-The economics associated with the office-based practice of  medicine aren’t what they used to be. Reimbursements are declining, overhead  costs are increasing, and practices are facing competition from hospitals.

“Doctors are scared. They’re  not sure what to do,” says 

, of Houston, Texas, who spoke at a recent  gathering of the 

National Society of Certified Healthcare Business Consultants

As a result, many physicians  are considering selling their practices to hospitals. Healthcare systems negatively  affected in a similar trend that occurred in the 1990s, Tinsley says, are now  tying productivity targets and other measures to their base salary promises.

If you are considering selling  your practice to a hospital, Tinsley says the typical process works like this:

The  parties involved in the potential transaction sign a confidentiality agreement.

The  parties sign a non-binding letter of intent.

The  hospital board approves the purchase.

Third-party  assignments and consents are obtained.

Physician  medical staff and payers are credentialed (if they aren’t already).

At the due diligence stage, doctors  should ask themselves the following questions, Tinsley says:

What would  stay the same with our office, and what would not?

Who  would handle the billing and credentialing under the new arrangement?

What are  the termination-related clauses in the agreement? What is our guarantee period?  This is the hardest thing to negotiate,”Tinsley says.

What  would be the cost of malpractice tail insurance? How is payment going to occur,  and what are the cash flow consequences? For instance, if the hospital were to  add payment for the coverage to the physician’s bonus, then he or she would  have to pay taxes on it.

What is  the employment agreement length and compensation? Work relative value units (RVUs)  and total RVUs? Professional services versus ancillary services? Now that the  hospital will be billing for professional services instead of the physician  billing for ancillary services, can the doctor get a piece of the pie?

What is  the potential effect on referral patterns? This question applies mainly to  specialists, Tinsley says.

How can  I get the practice back if the arrangement doesn’t work out? What are the  details of doing so? Do I have to buy back the practice? What happens to the  employees my practice had when the hospital purchased the practice? Can I get  them back? Is there a non-compete clause in the agreement? Negotiate that if the  hospital terminates your employment voluntarily, then the non-complete clause  becomes null and void, Tinsley recommends.

What are  the potential effects on my practice’s employees in regard to hospital human  resources policies, the compensation structure, spousal employment, their  control over being moved to a different location, etc.?

What  would happen to our office lease and lease hold improvements? Will the hospital  assume these? How do I get my name off the lease? Is the lease transferrable?  What are the tax issues related to the capital lease of fixed assets? What  happens when the lease expires? Could I be moved to a different location that  is less convenient for me? What happens if I own the building?

What  assets would the hospital purchase, and what are the related tax consequences?

What can  the hospital do for me that I can’t do for myself?

“You’re about to lose 100% of  your independence. Is it going to be worth it?” Tinsley says. “I always ask  doctors: What are 

Tinsley says that a practice  sale may make sense for some physicians, including those who have been  practicing for a long time and who don’t have strategies to transition to  retirement. Other doctors may find mergers with other practices beneficial.  Still others may decide to remain owners, at least for now.

moderated a panel discussion at the recent  NSCHBC meeting. Look for coverage of the event in an upcoming issue.

Practice models for primary care offer revenue and lifestyle advantages

Emerging practice models focus on lowering overhead

Cash-only practice: How to get third-party payers out of the exam room

Legal

Considering selling your practice to a hospital? Learn the typical steps to the process and the questions you'll want to ask before signing away your independence.