Delbert H

	Delbert H. Meyer, M.D.
	6620 Coyle Avenue, Suite 122 Carmichael, California 95608 Tel: (916) 965-5864 Fax: (916) 965-5880 Email: DelMeyer@DelMeyer.net www.DelMeyer.net
PULMONARY MEDICINE		MEDICAL EDITOR - WRITER

Pulmonary or Internal Medicine Practice Opportunity

I am planning to transition out of my Carmichael-N Sacramento practice over the next two years.

This Practice Would Be Ideal For A Pulmonologist, But Appropriate For An Internist

To help you evaluate the assets and worth of my practice, I have quoted a recent article below.

Medical Practices generally have three basic components of value:

1. Tangible assets

A practice’s medical and office equipment, medical and office furniture, medical instruments, fixtures and improvements—sometimes called hard assets—may be valued in several ways. (See itemization below)

In most outright practice sales, accounts receivable are not sold. Rather the seller simply keeps all monies collected after the sale for work done prior to the sale. However, if the buyer’s staff will be doing the billing and collecting, there is often a fee (up to 10% of collections) for that service. (See discussion of billing, charts, accounts receivable and IT, below)

The final component of value—intangible assets, transition particulars, digital patient records, and goodwill—may represent the largest sum. This component is also the most subjective and can be the most contentious part of the sale and transition process. There are numerous factors that influence the good will value of the practice, but can be the most important for the new practitioner in establishing a solid growing practice. These include the following:

Delbert H Meyer, MD
6620 Coyle Ave, Suite 122, Carmichael, CA 95608
916-965-5864 (office) 916-240-0793 (Cell)

I have been in a pulmonary practice in Carmichael for 36 years. It is time for me to move on to lighter obligations, with less after hours and weekend responsibilities, and I’m considering a number of options. I would like to transition my practice to a pulmonologist or an internist over the next couple of years. I would be able to work two days a week for about one year and probably two half-days a week for a second year. This will insure keeping the present active patient base of approximately 500, as well as continuing to attract new patients. There are about an equal number of recently inactive patient charts in storage. Patients come from Sacramento County, neighboring counties and adjacent states. My practice was 95% pulmonary, but, with the advent of managed care, has changed to about 60% pulmonary.

The practice security would be assured by the retention of the patients since I would continue working part time, as would my wife Linda, who is the receptionist and office manager. The patients know and like her and will continue with a new physician. Linda will be eligible for social insecurity in April 2008, at which time the practice should be doing well in the hands of the new physician.

We have also been doing clinical studies for about 12 years. Some years the revenue from the clinical studies has exceeded my practice income. I finished three studies last year. We are half way through a Boehringer-Ingelheim four-year study, which I will continue. Although I haven’t signed up for any new studies because of this planned transition, I still receive weekly requests to conduct new studies. Boehringer has already promised that a new associate would be immediately eligible for a clinical study. That would mean the new physician, should he or she be interested in pursuing clinical studies, would need to hire a Clinical Research Associate (CRC) instead of a Certified Medical Assistant (CMA). The up front revenue could be significant and frequently equals 10 percent of the entire study.

My initial office and subsequent enlargement was financed by a $75,000 Bank of America loan. The x-ray and PFT lab later required a $25,000 loan.

My PFT laboratories were purchased through Richard White, my cardio pulmonary tech (CPT) who subsequently went into PFT sales. Due to planned obsolescence, he was able to acquire a $35,000 three-year-old hospital PFT lab for $5,000 when the hospital purchased a new one. In the same manner, he acquired a $17,000 Arterial Blood Gas analyzer for $3,000. These purchases, along with Richard’s expert CPT skills, allowed the office to provide sophisticated pulmonary function testing, even before the large hospitals in the area had gained such expertise.

I retired this large laboratory a few years ago when it too became obsolete. I also retired the ABG equipment several years ago when the cost of maintenance exceeded the revenue.

At the present time, I am doing PFTs through a KOKO spirometer and have not re-acquired a diffusion apparatus. The ABG equipment has not been replaced. This replacement would have to be evaluated from a cost-effective standpoint by the new pulmonologist. An internist would probably forego it. The KOKO should be adequate for an Internal Medicine Practice.

Most research studies now use a KOKO laptop computerized PFT device. I’ve had as many as four KOKO laptops in my office at the same time, one for each study.

Fluoroscopy and x-ray licenses would allow the new physician to supervise chest x-rays in the office. For 12 years, I employed a CXR tech, but am currently doing my own, which only takes a couple of minutes to do.

The office is built for two employees comfortably. One position at the front desk is filled and will remain essentially filled until the new physician decides the need for change.

I. Tangible Assets

1200 sq ft office fully furnished with equipment and furniture

Consultation room
                Consultation desk and chair
                Two side chairs for patient and consultants or guests
                Two side filing cabinets
                One credenza cabinet
                Two bookcases

Waiting room
                Eight chair reception area with magazine tables, corner table, paintings
                Glass enclosed message board

Reception area
                Computer on a network
                Office Hours patient scheduler
                Color fax, printer, copier
                Copier
                Filing cabinet
                Patients’ chart file – approx 500 active charts. Additional charts in storage nearby.

Billing Office/Transcriber Office
                Computer server for the four office computers
                HP heavy duty Laser Printer
                Supply shelves

Two exam rooms (each furnished as follows)
                Electric table – original costs $3500, now about $12,500 – important for elderly patient safety
                Variable height doctor's exam chair
                X-ray view box
                Sink with side desk and overhead cabinets
                Two patient chairs
                One filing cabinet or credenza
                One digital ECG machine; BP and Oto-ophthalmoscopes

One PFT laboratory (also doubles as the third research room)
                Computer for the KOKO spirometer
                HP Laser jet printer
                3-liter calibration syringe
                Sink
                Cabinets
                Research desk and bookcase

One CXR unit with dark room – Initial cost $21,500
                Processor
                X-ray duplicator
                View boxes

Two research rooms (each furnished as follows)
                Research desk (place for research computerized KOKO)
                Research bookcase
                Research filing cabinet
                One office refrigerator
                Additional worktable in one

Coffee room with sink and microwave
                Desk with overhead shelves
                Bookcase
                Side filing cabinet

One storage room nearby (80 square foot)
               Chart and x-ray storage (additional 300 or so inactive charts)
               Research storage
               General office storage

II. Billing, Charts, IT, and Accounts Receivable

As noted in the article above, Accounts Receivable generally is not sold. Since I propose working a day or two a week to assure a smooth transition and future growth of the practice, my present biller will continue to work to bill my 4 to 8 hours a week and bring in old statements, and she will be paid by me for this work.

The same biller would provide excellent continuity to a new physician with smooth billing procedures and transition over the two-year period. This PT job is about four hours a week.

There is a Medi-Soft billing system on the office server where all the patients are entered and the statements derived. This can be accessed from any of the four office computers. This has been updated to HIPAA compliance and electronic billing where available.

The Biller is also a bookkeeper, should the new physician desire bookkeeping services. This would be an hour or two above the four hours a week required.

Since my wife Linda, whom the patients all love, will continue working, initially full time and progressing to part time, she will initially be paid out of the Accounts Receivable and my continued productivity a couple of days a week. She should be transitioned to the new physician over this two-year period when the cash flow allows.

There is an Office Hours scheduling system on the server and all the computers. All patients and appointments are scheduled through this system and can be accessed from any of the four computers. All meetings are also recorded in the system so the doctor is always apprised of his schedule.

The Relay Health system is also operative on all the computers, which allows the requests for referrals and E-scripts to be sent electronically. Since Relay Health has information on the insurance formularies, this has reduced the number of callbacks from the pharmacies because of non-coverage of a particular prescription.

All our patients' history and physicals are typed up and on the server. Also all yearly re-exams are also on the server. These can be accessed from any computer in the office. These can also be accessed by using a PCAnywhere program if desired.

The office has a DSL Internet system, which allows rapid access to email, Internet search, and accommodates the increasing digitization of medical information. This is through Covad and Earthlink, since neither our phone company, SBC nor our cable company Comcast, provide service to this business area.

I have been using my personal laptop in one exam room, which allows me to enter patient data directly into the electronic records and save transcription costs. I use this for the yearly exams so the extensive 4-6 page follow-up history and physical are essentially done when the patient leaves the office. I have not needed a transcriber this past year. My former CRC/CMA did all my transcriptions for 10 years. I can also access Relay Health from my laptop and print out the prescriptions for the office record.

III. Intangible assets, transition of practice, office records, and goodwill

The practice is mixed with Medicare, TriCare, Managed Care, MediCal and Private Cash-Paying patients. The practice was 95% pulmonary with a good mix of asthma, COPD, lung cancer, asbestosis, silicosis, Sarcoidosis, Eosinophyllic granuloma, tuberculosis, cocci, quadriplegics on ventilators, and various other diseases. (I believe I have the world record of maintaining a Muscular Dystrophy patient on a ventilator for 29 years. I made monthly visits to his home during most of those years.) Of course, there were a variety of other diseases found in these same patients including heart, hypertension, diabetes, and general internal medicine problems.

This practice has become about 50% managed care with the advent of the HMOs; the other mix as above continues. I did not continue with Credit Cards when the expense of setting up the expensive electronic system came along. This should be re-implemented since private patients like to pay with credit cards. I discontinued my Workers’ Comp portion two years ago, but there are many requests to resume this, which the new physician could do.

With the advent of managed care over the past two decades, the patient mix has changed with many still requesting my care because they have pulmonary disease. Then spouses entered the practice with the internal medicine problems including heart problems, hypertension, diabetes, migraine, multiple sclerosis, muscular dystrophy, hay fever, allergies, thyroid problems, pancreatitis, hepatitis, colitis, Crohn’s disease, ulcerative colitis, leukemia, lymphoma and cancers of various organs, just to name a few. This practice could be developed in either direction.

There are three managed care organizations in the Sacramento area: Sutter Medical Group, UCD Medical Group, and Mercy's Hill Physician Group. This practice is located next to Mercy San Juan Medical Center and thus is primarily Hill Physician for all HMOs. Other practices in this same area are members of two or more of these MCOs, while some remain totally private and even cash-paying practices. The new physician would have the option of enlarging this base or direct the practice into a more private-based environment. Third-party billing is done through the MCOs, Medicare, Medical, Blue Cross, Blue Shield and other private insurers.

The practice is located in the Northern Eastern portion of Sacramento County and encompasses the communities of Sacramento, Carmichael, Antelope, Citrus Heights, Orangevale, and portions of Roseville and Folsom. Referrals and primary care physician requests come from all these areas.

The practice is located in the St George Medical Building at 6620 Coyle Avenue in Carmichael, across from Mercy San Juan Medical Center. This is the largest accumulation of doctors outside of downtown Sacramento, with more than 400 physicians on the avenue and adjacent area. MSJMC has an active trauma unit and emergency department and will be building a patient tower in the next year or so.

My referral base has always been somewhat larger. I have patients from Marysville, Yuba City, Clear Lake, West Sacramento, Forrest Hill, Pollack Pines and other Sierra Foothill communities. I still have a few patients from adjacent states that see me yearly when they visit their families in Sacramento. Of course, these are strictly the consultation portion of my practice.

Although there is significant competition in any area, this area, being a growth area, is always in need of more physicians and specialists. Hill physician is always in need for personal physicians and one should be able to get into a MCO if desired. At the present time, there are a number of pulmonologists who are doing primary care. Many patients with pulmonary disease have come to realize that they will never see a pulmonologist in an HMO with a general medical primary physician and thus choose a pulmonologist for their personal physician. Although our pulmonary portion has dropped from 95% to about 60%, this has given us a pulmonary base of continued care, which in the past was primarily consultative care. I have had great satisfaction in managing a total pulmonary patient during these years. Obviously, the practice is also perfect for an internist since we now have a variety of internal medicine problems.

The St George Medical Building on Coyle Avenue is one of seven large multistory buildings in this medical community near Mercy San Juan Medical Center. There are approximately forty doctors in the building when it’s full. The office rent for 1200 square feet is $2600 per month. This is favorable for the area, with a few of the one- and two-doctor buildings costing less and the newer buildings costing $3 a square foot. The lease would be taken over by the new physician within 30 days after starting, with a new lease required for a minimum of three years. The current three-year lease expires this year.

The other major expense would be the hiring of a medical assistant or a clinical research associate who are usually also medical assistants with the additional research training. I sent my former medical assistant to the CRC seminar in San Francisco when I started doing clinical research. After the second or advanced course, she passed her CRC Exams and became a Certified CRC. She received an award for being the most accurate CRC from one of the largest pharmaceutical houses for the work she did in my office. These salaries now start at about $2,500 a month for one with minimal experience.

The rest of the overhead is the usual phone system, office exchange, white coat laundry, paper, medical, laboratory and computer supplies that can add up to a thousand or two a month.

The malpractice rates for internal medicine and general pulmonary medicine doing bronchoscopies are one of the lowest offered by Norcal Mutual. My premium for general pulmonary medicine doing bronchoscopies and general ICU work, including ventilator management, was about $2500 a quarter. This includes my part-time nurse practitioner who works one-half day a week covering me on Thursday afternoon.

For a Pulmonologist doing critical care, the rate would obviously be higher, but competitive with most other states.

The practice is in a growth area with an aggressive hospital expansion program, which provides the incentive for future growth and even adding partners. The office could handle two pulmonologists, one with a busy hospital practice where only one was in the office at a time.

An internist wishing to add partners would have to enlarge the office in two or three years. There is one larger office available at this time in the building and others would be expected to come up from time to time.

One of the major positive factors is that I will be willing to work approximately two days a week for the next year to keep the patients coming and firmly established in the new practice. I would then work two half-days a week for a second year to keep new patients coming into the practice. My referral base extends about 50 or more miles out. This week I saw an IME from Yuba City sent by a disability firm in Pennsylvania. I will continue to attract this type of consult as the senior man in Sacramento during this transition.

With reduced hours, it is obvious that new referrals and new patients would in large part accrue to the new physician, which would build that practice during the course of two years to the point of being very profitable where an associate might be contemplated.

My wife, Linda, has been the receptionist and office manager this past year. She is willing and desirous to continue in that capacity. This will allow for smooth staff transition to the new physician. She will work for the same amount of time beginning five days a week until the new associate hires his/her own CMA or CRC and is fully trained. She would then like to work approximately four and one-half days a week for one year. She desires to continue at approximately four days a week for a second year until her Social Insecurity comes due in April 2008.

Since Linda has been the personnel manager for a large department store, this continuity will also allow for a “class act” at the front desk, where the practice faces the public in the community. It will also facilitate smooth patient growth and incorporate them into the practice. Thus, a solid practice loyal to the new physician should rapidly develop.

Although the practice uses paper charts at this time, the consultations, initial histories and physical exams, and yearly follow-up exams have been typed for the entire 35 years and entered in the computer for 10 to 15 years. This practice had seen 29,000 consultations over 30 years, when the present billing system required letter codes rather than the previous numeric codes. The last 5,000 or more have been recorded digitally. This has allowed us access to records of patients not seen in a decade or more from any computer in the office. These records will also be available to the new physician as part of the entire purchase. This is a wealth of clinical data that few practices can boast. Last week, we were able print out four years of records on a patient seen from 1995 to 1999 in which the chart had been shredded in 2003. (At that time we closed a storage bin of old records and medical journals for which we had paid $100 a month for 22 years. We had not fully realized the $25,000 storage cost for these records until we decided for the first time to shred “out of date” records.)

Practice evaluations are always a negotiation. We think that we have an ideal situation for a

pulmonologist or a general internist. We would be happy to hear from interested parties who would like to practice Pulmonary or Internal Medicine in Sacramento. The transition process takes much of the risk out of establishing a new practice.

As the above authors state in their article in On Call, the longer the seller stays around, the higher the value of the practice.

Please email your interest and particulars to DelMeyer@DelMeyer.net and make sure that Responding to Practice Opportunity is in the subject line. Also, feel free to leave a message at my office number or with Linda.