Practice Management

The Investments that Have Resulted in 1,000 New Patients

The entrance to Dr. Resnick’s New York City office. Dr. Resnick says buying other practices’ records has been a great builder of patient volume and profitability.

By Susan Resnick, OD, FAAO, FSLS

Sept. 29, 2021

Acquiring new patients is essential for the growth and continued financial health of an optometric practice.

As an independent, contact lens-focused specialty private practice, ours substantially relies on referrals from traditional sources including current patients, other professionals and social media marketing.

Over the past several decades we have also had the opportunity to complete several practice acquisitions in the form of records purchased. These transactions have proven to be timely transfusions for the lifeblood of our practice.

Here are the key steps we take to promote successful outcomes for record acquisitions.

Pre-Purchase Due Diligence
First, we determine if the seller’s practice demographics and level and quality of service represent a potentially good match. The target practice must be in close physical proximity (in our case within 10 blocks as we are based in New York City), the seller must have a heavy contact lens emphasis (as ours is a specialty contact lens practice) and the seller’s fee schedule must be reasonably aligned with ours (with a favorable percentage of private pay). Digging a little deeper, we look at how long the seller has been in practice, and the depth and breadth of the seller’s referral network.

If this initial overview results in a favorable profile, we then take a careful look at the seller’s trailing three years of financial statements, including balance sheets and cash-flow analysis. Additionally, we gather information on the number of active patients (which we define as having been seen within the past five years), the annual net revenue per patient and the percentage of loyal, repeat, patients.

Practice Valuation
There is no singular formula or “correct” method of valuing the records of a practice for sale. Because the buyer’s risks are considerably greater in this type of acquisition due to the absence of a physical transition phase, as well as patients being transferred to a different location, the seller must be willing to accept a considerably lower per patient valuation than that of a full practice sale. The buyer, however, must acknowledge the seller’s right to be compensated fairly for relinquishing ownership of their hard-earned, loyal, and still potentially profitable, patient base.

We look at both tangible and intangible assets when formulating our dollar amount offer. These include the number of active patients, the annualized net per patient revenue and a reasonable prediction of “capture rate.” We then look at the size of the transaction and use one of a combination of approaches – either full cash payment upfront or contingency-based payment. The latter stipulates that payment of a determined amount per record or percentage of net revenue will be made only if the patient presents for care.

For example, in 2017 we made a one-time cash purchase of 800 active records for roughly $40,000. We recovered our initial investment within seven months, and to date, we are still treating 336 of the initial patients plus scores of secondary referrals.

In April of this year, 2021, we engaged in a larger acquisition of roughly 10,000 contact lens specialty practice records, half of which are active. The total transaction amounted to a valuation of approximately $30 per record. The structure of this buyout involved 50 percent cash down, and the remaining 50 percent paid from monthly net revenues. The seller will then continue to receive 10 percent of our net revenues for two consecutive years. The benefit of this method was to both spread out the payments and to ensure that the seller remain committed to directing her patients and her referral sources to our practice.

In just six months we have provided services and/or goods to over 600 of these patients. While this is just a small percentage of the total patient base, we are projected to complete the initial cash buyout by the close of Q3 2021. We believe this is a positive indicator for potential revenues as more patients become due for their annual exams.

Ensuring Profitability
High patient capture rates result in short break-even periods and excellent returns on investment. We achieve this by contractually obligating the seller to draft mutually approved electronic and standard letters of introduction to both their patients and their referral sources at multiple specified intervals, to transfer rights of their practice names, URLs and phone numbers, and to agree to reasonable non-compete clauses. Equally important are the measures we take within our own office regarding staff training, drafting of welcome letters to patients and timely reports to referral sources.

We value both the professional and financial opportunity to extend the excellent care and personal attention to these patients that have been privileged to be treated by our esteemed, retiring colleagues.

Susan Resnick, OD, FAAO, FSLS, is president of Drs. Farkas, Kassalow, Resnick & Associates in New York City. To contact her: sresnick525@gmail.com

To Top
Subscribe Today for Free...
And join more than 35,000 optometric colleagues who have made Review of Optometric Business their daily business advisor.