basically good will) fee. The guy is retiring and I am sure I would get a lot if his patients to stay and see me, but I am just out of residency, so a significant portion of patients may go to the more experienced ENT in town.

Another option: I could start my own practice out of a rental office. Pros: I could acquire newer equipment. I could start really lean with just a front desk person, and then expand with a medical assistant, audio, allergy, etc as business grows, instead of having employees in place and a potential dip in business as I am ramping up. I could then transition in to another practice.

Cons: I basically loose out on the savings of buying the established practice. Another ent could potentially buy the other guys practice and compete with me.

To me, I favor option 1, if I can get the guy to drop the good will yo a nominal amount.

Any thoughts on the equipment cost considerations? The practice I could buy has 2 audio booths, vng equipment, 3-4 fiber scopes, a tne scope, no video tower (mac computer set up to record video). 4 exam rooms with SMR cabinets and instruments. Immunotherapy is up and going with about 20 active patients. There are 3 microscopes but they are all pretty old. How does $100 k sound for all that? I have an itemized list of all the equipment in the office, but a lot if useless stuff is included like CRT tvs, computers I will have to replace, etc. Any suggestions on hoe to come to a fair price?

Thank you very much for you comments!


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[resxn]

So, I am looking at starting a solo practice. I was wondering if any of the private practice guys have any comments / suggestions on my situation.

To recruit me to the area, the local hospital group is guaranteeing up to 505 k to cover overhead and my salary. I also get payed about 30k a year to take call. The area has a pretty high need for a new ent.

They also have extra help available for equipment purchases where the pay back most if the cost over 5 yrs.

I have 2 options :

Buying a solo practice from an ENT who wants to retire within 6 months. Pros: His practice is in a great location, with real estate that has a very high potential for appreciation. He has some experienced people that would want to stay on. I would save money getting all of his used equipment. The price for the outfitted, but somewhat dated, equipment is $100k Cons: they practice is old and not too cosmetically attractive. It was built in the early 80s. Some of the equipment still needs to be replaced. I will need to buy an EHR. The initial offer for buying the practice included a $100k "business" (basically good will) fee. The guy is retiring and I am sure I would get a lot if his patients to stay and see me, but I am just out of residency, so a significant portion of patients may go to the more experienced ENT in town.

Another option: I could start my own practice out of a rental office. Pros: I could acquire newer equipment. I could start really lean with just a front desk person, and then expand with a medical assistant, audio, allergy, etc as business grows, instead of having employees in place and a potential dip in business as I am ramping up. I could then transition in to another practice.

Cons: I basically loose out on the savings of buying the established practice. Another ent could potentially buy the other guys practice and compete with me.

To me, I favor option 1, if I can get the guy to drop the good will yo a nominal amount.

Any thoughts on the equipment cost considerations? The practice I could buy has 2 audio booths, vng equipment, 3-4 fiber scopes, a tne scope, no video tower (mac computer set up to record video). 4 exam rooms with SMR cabinets and instruments. Immunotherapy is up and going with about 20 active patients. There are 3 microscopes but they are all pretty old. How does $100 k sound for all that? I have an itemized list of all the equipment in the office, but a lot if useless stuff is included like CRT tvs, computers I will have to replace, etc. Any suggestions on hoe to come to a fair price?

Thank you very much for you comments!


Sent from my MB860 using SDN Mobile

1 - You're getting $505k for overhead and salary in your first year and $30k for call? Let's break this down a bit. Assume you take home the MGMA avg 1st year salary for $250k (that may vary by region), you have $255k to mess around with plus the additional $30k. That's a boat load of wiggle room.

2 - Regarding Option 1
A- Regarding the Good Faith. Good faith purchase is for suckers. Basically, you're being asked to buy his charts. His charts are worthless. As you said, you'll need an EHR. Even if you scanned in all of his data (a very time consuming, if not expensive process) the data is in pdf's not readily visible. All allergies, smoking hx, PSHx, FHx, PMHx, etc etc will still need to be entered. What are you getting? A h/o how many times a kiddo had AOM? Just ask the parents. What else are you getting from good faith? Well, you are getting the idea that patients will want to continue to see you because you're in that office or that he speaks well of you to encourage them. You're right, there's no guarantee on that. Also, if he closes shop, it's not like 100% of those pt's will go to the other guy--you will get a significant percent--even if you're 5 miles away. It will take forever to get in to see the other guy and you'll reap benefit just from that. If the town is in such desperate need as you state, then you'll get patients even if the other guy is popular. You'll be surprised how many come to see you because your just out of residency, not in spite of it. If you pay a dime in good faith to buy a closing practice, you've paid too much.
B - Regarding location. Well, that's key. So you do need to decide whether you want to take over his real estate or build/lease close by or perhaps another even better location. If you take over his space, you need to make it 2013, not 80's, but holy cow do you have the cash to do it. If it's at all 1/2 way decent and less than 5,000 sq ft, you should be able to do a great job for less than $65k or so.
C - Experienced staff is helpful, but what I've found is that they will be loyal to the old guy not you. If you do something they're not used to, it will take a while to buy in on your way of doing it. It could actually hurt you a bit because you will find that they'll say things like "Well, Dr. Old Guy didn't do it that way, but if that's what you like, we'll adjust." I find that the best experience can come from the office manager (but make sure they're capable and not stuck in 1980's accounting practices), an allergy nurse, a good audiologist, and possible an MA. Front desk come and go. Surgery schedulers tend to be the most loyal and may not like the way you do things compared to the old guy.

3 - Regarding Option 2
A - Newer equipment has a huge cost. However, there are leas to own options that make this quite palatable. I started with one of these. Stocked 3 rooms as a solo guy in about 2750 sq ft and had to get everything and I mean everything from stools to waiting room furniture to pictures on the wall to suture, 4x4's, chairs, smr carts, nasal specula and every other pick or bayonet you can imagine, microscopes, autoclave, etc. Altogether with a line of credit of $50k and a monthly payment on all the leased stuff of $1600, I was easily able to make my monthly payments and take home my guaranteed salary. Sure I paid a bit in interest, but in the long run, I own my stuff and it was mine and it was new.
B - There is absolutely no leverage for the old guy not to sell you his quality stuff if you start on your own. Where else is he going to dump all that garbage? His competition for the last 10 years? Hardly. You can approach him with an offer for the stuff he has that you want and is worth it. Just make sure that you have it appraised and get the depreciated value. This stuff depreciates about as fast as a car. Don't get screwed.

4 - More on start up costs. 2 audio booths with fully loaded equipment $100k new not top of the line $50k old but great shape and consistently calibrated once a year. VNG $1500k (reimbursement sucks) not worth it unless it's cheap and reliable. 3-4 flex scopes (not distal chip) depending on age $3k-6k. TNE scope depending on age $6k-16k. 4 exam room chairs (powered) $60k new. 4 SMR carts new $20k.

The easiest way to come to a fair price is to get an appraisal. Make sure it's an independent one you both agree to, not some guy he took out his wife's thyroid cancer.

For me, if I could get equivalent location or better, I'd simply buy the stuff I wanted of his and do my own thing. You're getting enough in a guarantee that you're going to be more than fine. I'd also hire his quality staff. If they are coming into a new office with a new doc, they'll be much more open to doing things your way rather than his.

If, however, there was no way to get office space in a close to equivalent location, in other words you really suffer going somewhere else, buy his stuff--but not what you don't want. No need to buy his PC's if you will just toss them. Also, don't pay a dime in good faith. He's the one trying to recoup money, not you. You are not beholden to him at all. Don't piss him off because you don't want him to blackball you in town as he winds down, but just don't be a sucker.

good luck

 

[DrBodacious]

Thanks a lot, Resxn.

I am going to see how flexible he will be. I think the equipment price may be reasonable from a package deal standpoint, but he seems pretty set on the "business" cost. I definitely have heard the standpoint that "good will is for suckers" from you on this message board, and from other people. But, I also know other people who have paid good will to get in to a good practice.

From my standpoint, I do see a potential benefit of additional revenue having him help me transition in to the area, but that would be short term. I would get myself up to speed after a year on my own.

So, for example, lets say arbitrarily I get $100 K more in personal collections working with him as opposed to starting out on my own, how much of that does he deserve? Definitely not 100%, because I am still the one doing the cases and seeing the patients. I would think about giving him 25% for the added revenue, as a kick back (so to speak), and therefore agree to $25 K as a "business" or "good will" payment during the practice acquisition.

Does that still seem like I am a total sucker?

 

[Fah-Q]

The income guarantee is a safety net. Buying a practice is essentially a safety net.

You don't need 2 safety nets.

 

[DrBodacious]

Very good point, Fah-Q. Thank you.

 

[resxn]

Thanks a lot, Resxn.

I am going to see how flexible he will be. I think the equipment price may be reasonable from a package deal standpoint, but he seems pretty set on the "business" cost. I definitely have heard the standpoint that "good will is for suckers" from you on this message board, and from other people. But, I also know other people who have paid good will to get in to a good practice.

From my standpoint, I do see a potential benefit of additional revenue having him help me transition in to the area, but that would be short term. I would get myself up to speed after a year on my own.

So, for example, lets say arbitrarily I get $100 K more in personal collections working with him as opposed to starting out on my own, how much of that does he deserve? Definitely not 100%, because I am still the one doing the cases and seeing the patients. I would think about giving him 25% for the added revenue, as a kick back (so to speak), and therefore agree to $25 K as a "business" or "good will" payment during the practice acquisition.

Does that still seem like I am a total sucker?

yes. What exactly are you getting for $25K? You already have a guarantee.

Would he blackball you in town if you didn't pay up? Probably not so what's the point?

Would you get his charts? Maybe. Who cares, you don't need them and for meaningful use, they'd be worthless anyway, you'll still need to input all the hx into your EMR. You going to store them too until they're scanned? You'll be taking up sq footage in your office that could be used for income generation.

Would you get him actively promoting you? Doubt it. He'll just say he's leaving and you're buying his practice and that he thinks your decent enough. He's not going to go to bat for you because you've already paid him--there's no leverage against him to praise you if you pay up front for sure. He also doesn't want to stake his rep on you when he has no idea whether you're a good doc or not.

Last. AND THIS HAPPENS ALL THE TIME. . .what if he decides to stick around an extra year or two. I live in the DFW area and I know of 4 guys/gals who came into a practice because the "old guy" was retiring but then never did. Seriously, 4 people, all of whom now are stuck in a very awkward situation with a senior guy whose staff is loyal to him, not the new doc and they have a very hard time getting busy especially when their guarantee is over and now their income suffers too.

Buyer Beware.