Considerations for Buying an Urgent Care Operation
Private equity and health systems/payors each have long-term strategies driving their urgent care acquisitions. PE portfolios can sell larger urgent care companies at higher EBITDA multiples, while health systems can increase patient access points. Both leverage the pre-existing platforms to facilitate expansion, benefit from economies of scale and reduce costs.
Individual entrepreneurs may also see opportunities to get involved in an urgent care acquisition. These potential buyers look at clinics that they perceive as having profitability potential—given the right strategy, philosophical approach, and capital investments—and make offers to purchase. They don’t go in thinking they need to re-invent the wheel. Rather, they feel that that with upgrades in marketing, processes, industry know-how, and branding that they can boost performance and turn a for-sale clinic into a profitable endeavor after a change of ownership. To that end, we’ve put together a brief “acquisition checklist” that a potential buyer could follow to help them navigate through a complex purchasing process:
Creating an Acquisition Roadmap
- Develop a realistic timeline– An urgent care acquisition is a lengthy process, so expect a minimum six months to a year for the final closing.
- Determine acquisition structure– Will it be an asset sale or a stock sale? In general, sellers prefer stock sales given the lower tax rate on capital gains, whereas buyers prefer asset sales since the liabilities remain with the seller.
- Properly value the acquisition target – Enlist a valuation expert; determine profitability, payer mix, reimbursements, growth potential, staffing costs, patient volumes, location and visibility, etc.
- Conduct due diligence – Request documents to validate all representations and details included in the selling memorandum about the practice. Inspect the facility; Cross all I’s and dot all T’s.
- After-closing integration – In what capacity does the seller stay on? Advisor, mentor, or ambassador?
Considerations for a Potential Urgent Care Purchase
- Assets acquired – Intellectual property, medical equipment, computer equipment, electronics, furniture, fixtures
- Liabilities assumed – Product liability, employee lawsuits, contract disputes, etc.
- Existing market footprint – Number of locations, market share
- Compliance history – HIPPA, notifying patients of change in ownership, clear separation of the clinical practice and any MSO, etc.
- Valuation issues – Earnings, reimbursements, goodwill, tangible assets, etc.
Things to Request in Due Diligence
- Licenses and certifications (physician and practice)
- Third-party contracts (payors, management, etc.)
- Medicare billing (CHOW requirements)
- Healthcare compliance (HIPAA, HITECH act)
- Insurance compliance
- Medical malpractice claims
- Investigations (federal and state)
- Covenants not to compete
- Identify antikickback/Stark concerns
Hire Professional Guidance (Tax Expert) for IRS Due Diligence
- Timely valuation of assets
- FMV price/retained goodwill
- Retained rights
- Reasonable compensation/incentives
- Charitable purposes
Similar to the urgent care seller, a potential buyer will want to hire a team of advisors, starting with a business broker, to provide expert guidance and counsel through the buying process. Whereas the buyer requires a high-level picture of the details surrounding the acquisition, the advisors will deal with the minutiae, specifics, and fine print.
Conclusion
There’s a lot that goes into selling a medical practice like an urgent care clinic. Aside from the life-changing emotional impact of selling a business you strongly identify with, the sheer number of complexities associated with executing a sale from start to finish can make it a difficult, stressful, and time-consuming undertaking. Many of those same challenges exist from the buyer’s perspective, as performing a proper due diligence on a potential acquisition involves a significant time and financial commitment.
Therefore, for an urgent care buy-sell situation to be successful for both parties, experts, advisors, and specialists must be enlisted to facilitate the process and take the reins. Done earnestly with cooperation and transparency, the buyer and seller can both achieve their objectives, and walk away satisfied with the outcome.
Copyright: The Journal of Urgent Care Medicine, Alan A. Ayers, MBA, MAcc
