Buying a Cardiology Practice

[G-pathy]

Also who is reading your sleep studies? How will you compete with home sleep testing?

[G-pathy]

https://info.blockimaging.com/nuclear-camera-price-cost-guide

[Dont_know_mind]

I don't know anything about cardiology. Could you rent facilities (cost +20%) from a solo practitioner who is a bit further from retirement ?

Personally, I would not buy into a practise unless I was working there first. But then you have the problem that your negotiating position for buy in is poorer.

I would look at
1. Start at 2 practices that you could potentially buy into
2. Work somewhere 3 days a week which is not interested in selling or which is salaried and spend 2 days to start your own - particularly if there is an available site which you can buy affordably - this may save headaches down the track.

The commercial lease conditions are important. Long optionality is important (at least 3x3). If it is CPI plus then that will compound over time. Relocation could be a headache because of the goodwill lost if the landlord rents to another cardiology practise after you move.

The other hidden costs are labour and entitlements. This should be calculable with the valuation. But there are intangibles like the difficulty of moving or retraining someone who has been there 20 years.

Practises are moving towards multi practitioner to be competitive. It requires energy to manage the labour/staffing issues over time.

The main thing I would be evaluating is whether I could do business with this person (you are buying from). Are they generally trustworthy ? It sounds like he will be at least your landlord in the long term.

If it was me, I would tend to buying a site and setting up my own shop but everyone is different.

[kkrm]

Thanks a lot G-pathy for the links.

An update about the practice. I asked the seller for an independent valuation about the practice. It was done and it apparently came very low. The seller does not want to disclose what it was valued at by the appraiser, but is now a little belligerent and says that I am the only person who is asking him too many questions. He says that even the large practice did not ask him too many questions. I think that the large practice too thinks it is overvalued. I first met him in Feb and he said, at that time, that one of the large practices in the are is also a potential buyer. If they were interested at that price, they would have bought it much earlier. He says he wont sell it for anything less than 500k.

Other potential factors which I came to know about: The hospital where he does 95% of in patient work has a policy of a wait period of 1 year before taking ER call and 2 years before you can get on the reading schedule for EKG, echoes and stress tests.

Dear Dont know Mind, There are not many cardiology practices for sale to consider looking at 2 practices. There are very few people who want to hire a part time interventional cardiologist. Also, if I do find one in the are, then there are always non compete clauses with a large radius. And yes, if I decide to buy, he will be my landlord

[Zaphod]

kkrm wrote:

Thanks a lot G-pathy for the links.

An update about the practice. I asked the seller for an independent valuation about the practice. It was done and it apparently came very low. The seller does not want to disclose what it was valued at by the appraiser, but is now a little belligerent and says that I am the only person who is asking him too many questions. He says that even the large practice did not ask him too many questions. I think that the large practice too thinks it is overvalued. I first met him in Feb and he said, at that time, that one of the large practices in the are is also a potential buyer. If they were interested at that price, they would have bought it much earlier. He says he wont sell it for anything less than 500k.

Other potential factors which I came to know about: The hospital where he does 95% of in patient work has a policy of a wait period of 1 year before taking ER call and 2 years before you can get on the reading schedule for EKG, echoes and stress tests.

Dear Dont know Mind, There are not many cardiology practices for sale to consider looking at 2 practices. There are very few people who want to hire a part time interventional cardiologist. Also, if I do find one in the are, then there are always non compete clauses with a large radius. And yes, if I decide to buy, he will be my landlord

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Red smoke leads straight to burning red flags.

Unbelievable he said out loud to you you're the only one asking too many questions. This is the business equivalent of "And I would have gotten away with it too, if it werent for you meddling kids".

Sounds like he wont sell it. Its crazy how self harming and proud people can be about this stuff. Maybe you can pick it up in auction after its left for dead. I see lots of practices for sale lately, and dont find any of the prices close to justifiable. It is rare that it wouldnt be cheaper to do my own (no expensive assets needed unlike some specialties), buying always comes with some kind of compromise on buildout, staff, etc..Starting from scratch has its own issues of course.

[Complete_newbie]

kkrm wrote:

Thanks a lot G-pathy for the links.

An update about the practice. I asked the seller for an independent valuation about the practice. It was done and it apparently came very low. The seller does not want to disclose what it was valued at by the appraiser, but is now a little belligerent and says that I am the only person who is asking him too many questions. He says that even the large practice did not ask him too many questions. I think that the large practice too thinks it is overvalued. I first met him in Feb and he said, at that time, that one of the large practices in the are is also a potential buyer. If they were interested at that price, they would have bought it much earlier. He says he wont sell it for anything less than 500k.

Other potential factors which I came to know about: The hospital where he does 95% of in patient work has a policy of a wait period of 1 year before taking ER call and 2 years before you can get on the reading schedule for EKG, echoes and stress tests.

Dear Dont know Mind, There are not many cardiology practices for sale to consider looking at 2 practices. There are very few people who want to hire a part time interventional cardiologist. Also, if I do find one in the are, then there are always non compete clauses with a large radius. And yes, if I decide to buy, he will be my landlord

Click to expand...

Despite his behavior it can still be a good deal. Him not budging from 500K is mostly tied to goodwill - whats that? The patients and repeat business. Seems like its stable and if he actually eases you into practice for 6 months, its a good deal. Two ways I would go about it (and I have personal experience in non medical deals)

1. Escrow thing I said before

2. Owner financing - this binds him to you. So put some down rest he can owner finance to your LLC.

I would go for it, work hard, and if I can grow business, hire another employee cardiologist to keep momentum going.

Good luck. Practice evals are hard, very hard. Part is gut feeling beyond quantification.

[Dont_know_mind]

Any solo practitioners in the area that you can rent facilities from ? That is an easy and cheap option. As long as you can keep your own medical records then you can readily move.

Or one of the hospitals may have rooms for rent.

I rented facilities at a rehab hospital once (I don't work in rehab) where they had a large office that was vacated. While waiting for a long term tennant, they were renting out individual rooms on a short term basis. There was an interventional cardiologist there for a few months. He had worked at a group and was trying to set up his own shop but in the interim needed a space to see outpatients until his fitout was complete. He bought his own secretary that the practise setup company he was using had organised. There was also an immunologist whose wife was his secretary.

Noncompetes - I think if you think outside the square it may not be as much of a problem. I've avoided places that have required noncompetes other than what is reasonable. I think most solo practitioners will not bother to ask you to sign one. One fellow I knew said most people rented from him for a few years then set up their own practice. He was ok with this as long as you didn't set up too close. Maybe medicine has changed since then or cardiology is different.

[Zaphod]

What about being locked out of revenue streams for years at the hospital? How impactful is that?

[q-school]

no matter how many ways you look at it, from the outside perspective (at least mine) it's another loser as a job for you-either in income or longevity, possibly both.  if you want to be part time, academics or locums may be your best bet.  it will be harder to move from locums back to full time though, so consider it carefully as you are only two years out of training.  interventional cardiology is tough as a part time gig.  it's not built into the dna of the specialty and everyone will look at you suspiciously.

i am reading between the lines that you are tied to the area.

the simplest option and one most likely to be long term successful is hospital employed in the field of cardiology.  second join a larger established private practice group.  trying to get in with a narcissist who will be your landlord is not a promising start.  are you sure you want him/her hanging around for several months while you get started?

so we all agree that his practice value is inflated.  s/he still only wants 500k for his practice.  the price is sometimes determined by whether there is one buyer, not based on cost plus approach.  seller seems to have determined their approach.  there is no reason for large group to buy anything other than his equipment.  they already have staff, insurance contracts, malpractice, nuclear license, etc.  they can wait for him to fail and pick at the carcass (they don't need copier or phone).  they can also lease new equipment.  imo, no real benefit to arguing over 100k with this seller.  even if you get a price reduction, s/he will f you on the rent at some point in the future.  either jump in or move on.

good luck.

 

 

[Molar Mechanic]

TIL that old cardiologists are a lot like old dentists.

He build a nice practice, got comfortable, allowed the practice to stagnate, decided to work a little less, numbers fell off, he built a retirement plan based upon getting his number, and now he can't rationalize that a service business decreases in value if the amount of service provided declines.  I'm guessing the place needs paint and furniture, too.

 

The good news is that you can make an offer and play hardball, or you can overpay for the practice now, but either way it sounds like you can build it into a cash printing machine.  The opportunity is there, it will take a lot of hard work though, and certainly some risk and sleepless nights.  That's true for any business.  Best of luck.

[kkrm]

Zaphod, I think he is in the denial and anger phase, because he was not like that prior to the valuation. The reason I wanted to buy an existing practice is to avoid the issues of a start up. He said he can go back on call and give it me for the first 6 months. I plan to apply for privileges at least at 2 other hospitals apart from this one. I will choose them based on time to get on the call schedule.

Newbie, I talked to him about the escrow after you mentioned it. He refused that outright. I do propose to ask him about owner financing once we decide on a price.

Dont Know Mind, I am now entertaining the idea of starting a solo practice. The biggest cons is that I am not that familiar with the area, since it will be a new city and state that I would be moving to. Non compete is a big thing nowadays. Everyone mostly tries to put you out of the city completely with as much as 15-30 mile radius. Also, it is the solo practitioners who are more insistent on that since they are afraid that there business may decrease. Seller also has 2000 sft which is vacant in his building.

Q school, I dont want to do only part time. I intend to increase my hours and work harder the first few years after starting a practice. The seller is earning that revenue based on 12-5 or 6 pm work hours, mon-thu. My main interest in his practice is, even if i retain 60-70% of his patients, I can market myself aggressively and take privileges in at least a total of 3 hospitals and work full time and increase revenue. My idea is also to start another office in other outlying area. I am not tied to the area but I like the area. I am also exploring another nearby city. Being hospital employed currently, I do not like that. Too many restrictions on the scope of the practice by administrators, backstabbing by colleagues whose RVU`s are falling after I came on board etc. In the past, I have interviewed with large private practices and have seen that they have really large overheads, some have high turnovers, or again try to limit your scope of practice.

[kkrm]

Molar Mechanic, You have summed it up very well. He should have sold it before slowing down. The place and furniture is in good condition. I am going on vacation for a few weeks. Lets see if he comes to the fear or acceptance stage at that time

[Ryan]

Personally, it's $500k. Unless the books are completely open, the valuation, etc, I'd run. Too much at stake and not worth the risk. You could go to the trouble of depreciating all the equipment over their useful life, calculating the costs of new equipment and figuring out that depreciation to get an idea for how much hard assets you're buying-- But in the end you'll be buying a lot of old equipment, some amount of deferred maintenance and in reality, a lot of goodwill which you're hoping translates to a kickstart in continuing cash flow.

That goodwill needs to be worth it-- a nearby big hospital could muscle you out with a big marketing budget, new equipment, better negotiating power with insurers (meaning better margins), etc. And the owner seems finicky-- you're relying on him to maintain his relationships with referring providers, existing patients and to vouch for you. A significant piece of your future cashflow depends on him being 100% in love with you. Depending on the area, it may be hard or easy to hire a new crew of people.

Of course, somebody will always be looking to muscle you out. You have to figure out how hard it is for them to do it and if the premium you'd pay for in this case is worth it. You have to look at other practices you could consider buying, and compare things like future cash flow, operating margins of each of the aspects of the business, likelihood of takeovers... How much would you make as an employed physician?

Above all, calculate your breakeven point. Look into operating profit, subtract from that your earnings as an employed physician and divide the upfront investment by it. Compare that to the timeframes of all the bad things that could happen.

And think about this-- if you realize some aspects of the business have bad contributing margins (unprofitable)-- would you layoff off long-term employees whose families depend on you for income? The business of medicine isn't all fun, and your employees and family depend on you.

[beth928]

kkrm wrote:

Dont Know Mind, I am now entertaining the idea of starting a solo practice. The biggest cons is that I am not that familiar with the area, since it will be a new city and state that I would be moving to. Non compete is a big thing nowadays. Everyone mostly tries to put you out of the city completely with as much as 15-30 mile radius. Also, it is the solo practitioners who are more insistent on that since they are afraid that there business may decrease. Seller also has 2000 sft which is vacant in his building.

 

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I am biased since this is the path I chose. I also don't know anything about your field.  However, I would recommend starting from scratch.  You can slowly build things up the way you want them to be instead of struggling to change established norms in an existing practice.  This holds especially true to staff.  The last thing you want to have to fight with is an attitude of "but Dr. So and So never did it this way and I am not going to start now".

Especially if you are not tied to a specific area, I would call the people who are going to be referring to you.  I believe that cardiology is likely to be based largely on referrals from PCPs. If that is the case, then I would recommend calling around.  Ask the PCPs in the area if they have a hard time getting their patients seen in a timely fashion.  Ask if they are in need of another cardiologist in town.  You might be surprised at the answers.  When I was looking around, I easily found to avoid certain areas based on some of the responses.  When I finally chose my town, it was in large part because of these types of calls.  The other thing you can do is cold call the other cardiology practices. Tell them that you are a patient in need of a consultation.  Pick your bread and butter case and say that is what the consult would be for.  Don't make the appointment, but just get a feel for the response.  If it is "come right down we will see you now", then there likely is not a huge need.  If it is "we are booking two months out", then you likely have room to move into that area.

Also, don't discount rural areas.  Especially for a specialist, they are in need and the terms of whatever arrangement you find might be very favorable.  The referring PCPs and the hospitals would likely be very grateful to have you and would likely look to help you.  Patients are willing to travel for good care.  I have people driving two hours and sometimes more to see me.

When I opened up, I had the practice open for 2 days a week.  The other two days, I drove three hours away and worked in a small clinic with a bunch of generalists who were very happy to have me with them.  I told them when I took the job that it was only temporary until my practice was up and running.  I was with them for just under a year and it was a very good experience.  It took about 6 months for my practice to be built and then another 6 months until I was ready to be open full time without having to supplement.

 

[Complete_newbie]

Good to know you are still negotiating. Play hardball and I'm sure you can close this.

People discount the fact that it is hard and a slow process to build a practice. At a 500k premium you get plug and play immediate cash flow. Can't beat that. Mostly I am encouraging this because no one talks about this , it's all about run run run save save and worry about withdrawal rates. In reality this could be a great small business move for you that very few physicians now a willing to risk. And this seems lol reasonable risk. Typing on phone but quick thinking about 500k loan at 8% 5 yr amortize is 10k (?) Per month with 425k net your still make 25k.

Working as employee to PP is a sucker game. Its academic or solo PP in this age (my opinion).