Originally published on TheDentistsNetwork.Net
By Thomas L. Snyder, DMD, MBA, Senior Director | Henry Schein Professional Practice Transitions
Since early March, the pandemic has had a major impact on all
dental practices. As a result, many practitioners have given serious consideration regarding whether they want to return to practice at all or accelerate their practice transition plans. Approximately 32,000 dentists are now 65 years of age and older and still actively practicing. The majority of this group are also solo practitioners. As a result of Covid’s impact on the increased health risks to the older population, in general, as well as the increased costs of PPE and other infection control strategies for all dental practices, it’s no small wonder why so many dentists in this age group are taking immediate action.
The American Dental Association’s Health Policy Institute has been conducting a bi-weekly panel survey of 12,000 dentists. This survey began in March with approximately a 50% response rate. The panel survey has been tracking various statistics including patient volume and collections, and the employment status of staff. It also classified respondents as solo, group, and DSO categories. The panel survey also posed varying bi-weekly questions for a response. In the most recent survey panel conducted for the week of June 1, the following question was asked: “Do you intend to do any of the following in the next 6 months?” Of the 5,675 respondents, 13% stated they would sell their practice, another 16% stated they plan to retire, and unfortunately another 5.3% stated they would be filing for bankruptcy! Most of these doctors will not be returning to their practices.
Those who are considering a return may prefer to sell their practice as a “going concern” and possibly remain for a short transition period after the sale. However, with such a large number of doctors entertaining this type of drastic action, there will be many patients who will need a new dentist. This provides an extraordinary opportunity for many practitioners to assume the dental care of many “new” patients, immediately enriching their businesses and possibly enhancing their practice transition plans. Most Purchasers, however, are reluctant to pay all cash for an offer to buy a patient list. The biggest risk for them is whether the Seller’s patients will travel to their new practice location. On the other hand, it is extremely unfortunate for doctors who had a successful career to simply end it by handing over their patient list to a colleague in their area, without remuneration, or sell their patient list for a minimal fee.
There are several options for consideration that can mitigate these scenarios thus allowing a Seller to receive a fair return for their career’s efforts while at the same time provide a risk-averse way for a Purchaser to obtain many new patients for their practice. The first option is called the Production (Revenue) Acquisition Method. The first step in this method is to determine a value for the patient list which is reflected as a ratio of the most recent year’s gross receipts. This ratio should be in a higher range than for an all-cash patient list purchase since the Seller assumes much of the transaction risk. A down payment is usually required in this method, accompanied by the payment of a percentage of receipts generated from the Seller’s patients who join the new practice over a predetermined period. Payments are usually made quarterly. If the patient transfer is successful, once the sale price has been paid, the Purchaser has no further financial obligations. Conversely, if the payments made to the Seller fall short of the sale price previously negotiated over the payout period the Seller may receive less than negotiated. Of importance to note, some states may place limitations on this type of transaction as it may be construed as fee-splitting. Therefore, legal advice is needed to even consider this option as a viable strategy. Finally, the Seller should have the right to conduct an annual audit to ensure that everything is in order.
The second option for consideration is an Individual Patient Record Acquisition Method. This is accomplished by determining an active patient count of those patients who visited the practice over a 12 to 18-month period. Once the size of the active patient base is determined, calculate the average of the Seller’s total practice receipts over the last 3-year period and divide those average receipts by the number of active patients. This will provide an individual patient record fee. Typically, the payment of the patient record fee is made on the second patient visit and is paid out over a predetermined time frame. Both options are fair to all parties concerned and can provide a positive outcome for both the Seller and the Purchaser.