By MICHELE NICHOLS

If trends continue, 2019 will be a year when many local physicians acquire or sell a practice. One of the factors is the change in the workforce. The State of Florida's 2017 Physician Workforce Annual Report noted that up to 15 percent of physicians in Orange County plan to retire in the next five years. That report also noted that between 2012-13 and 2016-17, Orange County saw an increase of 13.7 percent in the number of practicing physicians.

What also continues to trend is the increasing number of established physicians who transition their businesses to hospital-owned practices. According to a report issued in March 2018 by the Physician Advocacy Institute, hospitals acquired 5,000 physician practices between July 2015 and July 2016. The southern region of the nation has seen a 125 percent increase in the number of hospital-owned practice locations between July 2012 and July 2016.

Below are five important actions to consider before buying or selling a practice:

Take a multi-disciplinary approach

Physicians aren't the only ones who offer referrals. As an experienced healthcare practice lender, I often advise on the importance of assembling a team who can help facilitate a sale and protect the buyer's or seller's interest. In addition to a banker who specializes in the field, this can include an attorney, accountant and valuation expert, among others.

Know the value

BankUnited's localized underwriting gives us a unique understanding of the marketplace and one of the most common questions I get asked is how we determine the value of the practice. Whether considering entering into a practice or exiting, the uncertainty remains of "What is it really worth?"

In terms of lending, the value of a medical practice is the price at which a subject practice would exchange hands between a willing buyer and a willing seller, when neither party is forced to buy or sell. It takes into account the special advantages of an established practice such as practice reputation, location, practice management and professional referrals which contribute to earning potential.

The value of a medical practice is determined by the likelihood of retaining existing patients and attracting new ones. The emphasis is on the amount of goodwill that can be transferred from one doctor to another. This differs from a non-medical business

where the emphasis is on goodwill that stems from trademarks, product lines, brand name, etc. Often such factors as the personality or credentials of the new physician will determine whether a patient continues to seek treatment by the acquirer of the practice.

The most common way to assess the true value would be to obtain an independent appraisal for the practice. If an appraisal is obtained, the appraised value will typically supersede any average revenue methods of value.

Create a financial forecast

However, you cannot ignore the past/potential revenue of the practice, which is difficult to gauge for several reasons not the least of which is the lack of metrics as the payment model shifts from fee for service to fee for value.

Of course, there is also pricing and billing challenges as the government or health plans typically set the price and remittance for a single invoice may come from a number of parties in various ways including from cash, checks, credit cards and health savings accounts.

Today, those getting their house in order to sell or physicians planning to acquire or launch a successful practice have technology on their side for revenue cycle management. At BankUnited we have the treasury management tools and solutions that allow practices the ability to treat every financial encounter the same, despite the payer. The collections are then automatically posted to the bills with a lower error rate freeing the office staff from coding and data entry.

Due diligence is required

In addition to a billing audit, a prospective buyer will review office and equipment leases, managed care contracts, other contractual agreements such as service agreements, medical records documentation and any legal issues or potential litigation.

In transitioning to a hospital-owned practice, it is important to understand how billing, coding and documentation may change as well as if the hospital will offer marketing support as it integrates the practice into its service lines.

Prepare for the change

To finance an acquisition or buy equipment, buyers may need medical office financing, working lines of credit or perhaps debt consolidations.

Just as you may plan renovations to sell or buy a home, there may be improvements that can be made in terms of instituting online and mobile banking solutions that offer access to account activity in real time and automate many bookkeeping functions. Practices can improve velocity of cash flow, reduce errors and maximize efficiency when lockbox services that process deposits and transmit remittance data are combined with revenue cycle management platforms.

As in medicine, consult a specialist. Regardless of where you are in your medical career, we can assist in practice acquisition, partner buy-in or buy-out, expansion, refinance and start-ups.

With 14 years of industry experience, Michele Nichols is currently serving as Assistant Vice President in Business Banking with BankUnited. She is responsible for business development, portfolio administration, and client relations. A resident of Longwood, Michele supports the Florida Association of Veteran Owned Businesses, Feeding Children Everywhere and the Children's Home Society of Florida, to name a few. She earned a bachelor's degree from Rollins College in Winter Park. Michele is currently based at 189 South Orange Avenue, Orlando. For more information, please call Michele at 407-308-3514 or mailto:mnichols@bankunited.com.