Succession Planning: What to Consider Before Riding off into the Sunset
Wednesday, August 2, 2017 9:00 AM
As an increasing number of physicians approach their retirement years, many are grappling with their exit plan, while others consider options for slowing down their practice prior to calling it quits. The logistics surrounding either option — retiring or slowing down — is not simple and often leads to questions that are difficult to answer.
- What will happen to my patients and staff?
- Who will take over my practice?
- Does a new physician need to be hired?
- What is my practice worth?
- Can I still maintain my partnership shares when I reduce my time?
- Can I take less call? Who is going to pick up my call?
- Can I stop doing surgery and just focus on office patients?
- How will I be paid if I go to part time?
What to do
Unfortunately, there is no one right way to ride off into the sunset. When a physician retires or slows down, there will be less revenue coming into the practice. This will certainly impact the compensation of the exiting physician. However, if that physician is part of a group practice, he or she could impact the compensation of his or her fellow physicians, since many group practices share operating expenses based on productivity.
As a result, any retirement plan needs to be tailored to the affected practice, taking into account practice culture, demographics, and goals. Below are options for solo physicians and those who are part of a group practice to consider before winding down their career.
Options available to solo physicians include:
- Sell the practice to another person or group
- Merge with another group in the community
- Recruit a new physician to take over the practice
- Slow down and try to reduce expenses
- Walk away and close the doors of the practice
Options available to physicians in a group practice include:
- Give notice and retire from the practice
- Slow to part time and become an employed physician
- Consider a private equity partnership as part of an exit plan
- Hire a new physician to cover overhead expense, take call, and see patients
Having a roadmap to address these and other questions is called a succession plan, and many physicians are struggling to put one in place. With that being said, there are several actions physicians and groups can and should consider (and do) in advance. They include:
- Plan for retirement(s) at least two to three years in advance when possible. This may include a requirement for partners of a group to give a minimum of two years notice to receive full retirement benefits.
- Develop and have written guidelines in place for retiring group practice partners.
- Consider thresholds for productivity and time worked to maintain full-time partner status.
- Contemplate options for accommodating part-time status for previous full-time partners.
- Maintain good relations with other practices in the community for potential alignment or sale of the practice.
- Sustain strong operations to maximize the value of the practice for an acquisition, merger, or private equity partnership.
- Consider patients, staff, and physician legacy as part of the process.
Succession planning can be tricky and stressful; however, with proper planning much of the stress can be alleviated. Proper preparation ensures patients and employees are cared for, financial security is maximized, and the physician’s legacy is preserved. Think ahead, consider your options, create a succession plan, and enjoy retirement!
YOUR TURN: Does your practice have a succession plan in place? If so, what does it include? Please leave your response in the comment section below.