Solo practice differs from group or partnership practice in matters ranging from patient coverage to staff management to strategies toward equipment and capital investment.
These differences carry over into retirement planning, where solo physicians must make decisions from a unique perspective.
Although some industry observers call solo doctors a dying breed, we're not dead yet! The number of group practices has grown dramatically in the past four decades, the American Medical Association says, but groups (three doctors or more) represent just under a third of
Since it's more likely that this 70 percent majority of physicians are older (young doctors gravitate to group practice), it looks like there will be plenty of solo colleagues formulating their exit strategies. According to AMA data from 2007, 38 percent of MDs are age 55 or older.
If you're a solo physician, there's no reason to expect anything less than a successful retirement at a time of your choosing. In the past few years, as I planned my own retirement, I discovered nine key steps that can make an important difference in the quality of one's exit from solo practice.
1. Stay true to yourself. I practiced solo for 34 years until I sold my practice on Dec. 1, 2008. I will admit that I am (or was) old-school. New-school thinking emphasizes a lot of technology, a lot of technicians and a lot of delegation to those technicians. This system minimizes the time that the physician spends with each patient, maximizes the capacity of the practice and facilitates growth to the tune of double or triple the patients seen. I resisted this because I wanted to spend time with each patient. At most I delegated visual acuities, visual fields and instillation of dilating drops (my tech also did a pre-exam workup with automated equipment). I did everything else myself, meaning that I spent more time with each patient. Right or wrong, I really enjoyed that closeness with patients.
You might wonder if I felt isolated from colleagues. The answer is that I never felt alone. Since 1975, I maintained an association with Wills Eye Institute. I taught in the cataract and primary eye-care department, and could consult at any time with my colleagues there. I also got to know everyone in "vertical services," so if I needed any kind of backup, I had a renowned subspecialist who would respond that same day.
2. Take a gamble. About five or six years prior to my intended retirement at age 65, I received the advice to take on an associate with the intention of selling the practice to him or her. But over the years, I had observed colleagues who took on an associate, just to have the associate walk away when it was time to sell the practice. It seemed to have a 50-50 chance of working out, much like marriage today! I felt that if I took on an associate, I would have to take a drop in income, yet pay for more malpractice insurance and benefits, and still would not have a guaranteed buyer. I decided to take my chances. I said I would close the practice if I could not sell it, though I was well aware that it is illegal to abandon your patients. The physician must arrange for ongoing care, as well as store patient records and forward them when requested by the patient. I certainly wanted to avoid this situation if at all possible.
3. Think strategically. As time was marching on, I began to make other strategic decisions. In January 2004, I stopped performing cataract surgery because I wanted to get out from under the stress. I referred the surgeries to two different surgical practices, one located to the east of my practice, and the other located to the west.
Although I took a drop in income, this proved to be a propitious decision. First, I suffered a hip socket fracture in 2004 as a result of a bicycling accident, which kept me out of the office for three months, and on half-time for another month. I had good disability insurance that covered most of the bills, but the disruption to the practice would have been magnified if I had not already put the surgical referrals into place.
What I didn't know at the time was that when I began referring the surgeries to two practices, instead of just one, I greatly increased my chances for a successful sale.
The time spent out of the office recovering from the hip fracture did set my retirement timetable back. I could see that I would need to work an extra year or two to put the practice back on the same footing as before the accident.
A benefit of the injury and recuperation was that it reminded me of my mortality. It was important that my wife and I retire while we were still in good health and able to enjoy the active lifestyle that we both wanted. This experience also drove home the importance of negotiating a sale when you are in good health. If you are disabled, you are in no position to negotiate.
In 2006, we purchased a
Because my retirement timetable had been set back, I found myself in 2007 in the position of re-negotiating an office lease. I always had a renewable, five-year lease, but I did not want to be obligated for more than 12 months. The landlord, with whom I'd always had good relations, was willing to grant a year-to-year lease, but required that I give notice about my intentions three months prior to renewal on the lease.
That year, I put my finances in order. I knew I needed to have our retirement funds in a position where we would have access to them, should the stock market take a downturn.
That might seem obvious to you in late 2009, but remember that October 2007 was the height of the market. It took some discipline to "cash out" a significant minority position of our pension plan at that time. For this reason in 2008 and 2009 my cash position in the pension plan was not affected when the market crashed.
4. Get good advice. Even though you have been comfortable as a solo physician, you should not approach a practice sale on your own. Seek the advice of someone who has been through it before, and not just once. This is the time to obtain solid legal and tax expertise.
After doing some research, I came upon an attorney group in my area whose specialty is representing medical practice buyers and sellers, drawing up sales agreements and negotiating sales. I looked through the attorney CVs on the group's website, and contacted the attorney who seemed to have the background I was looking for. I interviewed him, and was impressed with his experience as well as his philosophies regarding his work. We discussed fees, and I was satisfied with what I heard.
5. Fair valuation. In February 2008, my attorney gave me a list of information that he would need to place a value on the practice, including earnings (personal and corporate tax returns for several years), overhead (salaries and benefits for my small staff of two, the lease agreement, etc.), and a DVD of the office.
The suburb in which I had always practiced was highly desirable with a nice mix of demographics. I knew this would add to the value, but I had no idea how much. I found myself in a position to which I was not accustomed: a little bit in the dark and obliged to rely on someone else's expertise. The hard part was waiting.
I knew I didn't want to "shop" my practice around to get the best price. I feared that my colleagues in the area might feel used by this process. I thought I should determine who would be most likely to buy the practice and focus on them. I began to evaluate the two surgical practices as potential buyers, as I knew they would provide high-quality medical care. One was a medical group that had undergone some significant growth and was not interested in adding to their heavy load.
The surgeon who was receiving the other 50 percent of my surgical referrals was young and wanted to build his practice. A satellite office in my area was desirable for him. I approached him and told him I was interested in selling the practice. He said, "Don't look any further, I'm the one."
6. Fair trade. If you are fortunate to have this kind of reaction from a qualified buyer, bear in mind that it has a goodwill value all its own. I asked my attorney to minimize any contentiousness during the negotiation. I did not want any hostility, just an amicable agreement that was fair to both sides.
We first executed an agreement of sale, which legally binds the buyer to purchase the practice. This outlined the entire sale, with everything clear-cut and defined.
Before signing, I had an important discussion with the buyer about my small staff. I asked him to agree to continue their employment and to maintain their level of salary and benefits. The buyer easily agreed, but if he had not, I would have been adamant. There is no reason for a buyer to deny a request like this; after all, the staff knows the patients and will have a lot to do with ensuring continuity of care. It is, of course, the only decent way to treat people who have been your trusted employees.
I gave the prospective buyer the agreement, and he shared it with his attorney. They came back with 12 points of difference. The good news is there was no deal breaker. I suggested we could iron out the differences ourselves, avoiding greater legal fees.
You might wonder if I got the best price I could. Frankly, I felt that arguing for an extra $10,000 or $20,000 would not make or break my retirement. The sale was what I wanted, and the sale price was fair.
There was one negotiation hiccup. The buyer's practice manager wanted to negotiate the lease with the landlord before the Agreement of Sale was signed. However, I knew that any protracted lease negotiation could present a problem for me, as I was legally bound to give up my lease or renew it by Sept. 1, 2008.
Once again, being direct and personal resolved the problem. I spoke with the buyer and explained that a delay in signing the Agreement of Sale could nullify the entire deal. He wanted what I wanted, and he signed the agreement in August 2008. I did what I could to facilitate a favorable lease for the buyer, and the landlord ultimately gave a two-year lease, renewable for five years.
7. Breaking the news. By the time the Agreement of Sale was negotiated, at least one of my staff members already had an idea of what was going on. When I announced the sale to the staff, I informed them their positions were assured, as were their salaries and benefits levels. I also explained that I would be working full time until Dec. 1, and then staying on for two days a week through May 2009. All of this went a long way toward a smooth transition.
On Oct. 1, 2008, we mailed a letter to patients that explained I would be merging practices with the younger doctor in order to provide new services and grow the practice. Nowhere did we say "sell the practice," although the staff knew that I would be relinquishing ownership and retiring fully in 2009.
About six weeks prior to my final departure, we sent another letter to patients that announced my retirement on May 31, 2009, and expressed confidence in the care they would receive from the new doctor (some of them already knew him because he provided their surgeries). We had a flurry of interest from patients, and I was touched by the 65 or 70 cards they sent, as well as many bottles of wine, restaurant gift certificates and books. It's nice to know they recognized the personal relationship that I had valued all those years.
8. Carpe diem. On Dec. 1, 2008, money changed hands. One check was for personal goodwill and was subject to a long-term capital gains tax of 15 percent. The remainder was paid for corporate goodwill, supplies, equipment and hard assets, all taxable at my regular rate.
It sounds simple, but by then, general financial conditions were not so good. Although I had faith in the individual, I did wonder if he would have trouble with the financing. We had our meeting scheduled for a Monday, and the week before, I called the buyer and asked if he had any problems. He said there was no problem, and asked if I wanted to have the meeting on Thursday or Friday. The financing had come through, he was a man of his word, and I got my money a few days earlier than expected.
9. Let go. On a personal basis, it was hard to let go. I wrote thank you cards to all the patients who sent gifts. They all tried to "squeeze in" before I retired. Many female patients hugged and kissed me. It's difficult to let go as physician who has the power to influence a person's care; you are no longer steering the ship.
I never thought the sale of the practice would be this simple and straightforward. Numerous people advised me to do it differently, and I knew it was a gamble. I did it my way, not the textbook way.
The new physician is doing a fine job, and it was a good investment for him. I'm happy with the remuneration, as well as the transfer of responsibility for the patients. I was offered the chance to return to the office on a part-time basis, but I said no. There's a lot to life, and practicing medicine is not all there is.
Dr. Wolf practiced general ophthalmology in Spring House,
