Retiring physicians and practice management experts reveal the process for a successful practice succession. Discover how to make a graceful exit from your business and simultaneously leave your patients in good hands. Read on for 40 tips and ideas.

When Hubert Goldman, MD, decided to retire, he had a difficult time finding someone to take over his medical practice. After 46 years in medicine, he was disappointed to learn that few physicians were willing to buy a solo internal medicine practice with fewer than 1,000 patients.

"It was very hard to get an appraisal on my medical practice," Dr. Goldman says. "There is no standard formula like the housing market. When I informed practice management companies about the size of my practice, they said it wouldn't be worth much. It's not very easy to sell solo practices, because many doctors want to go into groups or partnerships, or they buy a large practice because they want a lot of money."

Then, Sikander Kajani, MD, entered the picture. Dr. Kajani was a friend and colleague of Dr. Goldman. They were also neighbors of sorts. Their solo internal medicine practices were literally across the hall from one another at Northridge Medical Plaza and they participated in an on-call group with three other physicians.

"Because Dr. Goldman had a hard time finding a value for the medical practice," Dr. Kajani says, "I told him, 'At the end of day, if you can't find a buyer, I will take over your practice.'"

An assistant clinical professor at the David Geffen School of Medicine at UCLA and former president of the Los Angeles County Medical Association District 6, Dr. Kajani will officially begin treating Dr. Goldman's patients on Jan. 1, 2007. To help with the transition, Dr. Goldman moved into Dr. Kajani's office on Oct. 2, so he could introduce his patients to Dr. Kajani and help them adjust to the new space. Dr. Goldman is working part time with Dr. Kajani on Wednesday and Friday afternoons until January.

"When you are selling or transferring your medical practice to another physician, it is so important to have a good relationship with him," Dr. Goldman says. "I have known Dr. Kajani for 15 to 16 years, and we are great friends. Because we shared the same call group, we often treated each other's patients. I respect his ability. I feel confident he will take good care of my patients."

Practical Tips for a Smooth Transition
If you are like Dr. Goldman in that you are contemplating a practice transition, here are eight tips from physicians who have been there and experts who help doctors through the process.

1) Plan a year or more in advance.
The biggest mistake you can make is underestimating how much time it takes to close a practice, whether you are selling or dissolving it. "We advise our clients to begin the process a year out, because it takes four to six months to effectuate the actual transaction," says Arthur S. Shorr, of Arthur S. Shorr & Associates Inc., a practice management company in Woodland Hills. "There is an element of organized chaos to the process and that has to be recognized. If you don't budget a year, then you will make yourself crazy."

Erring on the side of caution, John La Gourgue, MD, a retiring Dana Point psychiatrist, actually started planning his practice succession years prior to his desired exit. Dr. La Gourgue, who is transferring his practice in December, always had a goal to retire at or around age 65. "I have been looking for an associate to replace me for the past three years," he says.

2) Maximize the value of your practice.
When Dr. Goldman tried selling his medical practice, he had a difficult time finding any takers because he couldn't convince buyers of its worth. Practice management consultants say that you can increase the value of your business by maximizing your efforts now.

Keith Borglum, a medical practice business consultant and licensed broker for Santa Rosa-based Professional Management and Marketing, insists that a selling physician clean up his office and desk, to make it appear more modern and attractive before potential buyers visit. He encourages doctors to ask for outside help because they typically cannot see the condition of their own space after having worked in it so long.

In addition, it's essential that you increase the productivity and profitability of your practice two to three years prior to the sale. "The value of the practice depends on the activity of the prior three years," Shorr says. "Psychologically, it is critical to trend the numbers upward. The last year of the practice must have some uptick reflecting vigor, as opposed to what the senior people do, which is slow down. When physicians cut back before selling a practice, it costs them a lot of money and degrades the buyer's confidence in the numbers."

3) Obtain a professional appraisal.
A professional, third-party appraisal of your medical practice will help you price the practice right and convince a buyer of its value, Borglum says. Use an expert who can demonstrate compliance with Uniform Standards of Professional Appraisal Practice, or who is a member of the Institute of Business Appraisers or American Society of Appraisers, he says. Medical practice appraisal is an unlicensed profession, but Borglum contends you can steer clear of incompetent appraisers by checking credentials.

The value of a medical practice is based on two things: tangible assets and intangible assets, or goodwill. Tangible assets include real estate, office furniture and medical equipment, such as exam tables and diagnostic devices. Intangible assets consist of the practice's financial history, patient flow, staff and potential earnings.

"For example, Dr. X has a successful internal medicine practice that brings in $250,000 a year," Borglum says. "And a regular internist makes significantly less at $150,000 a year. That extra $100,000 is worth something. Goodwill is the value of the intangible, or the extra earnings the buyer will receive by purchasing the practice."

4) Find a buyer you can trust.
When you are transferring your medical practice, aim to sell it to a friend, colleague or someone you trust. If you know the buyer, you have a better chance of obtaining a sound agreement and good replacement care for your patients.

"Our practice styles are similar," Dr. Kajani says of Dr. Goldman. "I am a general internist with a subspecialty in geriatrics. Dr. Goldman is an internist with an emphasis in cardiology. We have enjoyed covering each other's patients and we have been friends for many years. I thought taking over his practice would be a good fit. Money for the sale of the practice was not a huge issue."

Dr. La Gourgue expresses a similar sentiment toward Richard Granese, MD, the physician who will take over Dr. La Gourgue's  practice next month. Although they have only known each other a short time, Dr. La Gourgue is confident that Dr. Granese will treat his patients well.

"I met Dr. Granese at a pharmaceutical-sponsored educational dinner meeting," Dr. La Gourgue says. "Since we have gotten acquainted over the past year and a half, I have been really pleased to find a high-quality physician. It makes my transition much easier to know that someone will be taking good care of my patients."

5) Structure the sale in a contract.
After you find a buyer, you must negotiate to decide on the structure of the sale, including price and terms. Experts advise that you hire a broker or medical practice specialist attorney to draft a purchase agreement outlining how the assets will be divided and who will take custody of patient medical records. The real estate or office lease should be handled separately from the sale of the practice, Borglum says.

"The agreement can be as simple as, 'You will pay me $1,000 for my exam tables and you will take custody of my charts,'" Borglum says.

Dr. La Gourgue is selling his office furniture and equipment to Dr. Granese and requesting reimbursement for office renovations performed three years ago. "For the assets, I am going to look up the value for used equipment and furniture, and then I will sell the items to him," Dr. La Gourgue says. "Psychiatrists don't have a lot of medical equipment. It's not like what you would find in a dermatology practice."

The seller usually gives patients' medical records to the buyer, who must take custody of them for at least 10 years, according to Borglum. "If you treat children, doctors must keep records seven years beyond their majority age, or after they turn 18," he says. "However, a lot of experts say discontinuing physicians should keep medical records indefinitely."

Dr. Granese has decided not to purchase the medical records of Dr. La Gourgue's patients. Instead Dr. Granese will treat each person as a new patient. Therefore, Dr. La Gourgue will retain his patients' records, which he plans to keep at a storage facility. Because storage can get expensive, he is considering condensing his patient files onto DVDs. Copies of these files must be made available to patients who request them.

6) Notify your patients.
To ensure continuity of care, practice management experts encourage discontinuing physicians to send patients a letter at least three months in advance of their exit. In the letter, you must tell the patient that you will not be in active practice and introduce the new physician designated to take over your patients.

"The letter should also include a patient authorization form that allows the new Dr. X to access the patient's medical record and directly contact him," Borglum says. "A high percentage of the seller's patients will fill out the form and send it in."

If the patient does not choose to stay, the letter must offer alternatives to finding a new physician, such as contacting his insurance plan or the local medical association.

"I was concerned because not many physicians are accepting new patients in South Orange County," Dr. La Gourgue says. "I had to provide additional resources for patients who didn't choose to go with Dr. Granese."

Many doctors believe that the practice buyer should send out a notification letter to patients, too.

7) Notify your employees.
Employee issues can be sticky during a practice transition, but you should address the situation clearly. The American Medical Association instructs discontinuing physicians to notify office employees and review their ethical and legal obligations to employees.

In Closing Your Practice: 7 Steps to a Successful Transition, AMA officials suggest you give employees an incentive to stay to the end or assist them in finding other employment. You must also review employee retirement plans, healthcare plans and requirements to pay for unused employee benefits, such as vacation time and sick leave.

8) Focus on the future.
In the midst of transferring your medical practice, keep your goal in focus, whether it is enjoying a quiet retirement, opening a new business or circling the globe.

"I am going to Hawaii with my family for a month," Dr. La Gourgue says. "Then I'd like to explore the culture and geography of New Zealand."

Dr. Goldman says he is looking forward to pursuing a passion he has deferred for many years: music. "I love studying and playing music, and I'd like to spend more time on it," he says. "I play the piano and the flute. I play chamber music with local groups, but I want to improve my skills so I can play with more professional groups."

No matter the direction you intend to go, organizing a proper, planned exit from practice will make your arrival there more satisfying.

FEATURE ARTICLE SIDEBARS

For the Buyer: 25 Things to Do

Statistics show that California has an aging physician population. That means there may be a surge of practices coming on the market in the next decade. If you would like to be a buyer in that market, here are 25 ways to maximize the opportunity.

1. Verify the practice's appraised value and inventory.

2. Complete a practice purchase agreement, including that the price and terms of the sale are in compliance with all legal and regulatory requirements.

3. Schedule a transition period.

4. Determine who will write and pay for a patient letter to introduce the buyer.

5. If a transition event is to be planned, decide who will pay for and organize it.

6. Decide who notifies physicians in the community about the transition.

7. Settle on whether the seller has any rights to participate in anything after the sale.

8. Outline if the buyer can call upon the seller for information.

9. Secure detailed financial reporting and financial audit rights.

10. Set a payment schedule and decide by what means payments are made, such as direct deposit or direct withdrawal.

11. Get accounting advice about determining the tangible assets versus goodwill allocation of the price.

12. Determine how to handle the seller's receivables and any collections activity.

13. Establish a process for forwarding the seller's personal mail.

14. Set up who will take responsibility for moving unsold equipment or assets.

15. Arrange to have an announcement in newspaper.

16. Order new stationery and forms.

17. Leave notification about the transition in the building's reception area.

18. Contact the phone company to add the buyer's name to existing listings.

19. Decide who will contact patients who have appointments following the sale.

20. Arrange to have utilities and other bills changed to the buyer's name.

21. Set a timetable for the seller to clean out his personal items and to organize and label relevant items for the buyer.

22. Notify any appropriate licensing agencies.

23. Notify insurance companies and payers, such as Medicare and Medi-Cal.

24. Notify your local medical association.

25. Notify other healthcare organizations, such as hospitals, specialty societies, referring physicians, journals, suppliers, labs, etc.

Source: This list was edited and abbreviated for educational purposes. Content provided by Keith Borglum, Professional Management and Marketing, www.practicemgmt.com.

For the Seller: 7 Steps to Closing a Medical Practice

Start your retirement with confidence by ensuring that you make a graceful exit from practice. The American Medical Association recommends the following seven steps.

1. Notify employees and review your ethical and legal obligations to them. Offer employees an incentive to stay to the end and assist employees in finding other employment. Review employee retirement plans, healthcare plans, and requirements to pay for unused employee benefits, such as vacation time and sick leave.

2. Notify patients to ensure continuity of care. Send a letter to each active patient at least three months prior to closure. Avoid abandonment by notifying patients of intent to terminate their care in writing and in sufficient time to arrange for care with another physician.

3. Retain records according to state retention laws and Medicare/Medi-Cal laws, if applicable. If records are not being transferred, archive them with a reputable commercial storage firm or rent space from another physician. Make sure the storage agreement includes confidentiality terms. Only provide patients with copies of records. Establish a method of honoring record requests.

4. Notify appropriate agencies. Check with your insurance carrier for "tail" coverage guidelines. Contact the Medical Board of California and other medical licensing boards (if licensed in another state), the Drug Enforcement Administration, professional associations, major insurance carriers, referring physicians and the Social Security Administration.

5. Collect accounts receivable. Work out payment plans with patients as they come in the office for visits, send collection letters and arrange for another physician (if transferring practice) to collect remaining accounts for a percentage of the amount payable or for a fixed fee. If necessary, turn past due accounts over to a collection agency.

6. Collect payments from slow-pay insurers. Send notices to insurers and photocopies of claim forms.

7. Coordinate closing with managed care payment practices. Review managed care contracts and coordinate closing with capitation plans and risk pool or bonus payments.

Source: This list was adapted from the American Medical Association book Closing Your Practice: 7 Steps to a Successful Transition, 1997. To order the book, call the AMA at 800/621-8335.


For Patients: A Warm Goodbye

Heartfelt communication with your patients about your transition will bring a pleasant close to your years in practice. Here is a sample letter to start your writing process.

Dear [patient name]:

It is with mixed emotions that I am announcing my retirement from active practice, effective [date]. It has been a great pleasure providing for your healthcare needs over the years, and it is not easy for me to give it up.

As of [date], Robert Smith, MD, will be taking over my practice. I am pleased that you have the opportunity to have him as your physician. Dr. Smith is a well-trained graduate of State University Medical School. He served his internship at Capital Memorial Hospital in Capital City and completed his residency at Jefferson University. I am glad to leave my patients in his capable hands.

Of course, you may seek medical care from another doctor if you like. If you choose to do so, I recommend looking for a new physician as soon as possible. Ms. Carla Johnson at the Capital County Medical Society can help you begin your search by giving you the names of doctors in the area who are accepting new patients.

Your medical records are confidential and a copy can be transferred to another doctor or released to you or another person you designate only with your permission. If you plan to continue with this office, you can sign an authorization form to release your files to Dr. Smith on your next visit. If you choose to see a different physician, please sign the enclosed authorization form and return it to my office as soon as possible so we may transfer your records to your new doctor. Until then, your records will remain on file at my former office.

I have greatly valued our relationship. Thank you for your loyalty and friendship over the years. Best wishes for your future good health.

Sincerely,
Jane Doe, MD

Source: This sample letter is taken from "Transitions: Legal Considerations in Closing or Selling a Medical Practice," Texas Medical Association, 2005.