Buying or Selling a Practice

Transcription

1 Buying or Selling a Practice Table of Contents Introduction Seller s Profile Notifying Your Patients Non-managed Care Patients Managed Care Patients Employees Patient Profiles and Records Contracts Miscellaneous Introduction Buying or selling a practice may be a dentist s most important financial and professional commitment. To make the most informed business decision, evaluate a wide range of issues including: the buyer s or seller s profile, patients profiles and quality of treatment records, employment and contractual agreements, financial assets and liabilities, clinical standards and legal compliance. Approaching the purchase with a considerable amount of diligence and the advice of an experienced attorney is necessary for your success. This resource addresses risk management aspects of buying a practice. Areas of importance when considering purchasing a practice include but are not limited to: Distribution of dentists Number of dentists (general and specialists) in the area you are considering compared to the area s population Location evaluation Community s economic growth, taxes and cost of living in addition to commute to and from your office for both you and your patients Resources Hospitals, clinics or a dental school nearby for referrals and if patients go to a dental school or clinic rather than a private practice For more information on practice valuation, order Valuing a Practice: A Guide for Dentists or contact the American Dental Association of 5 Buying or Selling a Practice / A member benefit provided by the dentists insurance company

2 In developing this resource, TDIC researched and talked to experts in the field of dentistry, law and insurance claims. However, the ideas and suggestions contained in this resource represent experience and opinions of TDIC. There are no guarantees that any particular idea or suggestion will work in every situation. The ideas and suggestion contained in this resource are not legal opinion and should not be relied on as a substitute for legal advice. For legal advice specific to your practice, you must consult an attorney. Seller s Profile Some practices transfer patient care in segments while the seller remains in the practice for a time. If that is your plan, be sure the seller supplies you with: proof that he or she carries current professional liability insurance with limits equal to or greater than your own. proof of tail coverage (for claims made policies) once he or she leaves the practice in order to cover claims that may arise after the seller retires completely. When initially considering a practice for purchase, obtain the following: reason for the sale. number of new, active and insured patients. list of patient(s) currently in dispute or conflict with the seller and why. The patient may view the buyer as the heir to the dispute and liable to resolve it. malpractice claims or suits in process or other problems with current patients of record. names of patients who have not completed treatment and are ignoring efforts to return and why. peer review actions and how they were resolved. list of third party payers the current owner accepts. any disputes with other practitioners. Also, it is a good idea to conduct a number of random chair side visits to evaluate the quality of care. Such information will indicate any problems you may be inheriting that may become liability issues. Notifying Your Patients Non-managed Care Patients Identify all patients who need to be notified of the change. All active patients seen within the last two years should be told of the dentist s withdrawal from practice. Send written notification to those patients, allowing them enough time to secure the services of another dentist and to have dental records copied and forwarded. A copy of the letter should be placed in the patient s chart. As a second notification, but not in place of the personal letter, you can also add notices to invoices and post signs in the office. The letter should fulfill the following objectives: Advise patients of the importance of continued care, especially in instances of treatment in the temporary or provisional stages. Assist patients in finding alternative care by referring them to the local dental society for a referral and back to their insurance. If the patient does not have insurance, you can refer to a local dental school or clinic. Phone numbers should be given. In the case of a sale, the buyer should review the notification letter for compliance with the terms of their sales contract. State the dentist s termination date; the last day he or she will be available for emergency care. Include a separate authorization form for the patient to have his or her records released to a new dentist, the patient or the patient s representative. Give the name, address, and phone number where copies of dental records can be obtained after the termination date. 2 of 5 Buying or Selling a Practice / A member benefit provided by the dentists insurance company

3 It is preferable to give 60 days notice prior to the dentist s withdrawal from practice. However, the amount of time a patient requires to find another dentist will vary according to the patient s condition and the availability of alternative sources of care in the area. Thirty days is the minimum time one should allow. If you do not have access to the patient s mailing addresses, place an ad in the local newspaper for at least two consecutive weeks. Include information about how and where patients can obtain copies of their dental records. Managed Care Patients Verify the withdrawal from care protocol required under the terms of managed care contracts signed by the dental practice. Follow that protocol for the patients covered under the contract. If notification to patients is not addressed, be sure to use the preceding protocol. Employees Every buyer would like to achieve a seamless transition. The staff is extremely instrumental to that end. It is best that the patients feel as little change as possible in the practice by identifying with familiar faces. While considering the purchase of a dental practice, arrange a meeting with all staff to evaluate the team. If any member of the existing staff cannot transition from the selling dentist to the buying dentist, it may be necessary to replace that person before taking over the practice. While it may not be possible to discern everything at that point, a first impression can reveal much about the existing staff, i.e., neatness, efficiency, attitude, and experience level. The buyer is not bound to keep the staff at the status quo. A review of the existing Employee Handbook, if there is one, will describe the conditions of employment and the benefits the employees currently enjoy. Review all the employee files for disciplinary actions, performance reviews, salary increases or bonuses. The buyer can anticipate which changes or enhancements to duties, hours, benefits, wages, and job descriptions to make after the purchase. Once in the practice, the buyer should announce and thoroughly explain all changes to all parties affected. Employees should sign or initial and date changes in employment status and changes in the Employee Handbook. If there is an Employee Handbook, make sure it mirrors policies and procedures you want in your practice. You may choose to modify areas of the handbook or buy a new one altogether. Purchase an employee handbook designed for a dental office and includes your states laws. For more information on an employee Handbook, contact the TDIC Risk Management Department at Additional Considerations: Read the job descriptions; if none exist, develop one for each employee after you purchase the practice. Verify all licenses and credentials; ensure they are up-to-date. Compare the salaries with those in the community; are they too high or low? Know when the last salary increase took effect; are they due for an increase? Verify how work performance is evaluated and how often, then initiate regular performance reviews. Look at the rate of employee turnover. Will you keep the former owner as an employee? Sign an agreement detailing the length of time the former owner will work for the practice, how he or she will be paid and what will happen in the event you and the owner no longer able to work together. Also, make sure the former owner keeps his or her professional liability insurance. Patient Profiles and Records For long-term success, analyze patient profiles before purchasing an existing dental practice. Randomly sample at least 50 patient records and 3 of 5 Buying or Selling a Practice / A member benefit provided by the dentists insurance company

4 carefully scrutinize them. Develop a matrix with categories of importance to you and record your findings from the record review. Items to consider: Age of patients are they younger or older than you like to treat? Will there be a lot of denture work? Will you do the work yourself or refer it out? Ethnic backgrounds would a practice with a high percentage of one type of ethnic population pose problems for you to treat because of a language or culture barrier? Poor communication is the first cause of patient dissatisfaction. The proximity of patients homes to the dental office how many are likely to change dentists after the purchase in order to be closer to home? Recall compliance is there an effective recall system being used for patient compliance? Periodontal charting patient charts that do not reflect regular periodontal probings and measurements tell you there may be liability issues surrounding the practice for failure to diagnose or failure to refer periodontal disease on a timely basis. The resulting bone loss, unsalvageable teeth, and future treatment expenses may be perceived by patients as your responsibility because you are taking over the practice of the selling dentist. If the seller s referrals to specialists for periodontal treatment have been slow or lax, patients may perceive you as too aggressive in contrast. Patients who are mid-treatment request a list of patients who are mid-treatment and discuss how both parties will handle billing and how to go about finishing the treatment plan. Radiographs look for radiographic inconsistencies such as resolution, undiagnosed decay, or the absence of radiographs before invasive treatment. Such red flags could indicate that substandard care exists. Accounts receivable what percentage of patients pay cash, have dental insurance, are sent to collection? Standard of care the charts should reflect the current standard of care. Attrition consider the percentage of patients who left the practice in the previous two years and why. The purpose of such a review is to appreciate your new patients and whether you will be comfortable treating them. The patient profiles may indicate future treatment problems stemming from past treatment in that office and may become a conflict between you and the patient or you and the seller. To a purchasing dentist, charts of inactive patients (those not seen in the last two years) are not worth as much as charts of active patients (those seen in the last two years who come for regular check ups). Similarly, charts of non-compliant patients (those who do not follow or complete treatment or comply with billing arrangements) are not worth as much as those of compliant patients. The sales or purchase agreement should be very specific as to the disposition of the patient records. It should ensure patient access to the records as well as seller access in the event the seller needs them for defense in a malpractice claim. The agreement should define the period of time the records will be retained. TDIC recommends retention for at least 10 years from the date the adult patient was last seen, and for minors, 10 years from the date the minor was last seen or until the minor s 25 th birthday, whichever is longer. The sales or purchasing agreement should also stipulate that in the event the buyer decides to discard the records, he or she will give the seller first right of retrieval. In the agreement, spell out who will pay for storage and reproduction costs. To eliminate future confusion when trying to locate a file, develop an alphabetical list (by patient name) of records left in the buyer s custody. Both the buyer and seller should have a copy of the list. It is always worthwhile to verify the accuracy of the list. 4 of 5 Buying or Selling a Practice / A member benefit provided by the dentists insurance company

5 Addressing these common issues in the purchase contract may avoid many assumptions and misunderstandings related to patients and the disposition of patient records. Contracts Be aware of existing contracts made by the current owner of the dental practice that may pass to the buying dentist. Request a comprehensive list of contracts affecting the operation of the dental office, i.e., alarm systems, equipment maintenance, equipment leases, telephone systems, answering services, billing services, software programs, computer hardware, and any creditors with outstanding balances or liens against the seller. Any associate or hygienist who is a so-called independent contractor has some kind of contract, either oral or written. Review those contracts before the purchase and discuss them with the dentist and the independent contractor. Assume nothing and make your intended changes clear from the start. As the new owner, the buyer can be vicariously liable for the treatment of patients by the contracted practitioner, so it is important to personally review the finished work of any person who will be working in your future office. For associates, determine that the associate is insured with limits equal to or greater than your own. Ideally, both parties should be insured by the same dental malpractice carrier to ensure consistency in claims handling. If the existing owner of the practice is involved with managed care plans, evaluate whether you want to initiate a contract as a participating provider as these contracts are non-transferable. Has your patient profile review identified those patients as desirable to keep? Are those patients a large percentage of the practice? Retreatment can become the thorniest and most disappointing issue the two practitioners must work out after the sale/purchase. Before the sale closes, it is a good idea to have a mutually acceptable plan to handle patient demands for retreatment, or the buyer s request for retreatment. Usually, a third party is best to determine whether retreatment is needed. It is in both parties best interest to handle retreatment issues without putting the patient in the middle. Remember, a retreatment clause describes a financial arrangement; it does not relieve the seller from his or her duty as the treating doctor to have practiced within the standard of care, nor does it protect the seller from accountability to regulatory bodies or malpractice claims. Miscellaneous The value of a practice lies in its existing patient base. If the seller is no longer working in the practice, buyers often want to keep the seller s name on the door so patients continue to patronize the practice. In this instance, the buyer could consider keeping the seller s name on the door and obtaining a Name on the Door endorsement from his or her professional liability carrier. If the patient names both the seller and the buyer in a lawsuit, this endorsement typically provides a defense for both. Remember, a requirement of this endorsement is that the seller is no longer working in the practice. Before designing letterhead, invoices, signs and business cards, contact your state licensing and regulatory board to review the requirements and restrictions with respect to the use of business names. Advertising and coupons that are circulating at the time of the sale may obligate the buyer to honor offers which may have adverse financial consequences not previously anticipated by the buyer. Lists are not exhaustive of issues to be addressed, and suggestions may not be applicable to every situation. For further discussion, contact the TDIC Risk Management Advice Line at , Monday through Friday, 7:30 a.m. to 5 p.m. PST. 5 of 5 Buying or Selling a Practice / A member benefit provided by the dentists insurance company