Practices for Sale but Where Are the Buyers?

Succession planning should be started early.

By Jerry Helzner, Senior Editor

With the vanguard of the huge baby boomer generation having reached the age of 65 last year, strong and growing demand for eyecare services are assured for the foreseeable future. Eye problems such as cataracts, glaucoma, macular degeneration and diabetic retinopathy are all associated with an aging population, which should make smaller, well-run ophthalmology practices a sound and profitable investment for younger doctors who have recently entered the profession.

So why is it that profitable small and solo practices in desirable markets have been on the market for years — and that some practitioners in these markets have sold their equipment and closed their doors after failing to attract a suitable buyer?

There is no one easy answer to this seeming disconnect between growing demand for eyecare and ophthalmology practices that nobody wants to buy. Some of the factors that have led to this situation include diminishing reimbursement, an array of new government regulations that many doctors find onerous, resistance to the cost and inconvenience of implementing electronic health records and a growing feeling among younger physicians that they can pursue a more satisfying and less demanding lifestyle by working as an employee.

But all is not gloom and doom. There are options for ophthalmologists contemplating selling a practice and/or transitioning to retirement. By starting the planning process for retirement early, it is still possible to find the right buyer for the practice and make a smooth transition into retirement or semi-retirement. Though not the focus of this article, it almost goes without saying that any ophthalmologist contemplating retirement, selling an ownership stake in a practice or transitioning to a new role should have the most professional financial and legal advice available.

Never Too Soon to Plan

Amir Arbisser, MD, founder of Eye Surgeons Associates in Bettendorf, Iowa, has been successful in building a large ophthalmology practice and as an entrepreneur in other businesses as well. He began planning for eventual sale of the practice on the day he opened the doors to his first office more than 30 years ago.

“I didn't put my name on the practice,” he says. “I knew that at some point the practice might change hands and I didn't want the name of the practice to be associated with one person.”

Now that's long-range planning.

Not every ophthalmologist possesses the keen business sense of Dr. Arbisser, but the concept of longer-range planning for retirement should be embraced by every ophthalmologist who has an ownership stake in a small or solo practice. Larger group practices with professional administrators are somewhat insulated from the issues of changing ownership, as the retirement of one or two doctors does not greatly alter the composition of the practice. This may be one reason why more younger ophthalmologists who do seek an eventual ownership stake are going with group practices where they are essentially free from the many diverse responsibilities that must be shouldered by owners of a small or solo practice.

Albert Castillo, executive director of the San Antonio Eye Center and AAOE board member, advises ophthalmologists on succession planning. Given the current sluggish environment for practice sales, he advises that ophthalmologists with ownership stakes in small or solo practices should begin planning the transition process five or six years before retirement.

“You're going to need time to find the right buyer,” says Mr. Castillo. “Then, once you have a buyer, you need to have a transitional period of about a year where both of you are working at the practice together. A smooth transition is critical so that you can introduce your patients to the new doctor. If you handle the transition correctly and build up a level of trust in the new doctor, he should be able to retain 80 to 85% of your patients.”

Mr. Castillo advises that the new doctor should not initially be burdened with a heavy schedule. He or she should have room on the schedule for both existing and new patients.

The “New Patient” Issue

Though it may seem logical for an ophthalmologist nearing retirement to stop taking on new patients, consultants say that is one of the worst — if not the worst — decisions a doctor can make. For a small or solo practice, this type of move reduces the “goodwill” value that a seller could obtain in the sale of the practice. It might even make the practice impossible to sell.

“It's just a bad idea, strategically, to stop taking new patients,” says Mark Kropiewnicki, principal of The Health Care Group in Plymouth Meeting, Pa. “Just refusing to see new patients as a way to cut back the practice rarely will lead to the desired outcome.”

Mr. Kropiewnicki notes that in solo practices, physicians usually are so busy that even turning down new patients does not permit an adjustment in work level immediately.

“Depending on normal practice attrition, this approach may gradually reduce the practice size and lessen the workload. But this strategy may backfire,” says Mr. Kropiewnicki. The word may spread that the physician does not want to see any patients. This may start negative rumors about the doctor's skills and accelerate the decline of patients and may leave the physician with fewer patients than planned.

Mr. Kropiewnicki says physicians who choose not see new patients usually cut back on the activities that have kept them visible and have attracted new patients. When physicians drop such activities, aggressive physicians in the area will fill the gap. The result may be a greater than usual exodus from the practice's patient base. Without following a planned approach, a physician who simply wants to cut back on practice activity by 25% may be reduced much more.

In group practice, a senior physician's refusing to take on new patients may not be the best alternative, asserts Mr. Kropiewnicki. More experienced physicians typically have the longest standing and most productive referral bases, and the best-known names. A receptionist's unexplained announcement to a new patient that “Dr. Senior is not taking new patients” could lead to misinterpretation that affects the entire group.

Mr. Castillo puts it even more bluntly.

“If you stop taking on new patients it will be very hard to sell the practice and will kill any effort to have a smooth transition,” he says. “Any practice needs new patients. You should have about 10% to 20% of your patient base new to the system each year.”

The Effects of EHR on Retirements

Mr. Castillo says the mandate for adoption of electronic health records is causing some older ophthalmologist to push up their retirement plans.

“I know of four doctors in one group practice who are in their late 60s to early 70s who have retired because of EHR,” says Mr. Castillo. “It's definitely having an impact.”

Mr. Kropiewnicki says that older doctors in solo practice who are being overwhelmed by EHR and other administrative issues should look into having their practice absorbed by a larger practice.

“Going with a larger practice can take a lot of the burden off of the solo guy,” says Mr. Kropiewnicki. “He can get into a good situation where he is operating a satellite office of the larger practice and just practicing medicine. They may take him in even if he stops doing surgery.”

Dr. Arbisser says that his own practice has been willing to acquire solo practices in his area with stellar reputations and incorporate them into Eye Surgeons Associates.

“By doing this, we can also keep the doctor's staff employed, which is important to the doctor. We can also provide support. It's a much better solution than conducting a long, unsuccessful search for a buyer and then having to turn off the lights,” he asserts.

Mr. Kropiewnicki also suggests that ophthalmologist-owners who don't want to take on the costs and support/maintenance issues of an in-house EHR system should consider a cloudbased system that is available on a monthly subscription basis. Several reputable vendors offer cloud-based systems, which are accessed via the Internet and maintained offsite with minimal investment required by the practice.

Buyers Are Hard to Find

Talk to anyone involved in the sale of practices and they will tell you that the days when most young doctors were interested in ownership have come and gone.

“The truth is that a lot of younger doctors don't want the hassles of being an owner, especially now with such daunting regulatory issues as the coming of ICD-10 codes, e-prescribing, PQRS and EHR,” observes Mr. Castillo. “The younger female doctors are often thinking of starting a family and it seems that younger doctors today just place a high priority on having enough free time. They would rather be employees.”

Dr. Arbisser agrees.

“Not everyone wants to be an owner or a partner, but you have to provide incentives to motivate people,” he says. “You get the most out of people if they have skin in the game.

“More younger doctors are now joining large groups where there is less personal responsibility and they don't have to make the quick decisions that a solo owner has to make,” he concludes.

So You Sold the Practice

Mr. Castillo says that most ophthalmologists like what they do and would prefer to stay in the specialty even after they are no longer practice owners or partners.

“I know of one retired ophthalmologist who has a real passion for woodworking and another who wanted to do photography,” says Mr. Castillo. “The others I know didn't seem to have any real outside interests. The problem with semi-retirement is that once you have been an owner you probably don't want to work for someone else. Semi-retirement often doesn't work out because these people are used to running things and they don't want to let go.”

Dr. Arbisser says the time after you are no longer an owner should be used to make a contribution to society in a way that you enjoy.

“These are very talented and experienced physicians,” he says. “They may find opportunities in academia or doing overseas missions where they can improve people's lives freed of the economic pressures of operating a practice.” OM