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Early retirement planning and open communication can help you find a buyer for your practice, ease your transition to retirement, ensures your practice thrives and provides effective care coordination for your patients.
Robert C. Scroggins, JD, CPA, CHBCNearly half of all physicians are older than 50, and approaching retirement. Early retirement planning and open communication can help you find a buyer for your practice, ease your transition to retirement, ensures your practice thrives and provides effective care coordination for your patients.
You’ve worked hard to build a successful medical practice and you are beginning to see the retirement light at the end of the tunnel.
So now what? Who will care for your patients? Will you be able to find a buyer who is the right fit? How do you make sure you go into the transition with the best chance for success?
Whether you have a solo practice or are part of a group, the main ingredients for a successful transition are advanced planning and good communication.
This may seem obvious, but as practice management consultants, our firm has encountered situations where a failure to address these fundamentals resulted in a failure of succession.
Here are some of the essentials to a successful transition when you approach the end of your career.
The importance of advanced planning
A practice has much less value at the “last minute,” and the last minute will sneak up on you faster than you suspect.
This is true in any case, but particularly if you are in solo practice. An abrupt retirement will drive your patients to another doctor in short order. The astute type of successor, the kind of person you want to attract, will look for a well thought out transition plan, because risking a loss of patients is counterproductive.
Having a good transition plan is an indication of a well-run practice and sends the right message to your potential buyer.
Even in a group setting, a quick departure will impact value since much of the overhead will continue. Ongoing overhead without related production takes money right off the bottom line. Patients will typically hang in longer with a group, but if they can’t get an appointment with those who remain or don’t have a good opportunity to build rapport with their new doctor, they will leave.
Good advanced planning ensures that all stakeholders (you, your partners, and the new doctor coming in) are all on the same page. Planning before a transition is on the horizon is beneficial because it helps avoids decision making based on individual agendas and instead causes everyone to think in terms of what is best for the practice.
In order to facilitate a smooth transition and establish expectations, here are important topics to address and questions to answer within your group.
How early should you start?
How much notice is required to retire with full value (i.e. stock value, account receivable payout, etc.)?
We recommend a minimum of a year, and to have the notice and timing well-coordinated with the recruiting time table for doctors completing training.
For example, if a one year notice is required but is given at year-end, you may miss out on the doctors available the next summer.
What about partial retirement?
Is semi-retirement, dropping call, etc. allowed? If this is not decided in advance, some doctors will assume that going part time is naturally permitted.
But, a part-time practice still requires space and overhead and can limit capacity necessary for a new doctor to build a practice. Economically, accommodating a part-time doctor is difficult without a significant reduction to compensation.
A semi-retirement arrangement should ideally have a defined duration only long enough for the transition to be successful, and it should be allowed only if it is good for the practice as a whole.
Required retirement age?
Should you have a required retirement age for physician owners? This can be helpful. Age 65 is typical for practices that have such a stipulation. It is also a good idea to have senior doctors exit management responsibilities in advance of actual retirement, such as at age 60.
An important caveat: Make sure you establish a provision like this with the guidance of legal counsel so it complies with relevant age discrimination exceptions, and be consistent by applying the same requirement to all similarly situated physician owners.
Transparency, communication is key
More transparency is better. It is important to make sure that expectations are the same for the doctor leaving and the doctor coming in.
As you recruit for your replacement be proactive with sharing detailed information about the practice culture and financials. As part of the interview process have the new doctor spend time at the practice to get a feel for how it operates.
Without open communication we find that the failure rate is around 50% simply because assumptions surrounding important matters will be different in the mind of each party.
If you are leery about being an open book, particularly with financials, then do so under a non-disclosure agreement with your prospective successor agreeing to keep the information you share confidential.
And keep in mind that culture trumps everything else. You can find the most technically skilled successor, but if that person doesn’t fit the culture of your practice, what you worked hard to build will not last for long.
Seek out good advice
Finally, work with advisers who are practical and understand how medical practices work. Transition planning and execution does not need to be complicated.
If you pick a good practice management consultant, accountant and/or attorney, they will be valuable to you in planning for and facilitating the process and can bring insights from other engagements in order to anticipate and resolve issues before they become problems.
Stick with the plan
It is bittersweet to retire from a rewarding career of serving your patients so it can be difficult to let go.
If you go through a careful process to pick the right person, you should feel confident about the ongoing care of your patients and actually enjoy watching a younger physician embark on the journey that you once took yourself.
Robert C. Scroggins, JD, CPA, CHBC, is a management consultant and principal with ScrogginsGrear, Inc., in Cincinnati, Ohio. Send your practice management questions to firstname.lastname@example.org.
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