Questions Practices Should Ask When Being Acquired

Chip & Paulie's Webinars
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During last night’s webinar, I alluded to sharing a list of questions practices should ask a prospective buyer (hospital, other practice, PE-back entity, etc).

Below is my stab at with (with input from @dbannett, @Chip, and @lholder)

I tried to group the questions into functional areas to make things easier to follow, etc…

What else should a practice ask a prospective buyer if they are discussing the sale/acquisition of a practice?

Functional Area Question
1 Alignment What are your expectations of the practice?
2 Alignment What makes this practice so attractive to you?
3 Alignment If the buyer sells the practice at some point in the future, how much say will the doctors have in the new sale?
4 Alignment How will the buyer add value to the practice?
5 Alignment What does success look like to the buyer?
6 Alignment How does the buyer plan to expand/grow the practice?
7 Alignment What additional service lines, if any, does the buyer plan to explore/consider adding?
8 Alignment What are the buyer’s plans for geographic expansion?
9 Alignment What is the biggest opportunity identified by the buyer in the practice’s geographic area?
10 Alignment What vertical expansion plans do you have in mind for the practice?
11 Alignment What horizontal expansion plans do you have in mind for the practice?
12 Alignment Are you planning to acquire other practices in the area? Regional/Statewide?
13 Alignment What is your “Why”?
14 Alignment What is your mission?
15 Alignment If this buyer is new to an area and you don’t have critical mass to negotiate reimbursements with the insurance companies yet, how can you pay competitive salaries?
16 Alignment How do the providers walk away if the core business is not sustainable?
17 Background What is the buyer’s track record of returns on investment with similar deals?
18 Background What is the source of the buyer’s funds?
19 Background Can the buyer share recent financials (P&L and balance sheet)?
20 Background What is the general financial position of the buyer?
21 Background What is the source of funds for the buyer?
22 Background What are the buyer’s plans for paying down their own debt both in the short and long terms?
23 Decision Making What authority will the practice retain and in what areas?
24 Decision Making Will the practice have a voice in broader decision-making?
25 Decision Making Who will be in charge of the new company and how much in put will doctors have in the decision making?
26 Financial How long does the buyer typically hold the practice before selling it?
27 Financial How will the buyer validate their financial position during due diligence?
28 Financial How was the value of the practice determined by the buyer?
29 Financial How will the existing vaccine inventory be paid for?
30 Financial Will the buyer purchase the accounts receivables? If not, what happens to revenue from DoS prior to acquisition?
31 Financial Are there CE opportunities provided by the buyer?
32 Financial What types of data will the practice be required to share and how do they get it to you?
33 Financial How many years’ worth of this data will you require to be shared?
34 Financial Typically, how long is the process from signing the Letter of Intent to signing the agreement of sale and then ultimately to closing?
35 Human Resources At what point will the buyer know which employee(s) to keep and what will happen to displaced staff?
36 Human Resources Will the seller have a say in which employees are kept in the new venture?
37 Human Resources How does the buyer plan to recruit employees in the future?
38 Human Resources What will happen to the practice’s existing retirement plan (401k, etc)?
39 Human Resources What will the employee benefit package look like?
40 Human Resources What will the employee future PTO benefits look like?
41 Human Resources How will employee tenure/seniority be accounted for post-acquisition?
42 Human Resources What will the provider future PTO benefits look like?
43 Human Resources What resources do you provide with regard to HR management?
44 Human Resources How does the buyer provide opportunities for professional growth of staff and providers.
45 Human Resources Will retained managers be given new job descriptions so they know what is expected of them after closing should they elect to stay with the company?
46 Management Who will be involved with the managing of the practice?
47 Management Will existing management be retained or replaced?
48 Management What are the expectations of management teams in terms of financial goals and budgets?
49 Operations Who manages the website going forward?
50 Operations What will the practice marketing strategy be going forward?
51 Operations How do the practice bills get paid?
52 Operations What is the buyer’s preferred PEO / payroll processing solution?
53 Operations How do you plan to negotiate managed care contracts going forward?
54 Operations Will providers be involved in insurance contract negotiations or be notified of same?
55 Operations Who will decide which insurance plans to join?
56 Operations Who will be handling provider credentialing going forward?
57 Operations What is expected referral pattern for subspecialties, procedures and hospitals?
58 Providers Will there be any efforts made by the buyer to reach out to providers and staff after they’re notified of the sale to make them comfortable if not excited with the prospect of the buyer’s ownership or will that be left up to the practice?
59 Providers What is the process to add another provider to the practice?
60 Providers If physicians decide to leave after acquisition, what limitations will they face in terms of non compete agreement(s), etc.?
61 Providers How does the buyer plan to recruit providers in the future?
62 Providers What does provider base salary schedule and bonus program look like?
63 Providers Will providers have paid CME benefits? If so, how much per year.
64 Providers Will providers have other professional development support?
65 Providers Will professional dues be paid by the practice? Limit?
66 Providers Will providers at this practice be expected to rotate/work at other locations acquired by the buyer?
67 Providers Does your organization require a certain percentage of providers to sign on to complete the deal and if so, what is that percentage?
68 Providers Will existing ownership/management be included in the determination of compensation packages of existing providers?
69 Providers Will you share the proposed providers’ contracts, restrictive covenant (assuming it’s still legal) and pay structure (current and future) with current ownership/management prior to signing the agreement of sale?
70 Providers Given that most private practices pay lesser salaries as compared to the large institutions such as hospitals in the area, how will you determine retained providers’ salaries, and if they are competitive?
71 Providers If salaries to recruit new providers increases, do you adjust the salaries for existing providers? How? Frequency?
72 Providers What type of medical liability insurance does the buyer provide and if claims made, who’s responsible for tail coverage should a provider leave?
73 Providers Is the buyer willing to escrow/pre-pay medical liability insurance tail premium for all providers in the event that the practice is unable to achieve its financial goals?
74 Providers Will staff and/or providers be expected to cover other locations owned by the buyer but not part of the original practice that they came from?
75 Providers Under what circumstances would buyer move the practice to a new location or merge it with another practice? Will providers have a say in these events?
76 Providers What monthly/quarterly/annual reports will be available for the providers?
77 Providers What is the extraction plan in the event that the parties are not happy with arrangements in 2-3 years?
78 Providers Is there a time-limited buyback option if parties are unhappy?
79 Providers How will buyer release medical records back to the providers if they leave the practice?
80 Providers Will providers have a roll or say in capital improvements?
81 Providers Will the purchaser buy the provider’s building/facilities?
82 Providers In the event of purchaser insolvency, will providers have first dibs on purchase of the practice or a say in choice of new owner?
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I can think of a host more! I tried to make sure this isn’t duplicated, so forgive me if I didn’t line them up (but it’s also worth asking these questions 2x).

  • What does the purchaser know about pediatric practice management? What improvements can they expect to make?
  • What revenue improvement (or other practice management) guarantees can the purchaser make?
  • How will my group purchasing change (i.e., vaccine buying)? Will that be done centrally? Will I lose my credit card points opportunities?
  • What insurance plans will I be required to take? Will I be required to drop any? What do the fee schedules look like? [This is similar to one above.]
  • What EHR will I be required to use? What will the data conversion look like? How will my practice be trained?
  • Who controls workflow configuration for my practice? Can I have my own EHR protocols, defaults, auto-notes, etc.?
  • When can I expect to lose my billing staff?
  • What access will I have to detailed reports for my office? Do I simply receive monthly reports doled out to me or can retrieve my own performance data?
  • What is the long term “technical stack” vision for the company? Who will be the technical partners for all of the tools we need to run our practice (EHR, IT management, phones, clinical tools [portal, Dashboards, eRX, etc.]?
  • Who will manage my IT infrastructure?
  • Who has access to my data? Will other practices be able to see “my patients?” How is financial data segregated?
  • Describe the entire transition process (time frames, responsibilities, expectations). What goes well? What doesn’t go well?
  • How much experience does the purchaser have in the pediatric community? How have they supported pediatricians, children, and the AAP? How do we know that they understand the unique culture of pediatricians.
  • If the purchaser is PE-based, what is their expected roll-up schedule and to whom do they expect to sell?
  • How much warning does the purchaser need to give you to divorce you? If you divorce, do you have any opportunity to maintain your location, communicate with your patients, hire existing staff?

I feel like I could go all day!

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What an excellent list! It’s also a good list of thoughts for annual practice review/strategic planning. Here are a few I thought of:

  • What is their view of the role of the practice/their practices in the local community? Will they support the practice’s community support and involvement? Small and large, local baseball team to major events and community organizations? This is partially marketing but mostly just being a good neighbor. Do they support caring for the community where we all live, helping all the other people and organizations that contribute to the well-being of children and families?

  • Do they support the practice’s charitable efforts and giving, such as programs to address food insecurity and other social determinants of health?

  • Do they support programs like Reach Out and Read? Classes? Support groups?

These questions may be partially answered by the why and mission questions.

Pediatrics is the least profitable, and the extras are an extra expense. Many things that matter most in improving a child’s health (or a family) for a lifetime are not paid for directly.

  • Why pediatrics? What is the value proposition to them? What opportunities and strengths do they see there?

  • Why should we partner with them rather than seize these opportunities ourselves? Why choose them as a partner for this than some other source?

  • What do they see as threats to pediatric practice as we know it? In 5 years? 10 years? 20 years? Locally, regionally, and nationally? Wal-Mart Health Hubs? Amazon? Minute Clinics? Children’s hospitals & networks? Health system networks? Are the types of acquisitions such as Oak Street, VillageMD, and Summit by CVS/Aetna and Walgreens coming to pediatrics next? Are consolidations like Aetna/CVS and all that Optum/UHC is doing a threat? Is Optum/UHC itself an existential threat?

  • How are their perceived threats related to their strategy? (Hopefully, it’s not their strategy to exit before they become a reality!)

  • Can the practice participate in CINs, quality networks, etc. that don’t involve an ownership stake?

  • Are they committed to population health, practice transformation, quality improvement, and all that jazz? Will they provide the support and resources for it?

  • What will technological support be for business and clinical operations, patient engagement, and patient experience?

  • If dealing with private equity, in terms of provider compensation and bonus structure #62, if their strategy is to extract profit margin from value-based contracts, how does that trickle down to the individual provider, given the massive problems in measuring quality/value in primary care and in attributing value attained to specific actions and specific providers?

  • Will bonus incentives work towards or against our values? Will they promote teamwork or competition? Given human nature, will there be unintended (or intended) consequences? Will providers compete for the best staff or the healthiest patients?

  • The whole EHR issue.

  • Who handles coding, billing, and the whole revenue cycle? Is it centralized? What control will we have over it or specific reporting about it? How do we ensure it is done correctly, particularly if revenue is related to bonuses, profit sharing, etc.?

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Awesome questions from @ppulliam !

Keep them coming…I got some ideas on how to categorize them once we get everyone’s suggestions…everything we come up with together will be shared on the forum via a handy reference…

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Shared via email from a follower:

• How do you incentivize practice owners to stay on and continue to see the same volume of patients once they’ve sold you their practice? Do you use earn-outs (i.e. hold back some of the proceeds) or require certain patient volume targets post-sale?
• More generally, do you plan to use productivity bonuses/targets for providers?
• How long do owners typically stay involved after they sell you their practice? Are practice owners that sell you their business able to “roll” equity and become shareholders in your parent company?
• Generally, how do you think about compensating providers based on volume targets? Is that a big part of your comp model?
• Beyond potential EMR changes, what other major workflow changes do you anticipate for us post-acquisition?
• What are the most common reasons that you walk away from a deal after starting conversations with a practice owner?
• What are we doing better / worse than other practices you’ve evaluated?
• What do you see as the biggest opportunities to accelerate our growth?
• Are there other local acquisitions you plan to make? Are you in conversations with other practices locally?
• What missteps have you made and what have you learned from prior acquisitions?
• For investment firms, have you invested in other healthcare services or primary care businesses before?
• Will you make physical changes to the layout of our office?
• How do you plan to help us attract new talent to our practice in this tight labor market?
• Do you plan to change our branding/marketing strategy?

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Few items of interest related to the thread (and very informative with easy flow of things related):

Operational Challenges Facing Independent Practices:
Operational_Challenges.pdf (421.4 KB)

Proactive Strategies for Physician Groups and Other Healthcare Companies to Remain Independent:
Steps_To_Stay_Independent.pdf (990.1 KB)

Anatomy of a Private Equity Partnership:
Anatomy_Of_Private_Equity_Options.pdf (1.4 MB)

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More thoughts:

  • What are your values?

  • Do you have a proactive/preventive provider wellness program?

  • What do you do if a provider has symptoms of burnout or other struggles?

  • Do you have a proactive/preventive risk management program?

  • What support do you have for a provider when a potential lawsuit arises?

  • What is the role of advanced practice clinicians?

  • How nimble and responsive can the organization be to changes, crises, etc.?

  • How innovative is the organization clinically? In patient experience? What value is placed on innovation?

  • What about lactation support?

  • Who manages social media? What is the purpose of the social media strategy? (Do they have one?)

  • What steps are you taking to avoid the commoditization of pediatric care? Most parents want, and all need, a secure, stable relationship with a trusted health partner. Pediatrics is very different from adult medicine (I have a talk for our team based on the theme from Cheers).

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