Any structuring advice for acquiring a physician-owned healthcare practice?

January 25, 2021

by a searcher from Harvard University - Harvard Business School in Miami, FL, USA

I'm most curious about best practices to keep the selling physician motivated post-close after they sold a majority of the practice as they are typically critical to the go-forward business. I've heard buyers may look for the physician to roll-over 15-40%. Then perhaps institute a mechanism to reduce that over time. Any thoughts?

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Reply by a searcher
from Washington and Lee University in United States

I unfortunately don't have a lot of helpful info, but my first takeaway from looking at these businesses is to have an experienced attorney who has structured these deals / MSOs before. Corporate Practice of Medicine laws can be really complex and vary widely from state to state, which can become a headache if the practice is in multiple states or is in only one but eventually expands. In terms of physician rollover, it is imperative in my opinion to have them roll over a meaningful equity amount post-close, which can vary in both $ and % amounts. I've seen a put/call structure in a few deals, where the physician has the right to put a certain % amount of their ownership each year and the buyer has the right to call a certain % amount. The ones I have seen were structured at an agreed upon multiple at the time of initial close and spanned 3-5 years. Also, the successful ones I have seen have always gotten the physician to agree to a lengthy and strict non-compete once he/she exits the business.

Reply by a professional
from University of Scranton in Manchester, VT 05255, USA

We would often acquire practices (technically an asset purchase) where the physician(s) would be getting ready to retire - their main motivation for the buyout. But we'd always have a succession plan in place - get a new grad in there that is hungry for business that can slowly take on the retiring MDs patient panel. I don't know much about physician's retaining equity, because I was on the hospital side of med group acquisitions, but as far as keeping the MDs motivated, structuring pay as base + incentive seemed to work well and keep them practicing and productive for some time. In my experience, non-compete's are somewhat of a challenge and it is highly unlikely they will be enforced. Can always add a non-compete buy out clause.

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