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PHYSICIAN
RETIREMENT

Getting Paid for Your Practice

at Retirement

By Mike Kreager, Attorney & Author

Every day 10,000 Americans turn 65 (AARP website). As of the end
of 2018, 28% of Texas’ physicians were over age 60 compared to
19% who were under age 40 (AMA Physician Masterfile

2019 n=64,382). A large bolus of physicians is approaching
retirement. If you are among those physicians who want to retire,
how do you get paid for your medical practice?

Pre-Planning Buyers
Selling your practice needs to start with the development of an exit Who are the target buyers? The answer to this question is very spe-
plan, with target dates matched to key milestones. At the outset, iden- cific to your practice and its subspecialty. If you have associates or
tify your advisory team. The team consists of your CPA, financial younger owners, the first choice for buyers are these folks. If there are
planner and an attorney familiar with selling medical practices. De- none, then a possible universe are physicians coming from training.
pending on your circumstances, a business broker may need to be However, in the last fifteen years, these folks may no longer be good
added to the team. Often, a retiring doctor will engage a business ap- candidates due to student loans and their desire for income stability
praiser to value the practice. There are many appraisers available at and an aversion to risk. Other practices similar to yours are potential
reasonable costs. buyers but usually they have a similar aversion to adding debt and may
be facing the same impending need to exit.
Practice Income Assessment Non-physician buyers include hospital systems, managed care sys-
Ask your CPA to review your practice tax returns and financial state- tems and management companies (many backed by private equity).
ments. More specifically, ask the CPA to “normalize” the income state- Much has been written about the cost containment goals of the hos-
ment to remove, or separately state, the costs associated with your pital systems and managed care systems (those backed by the insur-
employment and ownership. This exercise removes your salary, benefit ance companies). The former desires to capture the referral base of
costs (health insurance and retirement contributions), profit distribu- patients needing inpatient and outpatient care of hospital facilities
tions, payments to your spouse and any extraordinary items that have and the latter desires to control provider costs to enhance profitabil-
been expensed, e.g., Spurs tickets, etc. The normalized income state- ity. Subspecialties are very attractive to non-physician buyers. If you
ment will show how much net income the practice generated in the have not already been previously approached, you can easily contact
prior three years. If depreciation, taxes and interest are added, you will these buyers to gauge their interest in your practice. They will have
have “EBITDA”, the practice’s earnings before interest, taxes, depreci- standardized checklists for detailed information to be provided for
ation and amortization. EBITDA is a proxy for the practice’s free cash their analysis.
flow, an important indicator for pricing the practice, as discussed below.

12 SAN ANTONIO MEDICINE • April 2021