Case Study: OB/GYN Practice Weighing Strategic Options and Decides Not to Sell

Setting:

Our client is a young OB/GYN physician that is one of three partners in a practice in Texas. In this increasingly regulated and challenging Affordable Care Act environment, he contemplated merging his practice with one of two large hospital groups, or another similar sized practice. We had only recently begun to on-board this client when he presented us with this “life happens” consideration, but we prioritized our on-boarding process to  move quickly in analyzing how this might impact his family’s blueprint for achieving financial freedom.

As the negotiations unfolded, his hope was that he could focus more on working with and treating patients, and less on managing the business.  Our client is extremely loyal to those who have partnered with him both within his practice and in the operating rooms of the hospital group(s) where he has primarily practiced. As discussions evolved, he became increasingly uneasy that he would be asked to make choices between cost and quality of patient care; choices that he was inclined to make in favor of patient care.  Our partners within our firm strive to run our practice from that same position, and so we understood this physician’s dilemma.

As is our practice, we helped the doctor look at “the equations and the emotions” of his financial decision. The “equations” component is simply the math - a look at the economics of the choices.. Helping clients sort through the "emotions" associated with financial choices requires us to serve as counselor, coach, mentor, and sometimes just a trusted friend.  We make no claim that we are certified counselors in any way.  We are, however, people that have families, run a business, and collectively have accrued a smidge of wisdom, patience and perspective along the way.

  • The equations…
    • The hospital group asked for a revenue sharing agreement in exchange for cost reduction
    • Payout was not going to materially impact this client’s ability to achieve financial freedom
  • The emotions…
    • Loss of control over who he and his current practice decide to care for
    • Becomes an “employee” of a hospital group and his current employees may or may not be employed by the hospital group and may not be able to support their families.
    • No ability to supplement income through moonlighting, if need be.
  • The choices…
    • Decline the buyout offer, and continue operating as they have been for ~10 years
    • Seek other alternatives to merge with another hospital group
    • Seek merger opportunities with other similar practices or “mega” practices
    • Begin teaching in local residency program

How Did We Help?

  • Provided financial analysis of their alternatives (e.g. merge with a larger practice, sell to one hospital group, remain independent and add partners organically).
  • Our team completed an extensive review of deal documents to provide a second set of eyes and attention to detail discussion. Through our objective cost/benefit evaluation we helped our client address the following questions:
  • What happens to the existing support staff for our practice?
  • How will their job satisfaction change by losing their autonomy?
  • What synergies and cost benefits are there (i.e. can they access human resources benefits and insurance at a lower cost) and can they expect to be able to share fixed costs with other partners or a hospital group?
  • We helped our client surmise what would happen to the current patient base, including how and whether non-compete and non-solicit and other contract agreements would impact their practice if they wanted or needed to make another change down the road.

Result:

Client decided that, on balance, even though the regulatory environment has become more and more onerous over the last decade, they still enjoy treating patients and value the leeway to put patients first that only owning and controlling your own practice allows. Client made this informed decision knowing that they still had a plan to achieve financial freedom, albeit on a potentially reduced scale.