Are you a medical practice owner wondering if now is the right time to sell your practice? Whether you’re a physician looking to retire or transition to a new phase in your career, this question is crucial. The market for buying and selling medical practices is particularly favorable for sellers, especially in certain specialties such as:
- Family Medicine
- Psychiatry
- Internal Medicine
- Pediatrics
- Obstetrics and Gynecology
- Dermatology
- Cardiology
- Urgent Care Medicine
- Geriatric Medicine
- Hematology and Medical Oncology
With other physician specialties also in high demand among buyers, the current market presents a potentially opportune time to sell, offering a promising future for your practice.
Physician Practice Landscape
A typical physician practice has a single location, 14 employees, and approximately $3 million in annual revenue. There are over 197,000 physician practices in the US, generating about $591 billion in revenue and employing over 2.8 million people. Additionally, over 443,437 physicians work in private practices, receiving more than one billion visits annually.
Industry Trends
Hospitals, health systems, and corporate entities own nearly half of the nation’s medical practices. A 2021 study by Avalere Health revealed that:
- Hospitals acquired 3,200 additional physician practices over two years, increasing hospital-owned practices by 8%.
- Corporate entities acquired 17,700 additional physician practices, marking a 32% increase in corporate-owned practices.
- The Midwest leads with the highest percentage of hospital-owned practices at 37.5%.
- The South saw a 59% growth in practice acquisitions by corporate entities.
The AMA’s 2022 Benchmark Survey highlights physician practice ownership and organization shift. From 2012 to 2022, the percentage of physicians in private practices dropped from 60.1% to 46.7%. Meanwhile, physicians in larger practices increased, with those in groups of 50 or more rising from 12.2% to 18.3%. Private equity ownership also grew to 4.5%, targeting specialties like dermatology, gastroenterology, obstetrics/gynecology, ophthalmology, orthopedics, and urology.
Growth in Demand
The aging US population is driving demand for physician services. By 2030, adults over 65 will constitute 21% of the population, a 30% increase over a decade. Elderly adults visit doctors more frequently, averaging over seven visits per year, compared to younger adults. Healthcare reform has further boosted demand for primary care physicians as more people obtain insurance coverage.
Rising Cost of Healthcare
Healthcare spending in the US has been outpacing the overall economy since the 1960s, currently exceeding $13,900 per resident annually. The Centers for Medicare and Medicaid Services project this will rise to $17,600 per resident by 2028, accounting for nearly 20% of GDP. Physician and clinical services, the second-largest healthcare spending category, will face financial impacts from efforts to reduce spending growth.
Shift Away from Small Practices
More physicians are joining group practices, which can afford expensive medical equipment, share support staff, manage malpractice insurance, and offer regular hours and time off. This trend is partly due to the financial challenges faced by solo practices, which are more affected by reduced reimbursement rates and fewer resources for hiring physician extenders to distribute patient care. Understanding these market dynamics is crucial for medical practice owners considering a sale.
More Hospital Affiliations
Hospitals are acquiring physician practices to increase revenues and staff, a trend accelerated by federal law changes in 2007. For physicians, becoming hospital employees can provide stable work hours, reduced administrative duties, and consistent salaries.
2024 Medical Practice Outlook
Vertical IQ forecasts a 5.6% compounded annual growth rate for US physician practice sales from 2024 to 2028. The Federal Reserve anticipates increased demand for loans in 2024 despite inflation concerns. As a result, transaction activity is expected to pick up, with buyers and sellers adapting to higher interest rates. The SBA’s 504 loan program offers long-term financing options, enhancing buyer opportunities.
Key Factors Influencing the Market
- Interest Rates Outlook: Despite a challenging 2023, the market is adapting to higher rates. Sensible changes by the SBA regarding partial business ownership and seller financing are broadening the buyer pool.
- Buyer Interest: High demand remains for family medicine, internal medicine, pediatrics, geriatric medicine, behavioral health, and cash-based practices, such as concierge medicine. Solo practices may see slower demand.
- Availability of Equity Capital: Capital is widely available for healthcare, with up to 100% financing for qualified physicians. Established practices with solid financials and experienced management will continue to see strong valuations.
- Timing of the Sale: External factors and personal timing significantly influence the selling decision. Medical practice owners nearing retirement should consider market conditions in 2024 or wait for the next economic growth cycle projected for 2028.
Positioning Your Practice for Sale
Understanding your practice’s value is essential to grow or prepare to sell. The goal is to maximize return on investment through continuous value creation or strategic planning for a future sale.
Detailed Analysis of Market Trends
Hospital and Corporate Acquisitions
The trend of hospital and corporate acquisitions of physician practices has reshaped the medical practice landscape. Hospitals are driven by the need to expand their service offerings and patient base. Acquiring physician practices allows them to integrate outpatient services, streamline patient care, and enhance revenue streams. On the other hand, corporate entities see these acquisitions as a lucrative investment opportunity, leveraging economies of scale to improve profitability.
For physicians, selling to a hospital or corporate entity can mean stability and relief from administrative burdens. However, it may also result in a loss of autonomy and changes in practice culture. Therefore, it’s crucial for physicians to carefully consider their priorities and the potential impact on their professional lives before deciding to sell.
Private Equity Involvement
Private equity firms have increasingly targeted specific specialties with high growth potential and attractive margins. Specialties like dermatology, gastroenterology, and ophthalmology have seen significant private equity activity due to their high patient demand and revenue-generating capabilities. Physicians in these specialties might find favorable valuations and attractive offers from private equity buyers.
However, physicians should be aware of the potential downsides, such as focusing on short-term financial performance, which may conflict with long-term patient care goals. Engaging in thorough due diligence and understanding the terms of the acquisition is vital for physicians considering private equity offers.
Economic and Demographic Drivers
The aging population is a significant driver of increased demand for healthcare services. As the number of elderly patients grows, so does the need for various medical services, from primary care to specialized treatments. This demographic shift is a critical factor in the sustained growth of the healthcare market.
Healthcare reform initiatives to expand insurance coverage also contribute to higher demand for medical services. More insured individuals mean increased patient volumes for practices, enhancing their revenue potential and making them attractive targets for acquisition.
Financial Considerations and Planning
Selling a medical practice involves careful financial planning. Physicians should thoroughly evaluate their practice, considering value drivers such as revenue trends, profitability, patient demographics, management, payer mix, and operational efficiency. Engaging with professional advisors, such as accountants and valuation experts, can help ensure an accurate assessment of the practice’s worth.
Additionally, understanding the tax implications of a sale is crucial. Different transaction structures, such as asset or stock sales, have varying tax consequences. Physicians should work with tax advisors to optimize the transaction structure and minimize tax liabilities. Wealth advisors should be consulted regarding the investment of sale proceeds.
Preparing for the Sale
Preparation is critical to achieving a successful sale. Physicians should ensure their practice is in top shape by addressing operational inefficiencies, updating technology, and maintaining accurate financial records. A well-documented practice with a strong performance history will attract more buyers and command a higher price.
Marketing the practice effectively is also essential. Highlighting the unique value propositions, such as patient satisfaction rates, advanced medical equipment, and a skilled team, can make the practice more appealing to potential buyers. Working with experienced brokers specializing in medical practice sales can provide access to a broader pool of qualified buyers and streamline the transaction process.
Personal Considerations
Beyond financial and market factors, personal considerations play a significant role in the decision to sell medical practice. Physicians nearing retirement should evaluate their readiness to transition out of active practice. This involves considering lifestyle changes, future financial needs, and the desire to remain involved in the medical community in some capacity.
Timing is another critical aspect. While market conditions are favorable, individual circumstances, such as health, family commitments, and personal goals, should align with the decision to sell. Ensuring the timing is right on both professional and personal fronts will contribute to a smoother transition and a more satisfying outcome.
Next Steps
Choosing an experienced medical practice broker can help navigate the complexities of business valuation, marketing, and buyer qualification, ensuring a successful sale. With over 85 years of healthcare experience, Strategic Medical Brokers is ready to assist you. Contact us for a free consultation to explore your options.
In conclusion, selling a medical practice is a multifaceted decision influenced by market trends, financial considerations, and personal factors. The current market conditions present favorable opportunities for sellers, particularly in high-demand specialties. By conducting thorough planning, engaging with professional advisors, and aligning personal goals with market timing, physicians can achieve a successful and rewarding sale of their medical practice.
