What to consider before riding off into the sunset

As an increasing number of physicians consider retirement — and others ponder their options for slowing down their practices prior to calling it quits — many are grappling to come up with a realistic exit plan. The logistics surrounding either option — retiring or slowing down — are not simple and often lead to questions that are difficult to answer. These include:

• What will happen to my patients and staff?
• Who will take over my practice?
• Does a new physician need to be hired?
• What is my practice worth?
• Can I still maintain my partnership shares when I move to part time?
• Can I take less call? Who is going to pick up my call?
• Can I stop doing surgery and just focus on office patients?
• How will I be paid if I go to part time?

FORGET ABOUT A ONE-SIZE-FITS-ALL SOLUTION

Unfortunately, there is no single “right way” to ride off into the sunset. When a physician retires or slows down, it will certainly impact the compensation of that physician. If that physician is part of a group practice, it could impact the compensation of his or her fellow physicians, as well. This does not include the affect the departure can have on other staff, practice operations and patients. As a result, any retirement plan needs to be tailored specifically to the affected physician/practice and to consider practice culture, demographics and goals.

I am currently working with a solo practitioner who plans to retire in six to eight years. He wants assistance in hiring a new physician as a part of his retirement plan, so we have discussed the current market and how competitive it is with the saturation of physicians. In this situation, his current plan would require hiring a new physician and taking a financial risk for paying an initial salary. Basically, he would be required to build another full-time practice to support the new physician, while at the same time maintaining his own compensation for another six to eight years — a daunting prospect, so, we are looking at other options. These include adjusting when to bring on a new physician to better correspond with him slowing down and phasing out of his practice, as well as considering merger or acquisition opportunities that could allow for a smooth succession plan and possibly require less financial risk. Our discussions are ongoing.

IF IT’S JUST YOU

Here are the options that a solo physician will likely consider during exit planning:

• Sell the practice to another group in the community
• Merge with another group in the community a year or two prior to retirement
• Recruit a new physician to take over the practice in tandem with the phase out of the current owner
• Slow down and work fewer days and try to reduce expenses to keep viable
• Walk away and close the doors of the practice, selling off assets to interested parties

In a different scenario, I am advising a larger group practice where one of the senior/original partners wants to reduce his schedule to part time for a few years and then retire, although he hasn’t identified exactly when he wants to stop working. Challenges in this scenario include how he would make money under the current production compensation model, what his share of call should be, when the group should hire a new physician, and if he should maintain full partnership after transitioning to part time.

FOR THE GOOD OF THE GROUP

When considering options for a group practice, it is important to focus on what is best for the group and its continued success. Focusing on group needs should supersede the interests of the individual, although compromise often occurs. Exit options to consider for physicians in a group practice include:

• Require a definitive notice from physicians prior to retirement (two years is preferred)
• Establish clear requirements for maintaining partner status that could include productivity or time worked measures or both
• Provide a part-time option that includes associate status and a different compensation model
• Cap the amount of additional call time existing partners will be required to take if others move to part-time status and desire less call
• Identify if patient needs and operational costs can be absorbed by other physicians in the group
• Hire a new physician to cover overhead expense, take call and provide access for patients
• Merge with another practice or partner with a private equity group when a prominent partner (or multiple partners) is retiring

CREATE A PLAN

Building a roadmap to address future leadership departures is called succession planning. One size does not fit all, and each situation will need its own plan. There are, however, several actions physicians and groups can — and should — consider in advance. They include:

• Plan for retirement(s) at least two to three years in advance when possible
• Develop and have written guidelines in place for retiring partners in group practices
• Discuss and have a plan that outlines compensation and partnership status for partners transitioning to part time
• Maintain good relations with other practices in the community for potential alignment or sale of the practice
• Retain strong operations and productivity to maximize the value of the practice for a recruit, an acquisition, a merger, or private equity partnership
• Consider patients, staff, and physician legacy as part of the process, as retirement affects more than just the retiring physician
• Maintain a focus on what is best for the group and your patients.

Succession planning can be tricky and stressful. However, with proper forethought and planning, much of the stress can be alleviated. Correct preparation will help ensure that patients and employees are cared for, financial security is maximized and the physician’s legacy is preserved. So think ahead, consider your options, create a succession plan and enjoy retirement! OM

Dixon Davis, a senior consultant with BSM Consulting, is based near Salt Lake City, Utah. Before joining BSM, Mr. Davis worked for 17 years with physician groups, health systems, independent practice associations and a privately held company focused on health-care education and product development.