Improving the Value of Your Medical Practice

This article is the second in a two-part series on how to value of your practice.

It’s important to know the value of your medical practice. Whether you’re five years from retirement and planning an exit strategy, or expanding the practice and looking to take on an associate, knowing how much your practice is worth is invaluable information. But, suppose you perform a valuation assessment and find that the practice is not of a premium value -- what do you do?

A lot depends on the practice itself, and the characteristics that detract from it receiving a premium value. However, there is some common ground that every practice should investigate.

Making Difficult Choices

One of the benefits of any small practice is the flexibility to plan CMEs with a skiing trip in February or March, says Amy Galloway, director with the Ft. Lauderdale, Fla.-based Tripp Scott law firm. “That may reduce your net profit, but it’s still a value,” she says. However, if you plan to bring in a junior partner, it’s important to institute some parameters. “You have to know what you’re spending in that category of expenditures.”

Another aspect of your practice may be that you’ve been able to offer very expensive health insurance for your staff, but you may have to take a hard look at those costs. “You have to track those expenses so you can evaluate some options, like having a much less Cadillac-type plan,” Galloway says. Or, you may still offer staff very good health insurance, but you’ll have to require employees to pay for some of it. “It’s making use of a planning tool to figure out how the money is going out the door, or, how it’s not coming in the door.”

Some fixes are easy, others much more challenging. For example, Galloway suggests that one area that can immediately improve the value of a practice is an overhaul of the billing system that may be inefficient and results in higher than normal labor costs. Bringing in a consultant to help clean up the system, she says, will result in immediate benefits. “And if that same consultant says they can renegotiate your managed care contracts and get you on a couple of additional plans, that’s great bang for the buck as far as investing in your practice.”

Staffing changes can add value as well as lower costs -- but change often can be painful. If your wife’s aunt has run the front desk for years, and you’re paying her three times as much as someone else who would do twice the work, that’s not likely to be an easy fix.

Value Beyond the Physician

Ken Ducey is the chief executive of Fairfield Capital in Ridgefield, Conn. He suggests that methods for improving the value of a medical practice include making sure that the practice income is not solely dependent on the physician; that the practice is organized and that patients are being properly served; and that the practice maintains accurate records of all marketing efforts. It all starts with having accurate records, he adds.

“You want to prove to someone that if you do A, B and C, you know you’re going to be able to attract X-number of additional patients,” Ducey says. “The more you can prove that you can increase the revenue of the practice, that the patients are there and they’re loyal, the better.”

Ducey says that adding ancillary services that don’t involve the physician is also important. “If you can say to someone, ‘Look at my practice. The [number of] patients is growing, and it’s not growing just because they come to see me. It’s growing because of whatever the ancillary service might be.’ That’s huge, because that will continue beyond the physician being there.”

Timing Is Right

Galloway says another important reason for getting a bead on the value of your practice is that there’s likely to be “an enormous amount of consolidation between now and 2015.” She believes that as changes to the payer model occur there will be a push to consolidate.

“As [hospitals] do these pilot programs for paying the healthcare providers X dollars to provide essential healthcare for enrollees in their group, you are going to see some consolidation,” Galloway explains. If you believe that by choice or necessity your practice may eventually be acquired, you’re going to want to maximize the value of your practice now in order to at least be considered for those kinds of consolidations, she says.

Hospitals do their own valuations, of course, but physicians need to do their own valuations — and understand what how the hospital values the practice -- so they don’t just accept some hospital consultant’s number figure, she says.