JAN 2012

EyeWorld is the official news magazine of the American Society of Cataract & Refractive Surgery.

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January 2012 EWOphthalmology Business 63 Sell your practice to an insurance company? Why not! by Michael D. Brown, C.H.B.C. our practices for real fair market value and go to retirement with something. I receive phone calls every day from physicians who are now ready to sell (at age 70) and have had no planning for succession so their volume is in decline, and they have no idea of value but want out in 3 months. This does not compute—it can't compute. They might as well lock the door. You need to plan and control your own destiny. I would recommend selling to an insurance carrier. They have cash. They sign employment agreements that are reasonable. They have mar- ket. Let them have the total market but make sure you do the following: 1) Get your own appraisal. Deter- mine your fair market value. 2) Prepare for retirement 5 years in advance. 3) Be the aggressor. Contact the car- riers yourself. 4) Know what you want. Determine it from employment agreement to closing sale. W e all understand the tradi- tional ways to sell your prac- tice: • Hospital sale • Company buy-out • Partnership buy-in buy-out These are the normal analytics for a sale. Now I'm talking about selling your practice to an insurance company—a carrier. All of us have been reading about the buying of practices (all practices, not just primary care) by United Healthcare, Anthem Blue Cross Blue Shield, Cigna, etc. United's Optum health services unit includes 2,300 physicians in a range of specialties. Optum Chief Execu- tive Larry Renfro said his company "shares Monarch HealthCare's com- mitment to bringing patients, physi- cians, hospitals, and healthcare payers closer together in the mission to increase the quality and afford- ability of care." They are pursuing these buy-outs aggressively. I have interviewed and met with all the above. Let's look at some of the ad- vantages of a sale to an insurance carrier: 1) They truly get an appraisal and look at fair market value. Carriers don't guess—they hire the best ap- praisers and get fair market value. 2) They have money. They have cash. There is no stock play, no (typically) deferred compensation payment over a decade of time. Cash at closing, no headaches, long-term strategies, and cash. 3) After closing they leave the prac- tice generally alone. They don't try to change the world. They know what made you successful and want to keep it that way. 4) They employ the seller typically for 3-5 years and under a blend of productivity and equal distribu- tion. You are guaranteed payment as opposed to traditional buy-outs where it is truly eat what you kill or nothing. 5) Most carriers, insurance compa- nies, know how to run a business and make a profit. The old adage applies—business is business. If you want a friend, buy a dog. What are the downsides of sell- ing to an insurance company or car- rier? 1) Future anti-trust issues. Could the government put a stop to these ac- quisitions? Do we pay taxes? Sure they can. 2) Will this shut down hospitals or will the carriers start buying hospi- tals and totally control health- care? Possibly. 3) Will they use this as a bridge to change tax structure, reducing our ability to use the proceeds as capi- tal gains treatment? Maybe. 4) Will they close panel your prac- tice so you are only seeing the in- surance company's employees or select patients? Highly probable. 5) Will this be a means to an end where finally the insurance com- panies own and control all? Likely. Let's evaluate your real worry about any of the above five points. Why do you care? You care be- cause of one commodity—the pa- tient. However in the real world the patient could possibly be better taken care of financially and med- ically by the insurance carriers. Aren't we moving toward "big brother" controlling all anyway? I think in today's market and with the economy in the tank, we need to look at non-traditional ways to buy out physician practices; in- stead of just locking the door and transferring records, we need to look for a viable way in which we can sell 5) Engage the right people to make it happen (attorney, accountant, and consultant). In today's healthcare world, physicians need to be aware of all traditional and non-traditional ways to sell their practices. We still have the tried-and-true method of a young doctor coming into a practice for a couple of years as an employee, then buying into the practice and eventually buying you out of the practice the traditional way. Now we have the insurance carriers buying practices and controlling healthcare the non-traditional way. I believe in this nuance in the market. It is worth seeing if it works and not just looking through rose- colored glasses. Realize these people have the money, market, intelligence, and most importantly, the business savvy to make it work. What do you feel? Are you selling out to your enemy, the pirates of healthcare? A pirate's life for me! EW ABOUT THE AUTHOR Mr. Brown is president of Health Care Economics, Indianapolis. He can be contacted at 317-576-9600.

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