Practice Valuation – The Basics

“Dental practices sell for approximately 70% of last year’s gross receipts, right?”

We find it fairly common to be asked this question…which leads to a discussion on baseline valuations and how they are performed for a dental practice.

Baseline valuations are based on two classes of assets: tangibles and intangibles.

Intangible assets include, among other things, practice location, goodwill and reputation.  Tangible assets include, among other things, equipment, technology/software, and the condition of the physical office space and furnishings.  Typically speaking, the breakdown between intangible and tangible assets in a basic valuation is 75/25 percent.

Of course, other factors go into any basic valuation.  This includes:

1)  Patient Base – the more active patients the better.  A family practice with a wide range of ages is better than a practice with only an older population.

2)  Profitability – like any business, one must look at a practice’s margins to determine whether the valuation should include a premium.  Practices with high overhead in the form of staff salaries and/or rent may inhibit the ability to pay a large loan back to the bank.

3)  Physical Condition of the Premises – this takes into account the physical building space, the condition of the equipment and supplies, and furnishings like carpet, flooring, ceiling tile, paint, etc.

4)  Location and Demographics – simply stated, a practice in the heart of Dupont Circle in Washington, D.C. will include a premium versus one in a more rural area.  New dentists like to live in urban/suburban settings, thus the location could account for a large portion of the intangible side of the valuation.

5) Miscellaneous Economic Variables – a practice that thrives on public and private insurance patients only will not be as attractive as a pure Fee For Service practice.  In addition, one would look to see whether more expensive procedures (endo/perio/ortho) are kept in-house or referred out to others.

Practices do often sell for approximately 70% of the previous year’s gross receipts, especially in the greater metropolitan Washington, D.C. area where we see higher numbers based on the factors outlined above.  Specialist’s practices can of course be higher.

We can be reached at 202-888-1732 with any questions about dental practice valuations.

The Strisik Law firm is a Washington D.C. Business and Health Care practice.

Medical & Dental Shared Space Arrangements

Medical and dental space sharing relationships are not only utilized among general practitioners but also among doctors within the same or similar specialty (for example, in the dental world with endodontists and periodontists…and in the medical world, with pediatricians and prenatal care providers) as well as dentists and medical providers in different specialties (for example, orthodontic and pedodontic relationships or dermatologist and optometrist relationships).

Such arrangements prove valuable irrespective of the age of the practitioner or the business of his or her medical practice.  It is especially ideal for practitioners who are semi-retired and for active practitioners who wish to reduce the number of days which they practice while simultaneously seeking to reduce their overhead.  Here are 5 important provisions found in space sharing agreements that your Washington DC business lawyer or health care lawyer should include.

1. Term of Relationship. This provision in the agreement specifies the length of time of the relationship between the parties subject to any earlier termination as permitted in the document. The parties usually choose a term as short as six months and as long as five years depending upon the types of commitments made by the parties to one another. Even if both sides desire a long term relationship (for example, five years), the parties must identify in their agreement certain events which would appropriately give either the right to terminate the relationship with the other. Such events include, but are not limited to, revocation or long term suspension of one’s license to practice medicine, death, or long term total disability.

 2. Use of Facilities. This provision in the agreement is one of the most important in the entire document. Both sides need to address the office space and time restrictions, if any, placed on each party. Is the entire medical office (except for the private offices) available for use by each party or just select areas? Is the use of certain operatories and the lab exclusive or non-exclusive? Specific days of utilization of operatories by the parties should be clearly set forth in the agreement; however, should the same time restrictions apply to non-clinical use of the premises such as administrative work and various paperwork duties? Should the space and time restrictions be waived if the other party is not performing any medical procedures? Only if there is a patient emergency? Are the space and time restrictions to be determined solely by one doctor and which may be altered in such party’s sole discretion? Or are changes and revisions to the time and space terms possible only by mutual consent?  These all should be discussed alongside your Washington D.C. health care lawyer.

3. Form of Operation. The agreement should confirm that the parties acknowledge that there does not exist an employer-employee relationship or partnership relationship between the parties and, therefore, neither doctor has the right to bind contractually the other by the such doctor’s actions or the actions of his or her associates or employees.

4. Separately Incurred Expenses. Because each party to the Space-Sharing relationship has retained his or her own separate identity and has maintained his or her solo practice in a group setting, it is important for the parties to identify what expenses, if any, remain the “separately incurred” expenses of each party. The most common example of such separately born expense is the doctor’s utilization of the hygienist or nurse practitioner and sometimes medical assistants. If there are special supplies which are used only by one doctor, these items can similarly be excluded from any jointly shared listing of expenses and can remain the separately borne expenditure of that doctor.

5. Indemnification. As noted previously, the Space-Sharing or Space Sharing agreement should acknowledge that the parties are not merging their practices with one another (thereby creating a partnership or corporate relationship) but are only sharing space and various support services while retaining their separate and independent legal status. Accordingly, in the event that either doctor is improperly named as a defendant in a Maryland or Washington D.C. lawsuit for acts committed by the other space sharing doctor, the agreement should provide that the innocent or blameless doctor should be indemnified or held harmless by the doctor responsible for the events giving rise to the litigation. Such indemnification provisions should be mutual and reciprocal and should cover any and all court costs, legal fees and other expenses related to the defense of any lawsuit. The provision should also include that the indemnified party may elect to select legal counsel of his or her choice to defend himself or herself.

I have had situations where one doctor finds another doctor to join his/her space; after great amounts of time and money are spent setting up the new arrangement (notices, stationery, moving, phones/cables, equipment) the original doctor changes their mind. The now-again solo practitioner is served with some type of legal demand to uphold a contractual agreement.  While the agreement should not prevent either party from terminating the relationship without cause, the agreement should provide for compensation by one party to the other if the party seeking a termination is doing so without cause.  All the reason why choosing the right Washington DC metropolitan area health care and business lawyer for these space sharing arrangements is crucial.

HIPAA Guidance for the Health Care Professional in light of Recent Tragedy

The above letter written and distributed by the Department of Health and Human Services on January 15, 2013, reminds us all that health care providers may make certain disclosures regarding otherwise protected patient information.

When confronted with a good faith belief that a serious and imminent threat to the health and safety of the patient or others exists, health care providers may alert persons believed to be able to prevent or lessen the threat.

In light of recent events, the takeaway from this HHS letter is that a warning can go a long way.

If you require the assistance of a Washington D.C. area health care lawyer with expertise in HIPAA rules and regulation, please contact the Strisik Law Firm today.