Buying a practice? Look at stats
By Steven Conway, DC, DACBOH, JD, Esq.

What types of statistics should I review in the course of deciding to buy a practice?

Making a good buying decision involves more than becoming acquainted with demographics and nondisclosure agreements (addressed in this column in Vol. 53, Issue 9). It also involves covering a number of practice statistics.

The following list is not all inclusive, but it will provide you with a series of baseline statistics to review when investigating the purchase of a new practice.

1. Patient visits. The actual number of patient visits is one of the key statistics to review when doing an analysis of a clinic.

Sellers often discuss the “potential” of the practice, but stick with the current statistic and review the last six to 12 months of numbers to discover trends in the practice.

Subcategorize, by percentage, the numbers into types of patients: HMO or managed care, workers’ comp, personal injury (PI), Medicare, Medicaid, cash, and insurance.

Assess the statistics to see if the practice is gaining or losing patients. (If this is a high-volume practice, allow for greater flexibility in the transition phase.)

The ability of the seller to transfer patients to the purchasing doctor depends on many factors, so the higher number of patients coming into the office gives the purchasing doctor a greater chance to retain them.

A final consideration in patient visits is the volume of patients per week. Does your energy level match what is needed in the practice you are considering?

2. New patients. The number and type of patients are important. But you also need to know the source of new patients.

Does the source match your business/marketing skills to maintain the current level?

For example: If the majority of new patients are coming from booth screenings, but you do not feel comfortable doing booth screenings, this may not be the practice for you.

Look beyond the actual number of new patients and determine if you can actually do, or be willing to do, the activities that create the current level of new patients.

Also, evaluate if the new patients are coming from a single source or multiple venues. Obviously, a multiple-venue practice is more valuable. A single-source practice is a liability to the new purchaser.

3. Services, income, expenses, and profit. Profit is the final factor in determining the value of the practice. A practice can have many services, but if the collections on those services are low and the expenses to run the office are high, then the actual service number is academic.

Evaluate the profit margin of the practice. Be sure to add in the cost of money to purchase the practice in addition to the potential loss of short-term revenue during the transition.

You should also evaluate the charges per visit. The selling doctor may be able to charge a high fee per visit, but the purchasing doctor may not have that ability.

You have to be realistic and honest in evaluating your actual skills and ability in each aspect of the practice. If you are not sure of your abilities, you should look for a practice that has a per visit charge that matches your clinical and business skills and beliefs.

4. Equipment. The value of equipment is more easily discerned than other things in the practice. The selling doctor remembers the cost of the equipment and generally wants to get as close to that price as possible.

Get an appraisal from equipment dealers for an accurate value of what you are buying. And find out if any equipment is leased or has any liens before signing a practice purchase agreement.

5. Managed-care contracts. Find out if the office has managed-care contracts and then assess if your clinical and business philosophies match those contracts.

6. Type of treatment. What type of practice do you want to have? For example: Do you want to specialize in sports? Pediatrics? Industrial consulting? Evaluate the practice to see if the practice fits into the type you want to have. 

If it is close, then you have the ability to transform it into your ideal practice. But a mismatch will have disastrous results.

For example: If you purchase a PI practice and are not interested in doing depositions or going to court, then your practice will slowly (or quickly) disintegrate.

7. Treatment plans. The difference between a wellness practice and an acute-care practice is very stark. Doctors with a philosophy more aligned with an acute-care practice should generally not purchase a wellness practice.

However, a doctor with a wellness philosophy can purchase either an acute-based or a wellness-based office.

Treatment plans are key statistics that show the type of practice you may be purchasing. A quick statistic to review is the patient-visit average (PVA).

To calculate the PVA, divide the number of visits per month by the number of new patients. Do this for six or more months and you will start to see a pattern within the office.

A good match occurs when the clinics PVA is about equal to the average number of recommendations you provide to your patients.

8. Active and inactive files. Find out the total number of files of the practice and request a percentage of active files to inactive files.

Active files are patients who have seen the doctor within the last six months. But inactive files are not all bad. They can be a hidden gold mine.

Please understand that there are many more factors to consider, but this list will give you many of the key factors to review.

Steven Conway, DC, DACBOH, JD, Esq., is a partner in True North Chiropractic Consultants LLC,  which provides guidance and ethical solutions to the barriers found in chiropractic practices. He can be contacted through truenorthchiropracticconsultants.com or by e-mail at chirolaw@aol.com.

DISCLAIMER: This column is provided for educational purposes only. The accuracy or timeliness of the information presented is not warranted. The information is not presented as legal advice and no attorney-client relationship is established.