Investing in Medical/Dental Practices

Would appreciate insight from anyone with knowledge or experience:

I have a few friends graduating from top medical and dental schools who hope to one day partner with me in buying existing practices or opening up new ones and hiring dentists to work for us. They claim that their expertise and my line of credit can result in a very lucrative business with equity in the offices split between us.

Has anyone looked into this type of investment, compared to more traditional forms of real estate investing?

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Comments (17)

Mar 16, 2015

Interested in this as well actually

Mar 17, 2015

Australia-based, but check out 1300 Smiles (ASX.ONT).

Mar 17, 2015

look at specialists, make sure they're located near a hospital or have a geographical monopoly (e.g. only GI practice in a 30 mile radius).

stay away from dentistry, in metro areas it's uber competitive, they make hardly any money and they're a dime a dozen. dentistry is good in small affluent towns & suburbs.

Mar 17, 2015

Avoid medical specialities with high litigation costs. Had a buddy who became a partner at Ob/Gyn practice and got hit with a suite for a botched delivery. Nothing materialised but reputationally, they never recovered.

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Mar 17, 2015

forgot to put this there. opthamologists would be safer than cardiologists, as an example. the absolute best are radiologists and pathologists, extremely low litigation costs (plastic surgery, cardio, neuro, and I'm guessing ortho would all be high)

Mar 17, 2015

Exactly, it's all relative to what you do. The higher degree of risk (ie Cardiovascular, Neurosurgery, Non-Neuro Spine Surgery, Orthopaedics, OBGYN, General Surgery, Gastroenterology, Plastic Surgery and Pulminology, all of which happen to have the highest Malpractice Rates), the higher the insurance premiums will generally be. Oddly enough, that has little to do with the expected payout from a Malpractice case, where, in order, Neurosurgery (including Spine), Neurology, Internal Medicine, Pulmonary Medicine, and General Surgery, have the highest median payouts. I consider that more telling than the mean payout, which would put Pediatrics much higher on the list than it is.

Mar 17, 2015

Coming from someone who used to analyze physician practices, really just 2 things to keep in mind...

-Partner with individuals whose goal is to get acquired by mid-size physician groups (10-25). Mid-size groups offer great equity comp to junior level people and garner heavy acquisition premiums from hospital/health systems (practices who's patients are distant from that respective hospital's referral network).

-The deeper the specialty, the better (for example, Ear Nose & Throat docs who specialize in Balloon Sinuplasty procedures only), payers pay well for very defined episodes of care, since it's tough to generate effective clinical insight into such specialized procedures.

Best Response
Mar 17, 2015

Lets begin with the most simple fact here. Your friends don't have their residencies completed and haven't gotten their boards yet. Just because they have completed Med/Dental school does not mean they are able to go ahead and practice. Now, lets flash forward this a number of years, after they have their boards, they begin this endeavor with you. You all hop in a time machine and come back to 2015, where, for argument's sake, all of the boards taken are magically valid. Under the current rules and regulations, you need to make the following considerations:

1) What are the rules regarding ownership of a medical practice by a non-Physician? You want in? You gotta know those rules.

2) State Licensing - are you doing this as a multistate practice or a single state? It's one thing to have a license and see patients in 1 state and treat in a 2nd. It's another to see patients and treat in two different states.

3) Location and Scope of Practice - What geographic area are you covering?

4) Are there any other ownership issues that you may need to consider (Owning/investing in Surgicenters, other healthcare service companies, etc.) that you need to disclose?

5) How many specialties are you going to cater to?

6) Types of practices you are buying. Some practices are bought for the Book of Business (preexisting clients) itself while others are bought for the referrals being made and OR/ER Coverage that they have. Certain specialties are built on referrals from other providers, so you need to be aware about what you are actually buying?

7) Size and Scope. While I did mention the number the number of specialties, Size and Scope have a much bigger impact as it plays into the kinds, types and coverage policies you need for your "health group". It also falls in line with number 8.

8) Insurance Policy provisions - The bigger you get, the more negotiating power you have with insurance companies and hospitals. This gives you leeway for being in or out of network and the fee rates you could attempt to negotiate for. It also is important when considering the type of practices you are looking to get into and the specialties you are seeking, as what insurances they take will have an impact on the A/R of a practice. For example, what would be a $10,000 procedure billed out of network, would be paid out at $1,000 for the procedure when billed in network. Likewise, how much of the A/R is tied to variable sources, such as Legal under a Letter of Protection, Workman's Comp and Motor Vehicle Accidents, which all have their own sets of rules and have a major impact on the A/R. Likewise, PIP Arbitration, particularly in No Fault States, will shape the A/R as well because of the process, one that varies from state to state, by which PIP Arbs happen. Getting into the finances, particularly with specialties, can be a bit hairy.

Trust me when I said this, unless your friends understand the intricacies of medical billing, practice management and the finer points of Healthcare right off the bat, which I highly doubt because 99% of med students don't get it until they are well into their tenure in private practice (assuming they aren't employed in a non-ownership capacity by a medical practice or are employed by a hospital which does everything on the back end for them in the first place), on top of being able to grow a business and practice medicine, this is something that won't happen for a good 5-7 years after they get their boards. Or... your friends are studying to be Chiropracters... in which buying a practice is doable right out of school, but your a Chiropracter and that's a joke in it of itself.

@"thebrofessor", those only hold true when you aren't practicing in a heavily populated area. It's definitely nicer if you have a monopoly on the practice of a certain specialty at a given hospital, but in the larger cities and more densely populated states, that's not always the case. And even then, you'll generally find a couple providers for a given specialty within a 50 mile radius of each other. The thing is with that one, to get a Medicare One Time Out of Network Exemption to treat, there cannot a single physician in network within a 50 mile radius of the treating physician and the patient in question's residence. This has to do with having patients who will be referred to physicians and travel a bit of distance but may have a qualifying in network physician closer to the patient than attending physician is. Even then, being the big fish in an area comes with it's own set of issues. I'll give you the perfect example. In Jersey, there's a group called Summit Medical Group. They have 564 Healthcare Practitioners on staff (and I imagine that this is what the OP is looking to build to an extent). Malpractice Insurance isn't an issue since they have to self insure due to the size (and given the broad spectrum of practice, they have a blended rate that accounts for all of their specialties which reduces the net cost for their higher risk practitioners). They refer to other doctors in practice and keep the business in house as much as possible. They have offices in almost 30 towns. Despite having that large of a staff, they compete for OR Time in the same hospitals against dozens of doctors across all of the same specialties. They are on staff at maybe a dozen hospitals, surgicenters and facilities across North and Central Jersey and have affiliations with Atlantic Health, HackensackUMC, Carepoint Health System and Newark Beth Israel Medical Center. While they bring in a great deal of revenue (especially seeing approximately 55,000 Patients a Month), they aren't the only game in town. Unless you are practicing in some podunk area, expect there to be at least some degree of competition no matter what field your in.

@"Rumplesmoothspin", If you haven't gotten at least 1 Malpractice Suit against you, consider yourself lucky. There are hundreds of reason why a suit will be filed whether it has merit or not. It shouldn't sink a career if it's just 1 suit. If there were board sanctions.. that's entirely different.

Mar 17, 2015

in my part of the country, it's not uncommon. I used the GI example because I personally know someone who's the only GI doctor in his entire county or the neighboring county. I doubt he'd ever sell because he's rolling in it, but it exists, just not in the tri state area most likely.

great points, it sounds like you've analyzed these companies before

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Mar 17, 2015

That astounds me that he's the only GI in his entire county. He's gotta be raking in the money! They pay well.

Mar 20, 2015

Well there goes that idea haha

Mar 17, 2015

I think you owe Frieds a pint.

Mar 20, 2015

I used to work at a real estate investment firm and the partners have started buying dental practices. I haven't seen numbers, but it sounds like they are doing well.

Aug 13, 2017

Do you have a contact email I've been working in Dental for the 17 years and would like to speak to you personally

Mar 21, 2015

So your friends are barely qualified to tell me to brush my teeth after meals and somehow this makes them a good business partner?

No - you need to find a consultant who specialises in setting clinics up. They can give you everything you need for feasibility studies, modelling, break even points, and they'll also help you recruit and legitimise the idea when you have meetings with the relevant people. This is based on inside knowledge of a medium sized org that has grown to 10 clinics.

By all means hire your friends, but they will be working for you - not with you.

Mar 21, 2015

For dentistry in particular, take a look at this Senate committee report on corporate dentistry. It is targeted at dentists operating under the Medicaid program but the economics are likely to be pretty similar. In particular, there's an excerpt from an IM on Forba (I think it could be what is now known as Aspen Dental) as part of a PE fundraising exercise, and there are some numbers in there about payback, etc.

Coming from overseas, I'll admit I don't know the intricacies of the US market but the above report gave me a better understanding of these medical roll-ups.

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Aug 13, 2017