Navigating the Challenges of Physician Practice Succession Planning: Tips and Strategies
As a physician, the thought of retiring or stepping back from your practice can be daunting. However, it is essential to plan for the future of your practice and ensure a seamless transition for your patients and colleagues. Succession planning is critical for the longevity and success of any physician practice, but it can be challenging to navigate. In this article, we share tips and strategies for navigating the challenges of physician practice succession planning.
Introduction to Physician Practice Succession Planning
Succession planning is the process of planning for the future of your practice, including transitioning ownership and leadership roles to other physicians or healthcare providers. It is essential to start planning for succession early, as it can take several years to find the right candidate and ensure a smooth transition. Without proper planning, the future of your practice and the care of your patients can be at risk.
Challenges of Physician Practice Succession Planning
One of the most significant challenges of practice succession planning is finding the right candidate to take over the practice. It can be challenging to find someone with the right skills, experience, and values to take over the practice and continue providing quality care to patients. It is crucial to start the search early and explore different options, such as hiring a new physician or merging with another practice.
Another challenge of physician practice succession planning is ensuring a smooth transition for patients. Patients can be resistant to change, especially if they have been seeing the same physician for a long time. It is essential to communicate with patients early and often about the transition and ensure that they feel comfortable with their new physician or healthcare provider.
Key Considerations for Succession Planning in Solo Practices
Succession planning in solo practices can be particularly challenging, as there may not be anyone within the practice who is ready or willing to take over. Here are some key considerations for navigating succession planning in solo practices:
1. Start planning early: It is essential to start planning for succession early, as it can be difficult to find the right strategy.
2. Consider hiring a locum tenens: A locum tenens can provide temporary coverage while you search for a permanent replacement. This can be especially useful when looking to lower the workload for you at the practice although it is important to consider the costs versus the revenue and ensure that there is not a negative impact on your long-term succession plan and retirement.
3. Questions to consider:
1. Is the practice profitable?
2. Is the practice in an appropriate market?
3. Could the practice be marketed to a third-party buyer?
4. Is the patient base consistent with good referral sources?
5. Are the assets in good condition?
6. Are the financial statements sound?
7. Do you have a valuation?
It is important to consider these questions when evaluating practice succession planning to help make the best determination for when and how to retire from practice and end up in the position you want to be in after retirement.
4. Explore different options: Generally, the options available for practice succession planning include: (i) slowing down the workload over a span of time and gradually closing the practice; (ii) stay full-time until the date you decide to retire and sell the practice; or (iii) recruit a successor early on to work with the practice. Each of these options has its own positives and negatives and it is important to consider them when determining the best choice for your succession planning.
One available option is to slow down the amount of work you take on with the practice over a predetermined timeline and work towards gradually closing the practice. This is considered one of the quickest options as you determine the timeline involved and choose how quickly to slow down the pace of work. The negatives to this approach are lower overall compensation for winding up the practice and little sale value when the business is closed for good. With this approach, it will be important to consider the legal requirements associated with winding down the practice. There are many.
A second option for succession planning is for you to stay full-time until a predetermined date for retirement and then look for a buyer to take over the practice. This option has the benefit of seeing greater compensation upon retirement based on the sale of the practice and its assets and a simpler break from working after retirement. Some issues to consider with this option are that the timeframe for retirement depends on how long it takes to find a buyer for the practice and you will need to get a valuation of the practice done in order to determine the fair market value. Another consideration regarding finding a buyer is to look for an existing group of physicians to take over and add your practice to theirs.
The third option to consider is to recruit a successor physician early on in the planning process to work with the practice and take over when you decide to retire. This option has the longest timeline as it is important to get started on this process much earlier in the lifespan of the practice than the other options. Additionally, adding another physician will require the practice be built up enough to support employing multiple physicians and allow you to be bought out at retirement. As with the second option, a valuation of the practice will need to be done so that a fair market value of your ownership interest in the practice can be determined for the sale upon your retirement.
Key Considerations for Succession Planning with Multiple Physicians
Succession planning with multiple physicians can be complicated, as there may be different opinions and interests to consider. Here are some key considerations for succession planning with multiple physicians:
1. Develop a shared vision: It is essential to develop a shared vision for the future of the practice and ensure that all physicians are on the same page.
2. Consider a buy-sell agreement: A buy-sell agreement can help ensure a smooth transition of ownership and provide a roadmap for the future of the practice.
3. Consider whether your current governance documents are up to date.
4. Plan for leadership roles: It is essential to plan for leadership roles and ensure that all physicians have a clear understanding of their roles and responsibilities.
Legal Aspects of Physician Practice Succession Planning
There are several legal aspects to consider when it comes to physician practice succession planning. Here are some legal considerations:
1. Review contracts: It is essential to review contracts, such as employment agreements and partnership agreements, to ensure that they include provisions for succession planning.
2. Consider tax implications: There may be tax implications to consider when it comes to transitioning ownership of a practice.
3. Consult with legal and financial professionals: It is essential to consult with legal and financial professionals to ensure that all legal and financial aspects of succession planning are considered.
Conclusion and Next Steps
Succession planning is critical for the longevity and success of any physician practice. It is essential to start planning early, communicate with patients, explore different options, and consider legal and financial aspects. Whether you are in a solo practice or have multiple physicians, there are strategies and considerations to ensure a smooth transition and a bright future for your practice.
If you need assistance with physician practice succession planning, please contact us today to schedule a consultation.