Putting a price tag on your practice; Abusive patients: one strike and you're out
"What's your practice worth?" [April 11] was well written and informative, but didn't consider the impact managed care has on the way we measure a practice's value.
Years ago, when patients stayed with "their" doctor because of his location or because "the family has always gone to him," the physician who bought a practice usually inherited the patients, too. Since they would generate a guaranteed income stream, the seller could figure the size of his patient population into the price of the sale. But today, it's the insurance company that truly "owns" the patients.
So, whether a buyer is excluded from many managed care panels or just decides not to join them, his diminished control over which patients can see him makes the size of the patient population alone less importantand less valuable. This is especially true when buying into a partnership where compensation is based on productivity.
I submit that many retiring physicians do not understand the complexity managed care has brought to the market. They still believe that their sweat and the number of patients they have are the only measures of a buy-in, and set an unrealistic price that many younger physicians are unwilling to pay.
Harris Management Group
You did a great job of covering the complex subject of practice valuation. However, you repeated a common mistake with associate buy-insconfusing ownership with income.
Consultant Gary Matthews says it's unfair when buyers purchase an equal share of the practice with the understanding that they will be paid according to their productivity. He asserts, "If you buy a third of the practice, you should get a third of the income." This equation is simply incorrect.
Ownership means assuming the risk of owning the business, signing the leases and loan agreements, and not taking a paycheck when there is no money. It is quite apart from earning income, which involves an entirely different set of components such as skill, practice style, and productivity.
Randy R. Bauman
Delta Health Care
Your advice stacks the deck against associate physicians who want to buy in to a practice. You tell physician-owners to offer recruits compensation lower than the going rates, with the understanding that, down the road, they'll be able to buy a share of the practice for as little as $1,000. However, if, for any reason, the buy-in never comes to pass, the associate ends up having been underpaid for several years' work.
Your experts also discourage discussing a buy-in price with a potential associate during hiring negotiations because the numbers may change in the future. But that way you run the risk of having the deal fall apart due to "sticker shock" at the time of the salea waste of time for everyone involved.
Jack Valancy ConsultingCleveland Heights, OH
"Why I wouldn't give in to Rachel," [Mar. 21] is a perfect example of why we should fire problem patients from our practices. Rachel had a "previous outburst" at the same office in 1995. If one of my patients is in any way verbally abusive to a physician or employee, we send a legal "drop" letter and expel her from our office. There is no second chance. We have dropped dozens of abusive patients over the years and have had no second thoughts or regrets.
If internist Katherine Fisher had dropped Rachel after the first incident, she would have spared herself a lot of grief.
Samuel M. Richton, MD
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Letters to the Editors. Medical Economics Jul. 11, 2003;80:12.