I’ve decided I want to retire in a year or so. Can you help me find a way to exit my practice and ASC?”

I get asked this once or twice a year from physicians. Unfortunately, this question usually comes with an unrealistic time frame in mind, making it difficult to create a good exit plan — especially if there has been no prior planning. Because succession is inevitable, it is prudent to begin thinking about a plan to smoothly exit your practice and ASC early in your career.

The Time Is Now

Early in your career, the focus of your succession plan should be supporting your heirs should something happen to you. As you become more established, however, thinking about who will succeed you in the practice should take center stage.

Most physicians have multiple responsibilities that will be passed on when they leave; start by making a list of duties, then begin deciding who will carry out those tasks. Responsibilities may include providing:

• Clinical services for patients
• Surgical services for patients
• Management services to the practice and ASC
• Governance services to the organization (e.g., working with other owners to set the direction of the practice and ASC)
• Oversight and coaching of other physicians and management personnel
• A physician link to hospitals, other facilities, health plans, and other local healthcare entities.
• Contacts and relationships with pharmaceutical and device manufacturers (especially when research work is part of the practice)
• Connections to industry associations and publications, if leadership participation in them is part of the practice’s fabric
• An entrepreneurial spirit for the practice and ASC.

In some cases, a single person may not be qualified to inherit all of your responsibilities. You may decide to designate one individual to take over patient flow and surgeries, another to oversee management and governance duties, and someone else to maintain the relationships you’ve built with local healthcare units and industry partners. The point is, you must carefully consider, designate, and train someone (or multiple individuals) to take on each of your duties so they will be carried out in your absence. Consider this when adding physicians and administrative staff to your practice and surgery center. Because these transitions can take years, your succession planning should already be underway, and should be an ongoing part of your annual business planning.

Weigh Your Options

To successfully and seamlessly exit your practice, you have several factors to consider, including local market conditions and the characteristics of your practice. A key factor in how you approach succession planning is whether you’re in a solo or group practice.

SOLO PRACTICE

As a solo physician, it’s likely you don’t have a preset succession plan mapped out; instead, you must identify your own way to exit the company. The succession planning options a solo practitioner should explore include:

1. Hiring a younger physician. This is a popular exit strategy for many physicians. The idea being that the new physician will eventually become the owner of the practice, ASC, and, possibly, the related real estate holdings.
   Although this is a great option, the downside is that it’s time-intensive — it can take at least a decade (or more) to recruit and position a young practitioner to successfully take ownership of the entities.
2. Selling to — or merging with — a local practice. This is often the best option when no succession plan is in place and retirement is near. A transaction to divest your practice to a local colleague/competitor can occur within 6 months to a year if conditions are favorable. Of course, in some cases, there may not be a local practice interested or able to purchase your practice or ASC.
3. Selling to a hospital, multi-specialty group, or academic practice. This alternative option can work for solo physicians, but only in markets where these types of companies are looking to invest in ophthalmology.
4. Selling to a private, equity-funded management services organization (MSO). Most solo practices aren’t large enough to attract the interest of private equity buyers as a primary practice. However, if there is an established PE-funded MSO nearby, it may be interested in adding your practice to its portfolio.
   Keep in mind, most investors won’t want to purchase a practice unless the main revenue producer is staying on for several years, making this an unrealistic option for anyone who is nearing retirement.
5. Closing the practice. When a sole owner finds no viable options for continuing the practice, the physician is left with the prospect of closing the business. In these cases, it is sometimes possible — and usually preferable — to sell or give patient charts to a local practice capable of providing care for your patients. If done properly, this transfer should relieve the practice owner of the burdensome responsibility of managing those charts for many years to come.
   In many instances, an ASC owned by a solo physician is divested with the practice, although it’s conceivable that a local practice might want to purchase only the ASC (and not the practice) if the circumstances warranted.

GROUP PRACTICE

Succession planning in a group practice is often easier, as your practice shareholder (and other) agreements should delineate the process for retiring physicians. Specifically, these documents stipulate the methodology for valuing ownership in the practice and ASC, what person(s)/entity buys the shares, and the terms and conditions of the sale.

In most cases, practices follow these agreements closely when an owner is retiring. To ensure they are up to date, the agreements should be reviewed every few years or upon major changes in the practice or surgery center. It’s disconcerting to belatedly realize the documents outline an impractical ownership transition process when someone has announced their impending retirement.

Non-financial factors must also be a part of succession planning in a group practice. It’s fairly common that a practice founder or physician has taken on many roles over the years. Each of those roles will need to be filled, which requires careful contemplation to determine which individuals have the requisite skills and motivation to take on those responsibilities. Fortunately, in a group practice, transitioning your roles to new physicians doesn’t rest entirely on your shoulders and is the responsibility of all partners.

Occasionally, physicians in a group practice may decide to transition the entire practice to another or entity. These transactions generally fall into one of three categories:

1. Combining with another practice. These transactions generally involve you and your partners trading ownership in your practice for ownership in a larger entity. The owners of your practice typically retain ownership in the combined company, and any subsequent retirements would be carried out under the guidelines of that entity’s controlling documents. If your intent is to retire concurrent with or soon after the merger, you may be bought out of your equity position at the time of the transaction, with the remaining owners governing the now-combined practice.
2. Selling to a private equity-funded management services organization. These deals are different from combining with another practice because equity in an MSO may not be available, and, if it is, it will be a minority interest in a company co-owned with non-physician investors. However, in some cases, especially for physicians in their mid to late careers, there may be larger financial rewards from this type of sale than from other transactions.
3. Selling to a hospital, multi-specialty group, or an academic practice. These sales are less common for group practices and may not be available in many markets, but the opportunity is worth investigating if other options aren’t viable and the group owners have determined that a transition is in their best interest.

Alternative Options

Surgery centers are often part of the practice transactions described above, but sometimes there are other options available for ASC succession. These alternatives include:

1. Selling shares back to the ASC company. Surgery centers with multiple owners (especially owners from different practices) usually have shareholder agreements that specify how shares are redeemed from retiring physicians.
2. Selling shares to another ophthalmologist. For solo owners, selling shares to a young associate who is becoming a partner in the practice is a common way of divesting ASC ownership. In group practices, where all ASC owners are members of the group, there are often other physicians who would like to buy additional shares. In many cases, shareholder agreements specify that each remaining physician has the right to buy available shares in proportion to his or her ownership.
3. Selling shares to a physician in a different specialty. Adding a surgeon from a different specialty is more complicated than selling ownership to another ophthalmologist because it usually means adding new specialty equipment, nursing knowledge, and billing proficiency to the ASC. Under the right circumstances, however, having another specialty in the ASC can increase profits while divesting some or all of your shares.
4. Partnering with an ASC management company. Depending on your situation, a surgery center management company may wish to become a co-owner by acquiring ownership interest in your ASC. The management company often wants to own slightly more than half the shares with surgeons owning the balance. For more information regarding this option, see Maureen Waddle’s article titled “What You Need to Know About ASC Management Companies” in the October 2018 issue of The Ophthalmic ASC.

Successful Exit

The most beneficial succession plans are those formulated well before retirement. Your specific practice situation will affect the alternatives available to you but knowing the most common options as outlined above should help you plan and implement a successful exit from your practice and ASC. ■