Editor's Note: Welcome to Medical Economics' blog section which features contributions from members of the medical community. These blogs are an opportunity for bloggers to engage with readers about a topic that is top of mind, whether it is practice management, experiences with patients, the industry, medicine in general, or healthcare reform. The opinions expressed here are that of the authors and not UBM / Medical Economics.
Five years ago, I bought a plastic surgery practice in the Pacific Heights neighborhood of San Francisco. More recently, I was asked to give a presentation describing that experience. It gave me the opportunity to reflect on my decision to move from Louisiana, as well as all of the business and marketing decisions since the move. In preparation for my talk, I had to objectively review the growth of my practice. The number of patients I retained from the previous surgeon and the revenue generated by that cohort of retained patient was surprising. Here’s what I learned.
A little background
After finishing my plastic surgery fellowship at Cleveland Clinic in 2007, I returned to my home state of Louisiana. The after-effects of Hurricane Katrina pushed a significant portion of the population from New Orleans to Baton Rouge. As such, one of the community hospitals in Baton Rouge, Our Lady of the Lake Regional Medical Center (“the Lake”) was looking for a plastic surgeon to help cover some of the facial trauma calls in the area. But the Lake needed more than just call coverage.
In the ensuing years after Katrina, this community hospital became one of the largest providers of graduate medical education in the state. Hiring a plastic surgeon was one of the initial pieces to that puzzle. As the new program coordinator in Baton Rouge, I helped formalize the Baton Rouge rotation for the plastic surgery fellowship training programs of LSU and Tulane that were displaced from some training hospitals in New Orleans.
I enjoyed my six years in Baton Rouge as an employee of the Lake. But as I started to build a cosmetic practice, I realized I needed/wanted my own operating room to provide a more personalized VIP experience for my patients. This tends to be the natural evolution of a plastic surgeon: start out mostly performing reconstructive procedures, fighting with insurance companies and then realizing that cosmetic patients wake up happy and appreciative and insurance companies are no longer part of the equation.
At some point, you recognize there’s no nobility in banging your head against the wall for payments that suggest all of your training and expertise really aren’t worth that much. Why put up with that condescension when you have an alternative that allows you to take care of patients, eliminate all that’s awful about medicine from your life and just enjoy the vocation you’ve chosen? If that’s wrong, then I don’t wanna be right!
The search for an operating room
By the end of my six-year stay in Baton Rouge, my wife and I were ready to make a move. Since I was an employee, I didn’t have a lease or guaranteed money I would owe the hospital. The other employees in the office would have the option of working in other departments in the hospital so no one would be fired with my leaving. With essentially no financial strings attached, and no kids, this seemed like the perfect opportunity for my wife and I to start a new life in a new place.
And with a couple of options found through plastic surgery job listings — junior associate to another plastic surgeon or taking over an existing practice with an in-office operating room — we chose taking over an existing practice with a AAAASF-accredited operating room. That opportunity just happened to be in San Francisco. Not bad.
Valuation of an existing plastic surgery practice
After speaking with the owner of the practice over the phone, we decided to fly to San Francisco to visit the practice. It was everthing we were led to believe. The office was clean, fairly up to date, adjacent to a hospital and had a view of the Golden Gate Bridge. And most importantly, there was an accredited office-based operating room. The reality of being in a more competitive environment quickly set in. There were a total of seven plastic surgeons in the building, two of whom also had an in-office operating room.
I expressed my continued interest in the practice and the seller made an offer. He based the purchase price on net revenue from injectibles (Botox and fillers) over the course of a year. In other words, 1) how much did the practice make in one year from Botox and fillers, 2) then subtract the cost of the Botox and fillers. Oh, and then he multiplied that by two. Apparently that’s a thing — a valuation based on multiples. The magic number was $191,000.
To ensure the accuracy of this number, the seller’s QuickBooks account and tax records from the previous three years were reviewed by my accountant and attorney. Their exact words were, “This seems too good to be true, but it is true.”