The doctor was in his mid-50s and hoped to retire in three to five years. But he had a pressing decision to make before then: Should he sell his practice to a hospital system or remain independent?
He earned about $350,000 annually from his practice, which served nearly 3,000 patients, but his future income was likely to decline. Insurance companies were providing smaller reimbursements, and he needed to invest in an expensive electronic medical-records system and then train his staff to use it. Meanwhile, three hospital systems were courting the doctor, wanting to acquire his practice and bring him on as an employee.
“He was in a good financial situation, but just not quite there in terms of retirement savings,” says Doug Loftus, managing member of Cincinnati-based Wealth Dimensions Group, which manages $360 million for 200 clients and specializes in advising physicians. “The question was, should he continue doing what he’s doing, which gives him independence but also carries some risk, or work for the hospital system?”
It was a complicated decision, so Mr. Loftus helped his client assess his options based on financial and lifestyle considerations. First, he analyzed the client’s expenses to get an accurate picture of how much he would need to live comfortably in retirement.
Then, the adviser created projections for revenues, expenses and personal income based on three different scenarios for the future of the practice–staying independent, selling to a hospital, or switching to a concierge medicine model, which treats fewer patients that pay a retainer to have 24-hour access to their doctor.
If the doctor maintained status quo, Mr. Loftus projected his income would decrease by about 8% annually for two years, due to declining revenue and increased expenses. “He would have to work an extra year or two to make up for that,” he says.
Selling to a hospital offered a financial upside. The doctor’s salary would be more stable and he would receive matching funds from the hospital’s retirement program. But the doctor would lose his independence, something that was important to him.
If the physician switched to a concierge model, Mr. Loftus determined that he would need at least 400 of his patients to pay a fee of $1,600 per year. The practice’s revenue would shrink by $200,000, but he’d also reduce his expenses by cutting his staff, so his salary would stay the same. However, being on call all the time would be a significant lifestyle change.
Throughout the process, Mr. Loftus shared additional information gleaned from his own industry research, such as attending health-care conferences and meeting with hospital executives. For instance, he explained how hospital systems measure physician productivity and suggested his client could increase his pay by seeing more patients and handling more complex cases.
But the adviser also prompted the physician to consider how each choice would affect his quality of life–a major concern for this client. The doctor had worked at a hospital system before, and greatly preferred working for himself, even if it meant his income was less predictable.
Nevertheless, the doctor recently decided to move toward a hybrid-concierge model. He aims to move some patients toward the concierge model, but will continue to see a smaller number of insured patients than he currently does. He’ll maintain his independence, but the concierge fees will help stabilize his revenue.
Mr. Loftus says that the compromise represents the benefits of thoroughly exploring all of the physician’s options and their consequences. “We want to empower our clients to make the best decision available,” Mr. Loftus says. “They should feel like there’s no stone left unturned.”