Buying a Cardiology Practice

[kkrm]

I am 2 years out of fellowship and am interested in buying a practice in one of the south eastern states.

Here are the details of the practice. I would appreciate any input about the pros and cons and about the valuation of the practice.

Practice has nuclear camera(2003)bought for 273k, ECP machine(2003-96k), sleep Lab (2005-90k), Treadmill (2003-33k), aorta scan(2011-13k)EKG machine(2007-21k), phone system(2005-10k), 2 automatic BP machines(2013-10k), fax/copier(2016-3.7k), 4 medical chairs(2005-36k)

Average revenues for last 3 years was 850 and overhead is about 50%. He owns the building and if i decide to buy the practice, I would have to pay him rent which will add to expenses. He is asking for 550k. Is the practice really worth that much?

In today`s changing scenario, how would you valuate a private practice?

 

 

[q-school]

not worth it (to me) and practice likely to decline in value in the future.

the only way to financially justify buying cardiology practice these days is a plan to sell to the hospital.  I assume you prefer to own your own practice otherwise you would just be employed by a hospital somewhere.  headaches of owning practice are significant.  however most physician practices sell for multipliers of revenue and generally cardiology historically in the 6 (seen 4-8)x range.  this varies dramatically with location, competition, etc etc.  so the number itself screams of desperation if revenues are correct.  Likely nuclear reimbursement will continue to decline AUC will take a bite from total revenue.  overhead needs to be studied carefully.

I call shenanigans on the deal.  while efficient cardiology practices can have 50% overhead, it's uncommon.  if it is that low, are you able to repeat it?  are you willing to spend free time billing, checking receipts, accounting, payroll, ensuring compliance, writing letters to patient, collecting bad debt, negotiating rent, negotiating reimbursement rates from insurers?  did original owner have family to help with that?  are they on the payroll?  for small practices, total compensation to physician and employees needs to be carefully examined (at least in my experience).  you get screwed on the details and assumptions.

how is rent going to be adjusted in coming years?  can you move?  is below market rent why the overhead is 50%?

are you going to use that ecp machine or is it just going to be overhead?  what emr is in place?  are you planning to stay current with electronic mandates?  are the referrals locked in?  is there room for growth?  are you going to take call?  who covers you when you are away?

anyways not nearly enough information to comment one way or the other.

the $ purchase amount is striking for its particularly low multiplier compared with revenue/profits, to answer your question.

I'm sure you know all these things already and deliberately omitted a lot of information.  on the off chance you didn't, you should really not buy a cardiology practice given that the trends over the last several years have been to the hospital employment model.  you need to be a little bit of a business shark to survive and thrive.  even then, the cost of independence is likely at least 100k per year (there are exceptions).

good luck.  ymmv.  yada yada.

 

 

[mxg67]

I'm a cards fellow and trying to learn about the business side of things as well, and to me that seems like too much.  Is everything staying the same, as in will you see his patients, provide the same services, have the same volume, etc.?  Or will it be different?  Not sure what kind of services you'll provide, but to me something like the nuc camera, ecp machine, sleep lab or aorta scan is unnecessary.  I don't know the numbers, but doing nuc tests always seems like an expensive, resource and labor-intensive job, maybe not worth it for lower volume practices.

[Complete_newbie]

kkrm wrote:

I am 2 years out of fellowship and am interested in buying a practice in one of the south eastern states.

Here are the details of the practice. I would appreciate any input about the pros and cons and about the valuation of the practice.

Practice has nuclear camera(2003)bought for 273k, ECP machine(2003-96k), sleep Lab (2005-90k), Treadmill (2003-33k), aorta scan(2011-13k)EKG machine(2007-21k), phone system(2005-10k), 2 automatic BP machines(2013-10k), fax/copier(2016-3.7k), 4 medical chairs(2005-36k)

Average revenues for last 3 years was 850 and overhead is about 50%. He owns the building and if i decide to buy the practice, I would have to pay him rent which will add to expenses. He is asking for 550k. Is the practice really worth that much?

In today`s changing scenario, how would you valuate a private practice?

 

 

Click to expand...

So you are making $425K a year after overhead. If he's asking 550K thats not bad actually.

1. Who is the competition in the area? Is there a hospital near by with larger practice? If so why hasn't he sold to the hospital?

2. Is the revenue stable? When did he establish the practice?

3. How many patients? Would they willingly just come back to you? Can he market you as the ultimate taker-over?

4. Is there need for equipment upgrade? How are ancillary staff / morale?

5. Can you increase the business?

 

with your handle of kkr (m) - this is right up your alley!

[Zaphod]

Complete_newbie wrote:

kkrm wrote:

I am 2 years out of fellowship and am interested in buying a practice in one of the south eastern states.

Here are the details of the practice. I would appreciate any input about the pros and cons and about the valuation of the practice.

Practice has nuclear camera(2003)bought for 273k, ECP machine(2003-96k), sleep Lab (2005-90k), Treadmill (2003-33k), aorta scan(2011-13k)EKG machine(2007-21k), phone system(2005-10k), 2 automatic BP machines(2013-10k), fax/copier(2016-3.7k), 4 medical chairs(2005-36k)

Average revenues for last 3 years was 850 and overhead is about 50%. He owns the building and if i decide to buy the practice, I would have to pay him rent which will add to expenses. He is asking for 550k. Is the practice really worth that much?

In today`s changing scenario, how would you valuate a private practice?

 

 

Click to expand…

So you are making $425K a year after overhead. If he’s asking 550K thats not bad actually.

1. Who is the competition in the area? Is there a hospital near by with larger practice? If so why hasn’t he sold to the hospital?

2. Is the revenue stable? When did he establish the practice?

3. How many patients? Would they willingly just come back to you? Can he market you as the ultimate taker-over?

4. Is there need for equipment upgrade? How are ancillary staff / morale?

5. Can you increase the business?

 

with your handle of kkr (m) – this is right up your alley!

Click to expand...

Thats the thing, pts could be poof and smoke. Hard to really believe that stays too much, at least hard to base revenue assumptions on it.

Idk anything about the equipment but I do wonder is that the assessed/depreciated value or the cost? If the latter, first off, yikes what kind of treadmill is that, but it should be the former.

[SValleyMD]

Go find a 550-800k employed gig and call it good.

No way would I try to best the system right now unless I was going to build a cath lab and had a booming peripheral business

Personally I wouldn’t count on outpt ancillaries to beat the money u can get on the open market right now - let alone the risk u take with the debt

[Kamban]

Unless you do a practice evaluation you have no idea if the revenue is true or not. What is the guarantee that the patients will stay with you. You will never get the reimbursement from insurance that the hospital gets. Finally the valuations for those 15 year old equipment is quite high, even their initial purchase price.

I would not buy this solo practice.

[kkrm]

Thank you every one for your insightful comments.

I did not like working for a hospital. You are just treated as a worker, and the staff are very reluctant when ever i want to add a patient. I can go on, but the list is long.

q-school, I am willing to commit some time to manage the business side of practice. The current physician has his wife on his payroll, mainly to get her retirement benefits in his own words. He owns a 8000sft building, but is pricing it at 2 million, and I am not interested in purchasing it. He occupies 4000 sft and wants around $4000-$5000 in rent for the space. He has 4 employees on W2 and echo tech, nuclear tech and sleep lab tech are on 1099.

I do plan to use the ECP machine. He has EClinical works for EMR. He has been seeing less patients in the last one year and had about 2500 visits in 2017. In prior years, he has a little more than 3000 visits each year. He has office only in the afternoon for 4 days a week. In the morning, he sees, in patients, (very low volume) or takes mornings off. He no longer takes any call (general or STEMI). He has all patients at 6 month follow up since he does not want to see them frequently (in his words, but looking at the numbers, he averages 3 visits for each pt in a year)

I am trying to find the market rent in that area and am willing to move in 2 years once i consolidate the practice.

He has 95% of inpatient work in one hospital and 5% in the other. I do plan to take call.

He has referral from 5-6 general physicians. He says that he never met some of his referring physicians. I do plan to market extensively.

I intend to start morning office too and take privileges in a third hospital.

He currently shares weekend call with 2 other independent practitioners in the area. He would introduce me to them.

mxg67,

I was in your shoes until recently. I intend to see all his patients, but you never know how many will stay. He did say that he is going to stay for 6 months after purchase to introduce all his active patients. So, for business reasons and to retain all of his patients, I do not intend to move at least for 2 years.

 

Complete Newbie,

The competition is 2 large private groups, one has 7 practitioners and the other has 8 practitioners.  Revenue was slightly high in previous years in high 800s and low 900s. In 2018, it was about $805k.

In the last one year, he saw 820 patients and had 2500 visits averaging 3 visits for each patient in a year. He is going to stay for 6 months and introduce me to all his patients.

All his staff have been there for more than 10 years plus.

I do think i can increase the business. Will start taking general call, STEMI call, i also do peripheral interventions, which he does not.

I did not know that there was a kkr investment firm. The handle suits me if i end up buying the practice.

Zaphod,

You are right, pts could disappear overnight. Thats one big risk.

The equipment cost was his purchase price. They must have depreciated considerably.

SValleyMD,

Most private practices are offering much lower salaries and try to cheat you when it comes to partnership. I am in a hospital employed opportunity, but hate it, there is no control over anything i do or see.

There are 2 private cath labs at 20 minutes distance. I can do my peripheral cases there initially. If my volume increases considerably, i plan to lease one of those labs for a few hours every week instead of starting one.

Kamban,

I am in the process of getting a practice valuation. HE currently gets 99% of the insurance rates. The plan(which he proposed) is to join under his group to get his rate.

[Complete_newbie]

I am no cardiologist, but besides the incredulous prices of some of those equipments (automatic BP machines are 10K? EKG machine 21 k?!) if you can capture his patients' trust/business it looks good. One reason is your confidence to increase business (seemslike you are motivated) + ability to increase business and then sell of/merge with larger competitors at a higher multiple/cash out.

Every business has risks. Here they seem reasonable to me (not a cardiologist though). I would have some clause to VERIFY the business he is claiming and (doubt you can get it) but 6-12 month hook something like partial payment and rest in escrow till you really work there for 6 months and see it for what it is.

Wouldn't there be rival groups looking at this though?

[Hatton]

I set up my own practice (ob/gyn) many years ago.  I think the prices for phone equipment, fax/copiers/, office chairs are very inflated.  They are really of no value now.  It just boils down to is it worth $550k   to you to be able to walk in with all your equipment and staff ready to go.  Working for yourself can be very rewarding.  You decide which hospital you want to have privileges. You decide who to hire and fire.  Not everyone likes the business of medicine but some do.  Medicine is changing but I think there will always be a place for people who want to run a small business.  I am closing mine now after 30 years but I have really enjoyed owning a business.  Lots of rules will not apply to the very small business also.

[kkrm]

Complete Newbie, I too think that the cost of some of the automated BP and chairs are very inflated. A simple google search shows that the cost of these machines is between $300 -$600.

I like your idea of having a clause inserted and make partial payment. If i do not capture all of his patients, then it would be a loss for me.

Yes, another rival group is also interested in making the purchase. I do not know their offer.

Hatton1, I too think that the cost of the phone, fax, chairs are very inflated too. That brings me to the question of whether he is inflating the cost of other equipment too. You have neatly summarized the reason I want to work for myself

[dentoid]

For those saying the price is absurd obviously do not understand and/or appreciate what EBITDA is. This is the exact reason why physicians are now corporate drones instead of controlling their own destiny..... I'd wager a bet the large doc in a box (AKA hospital) will scoop this up.

[Zaphod]

dentoid wrote:

For those saying the price is absurd obviously do not understand and/or appreciate what EBITDA is. This is the exact reason why physicians are now corporate drones instead of controlling their own destiny….. I’d wager a bet the large doc in a box (AKA hospital) will scoop this up.

Click to expand...

I dont think anyone thinks the practice price is absurd, if they can keep even 80% of pts first couple years its a still. It was the price assigned to the stuff, which doesnt really matter if its an all in cost of course. Likely could sell at multiples more.

I agree I think the other group or hospital will buy it up, makes sense from a competition standpoint.

[G-pathy]

That equipment is OLD! Already past it’s useful life and maybe so old that they won’t repair it. Look at some of the used equipment resellers to get a sense of what that stuff is worth (maybe nothing).

[G-pathy]

For example:
https://www.cardiacdirect.com/Product/Treadmill-TM-425.html