business

How selling a practice kept it in the family

A father wanted to pass on his solo practice, but his son wanted a different setup. What they did reflects changes in physician business between generations.

By Victoria Stagg Elliott — Posted March 12, 2012

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For the past 30 years, Domingo Ngo, MD, has loved being a gastroenterologist owning a solo practice and the small, one-story building it occupies on a tree-lined street in Stuart, Fla. His wife, Josefina Ngo, RN, was the practice's nurse, and their son Benjamin Ngo, MD, wanted to finish his gastroenterology fellowship in the summer of 2011 and come work with them.

“During all my years of practice, I always thought that I would just have a solo practice and do whatever I needed to do,” said Dr. Domingo Ngo, 64.

The practice truly was a small family business, with one office manager making appointments and handling most of the day-to-day administration. If Dr. Ngo retired and was unable to find another physician to take his place, there was a chance it would have closed. He hoped it would be able to continue if his son joined him.

They wanted to work together, but the son didn't want to join the practice in its existing form. Although he followed in his father's gastroenterology footsteps and wanted to practice alongside him, he didn't want to be a solo-practice physician.

“Running the practice looked like it was going to be a challenge,” Dr. Benjamin Ngo said. “As a medical student, a resident and a fellow, you don't really get any exposure to the business side of medicine such as contract negotiation, reimbursement and coding. I'm not prepared for that, and I didn't want to learn it the hard way.”

The elder Dr. Ngo didn't blame him and, during the past decade, was finding solo practice harder to sustain because of increasing regulation and declining payment from government and private insurers.

“I asked [my son] and told him the situation,” he said. “I wasn't going to be practicing forever. Did he want to be in solo practice and handle the business aspect? My son said a definitive, 'No!'”

But the father and son still wanted to work together. They started thinking how they could do it.

Familiar situation

The younger Dr. Ngo has plenty of company in not finding solo practice appealing.

According to numbers released Jan. 6 by the American Hospital Assn., 91,282 physicians and dentists were employed full time by community hospitals in 2010, a significant increase from the 62,152 who were working at community hospitals in 1998.

A survey of 2,379 physicians released Nov. 19, 2010, by the Physicians Foundation reported that 28% described independent private practice as a “dinosaur soon to go extinct.” An additional 58% said it was on shaky ground.

A survey of 302 residents at the end of training released Oct. 5, 2011, by Merritt Hawkins & Associates, a physician search firm based in Irving, Texas, reported that 32% were interested in hospital employment, but only 1% would consider a solo practice. In 2001, 3% wanted hospital employment and 8% desired solo practice.

Dr. Benjamin Ngo is not aware of any of his peers who have decided to go it alone.

When his father set up practice, the situation was very different. Born in China and raised in the Philippines, he moved to Utah in 1973 to pursue a PhD in biochemistry. After a few years, he realized clinical research was not for him. So he moved to Florida for residency and fellowship and established his gastroenterology practice in Stuart in 1981. The small town on the state's east coast attracts snowbirds looking for fishing, scuba diving and natural beauty. According to the Census Bureau, Stuart had about 10,000 residents in 1980, but Dr. Domingo Ngo said during the winter the population swelled to about 50,000.

By 2011, Stuart had more than 16,000 residents and expanded to 100,000 during the winter. Stuart is the seat of Martin County, which grew from 64,000 at the time Dr. Ngo set up his practice to 146,000 today. The practice needed electronic medical records not only to keep up with new technology but also to keep track of the growing pool of patients.

Administrative requirements were becoming heavier, and it was unclear what impact health system reform would have on the practice. Dr. Domingo Ngo was working later into the evenings, and administrative tasks were taking over his weekends and cutting into family time.

“In the past, when I took care of patients, it was just taking care of patients,” he said.

Over the years, because of the increasing pressures of solo practice, Dr. Ngo and his wife tried to dissuade their three children from following them into health care. Their daughter, Katrina, is working in the nonprofit sector, and their older son, Stephen, is a lawyer, but he specializes in health care cases. “We never pushed our children,” Josefina Ngo said.

Dr. Benjamin Ngo, their middle child, is the only one who went into medicine. He recalled that when the family walked around town, people would stop to tell them what a great physician his father was and how much he had helped them. “It made me proud of him,” he said.

And it also helped make the son want to become a physician and work with his father. “I knew my dad worked hard, but he was always accessible, even though he essentially dedicated his life to helping others,” he said. “His ability to balance his career and home life seemed contrary to what you typically think of a physician. Dad always seemed fulfilled and content as his practice matured, and that was what I wanted.”

A decision to sell

So how could this practice be passed from the father, who wasn't quite ready to retire but may do so in about five or six years, to the son, who didn't really want it in its existing form?

Dr. Domingo Ngo did what many other practices have done, or are considering doing -- he contacted a local hospital to see whether it would buy the practice.

In February 2011, he approached Martin Health System about purchasing the practice and employing him and his son. Martin has two hospitals and 12 medical centers in the area, including a facility down the street from Dr. Ngo's office. Father and son considered aligning with other small groups of gastroenterologists in the region but believed the health system offered more stability. Martin has been buying physician practices steadily since the 1990s. (See correction)

“We were not proactively going out and buying practices, but we thought this would be a really good thing,” said Steven Myrick, assistant vice president of the Martin Medical Group that now employs both doctors.

But like many people facing great change, a decision to sell the practice and become employees involved significant fear and trepidation. Was this really going to be good for the Ngo family?

“I was so scared,” Josefina Ngo said. “I thought: 'We will not be a business. They are going to rule you. They will tell you what to do.' There were some nights when I prayed a lot for guidance.”

Dr. Domingo Ngo would shift from being a physician running a small business making all the decisions to one with a job in a health system that made most practice management determinations. Hospitals are buying a growing number of physician practices, and some of these deals go well. Others don't. Contracts can be full of pitfalls. Sometimes, personalities clash. In the mid-1990s, the last time hospitals purchased a large number of physician practices, significant amounts of money were paid out, but most of these deals fell apart before the decade ended.

Josefina Ngo said when her lawyer son, Stephen, reviewed the contracts from Martin, he told his father, “You should have done this a long time ago.”

The contract took about five months to finalize. Because Dr. Benjamin Ngo was working on his fellowship in Philadelphia, most face-to-face meetings were between his father and Martin Health System officials. Father and son spoke frequently on the phone to work out various details.

“I had a lot of trust that my dad had my best interests in mind,” Dr. Benjamin Ngo said.

Father and son became Martin employees on Aug. 1, 2011. Dr. Domingo Ngo still owns the building, but the health system owns the practice. The sign on the door has not yet changed -- but it will.

“Let them do the administration work,” Dr. Domingo Ngo said. “The deciding factor is actually my son joining me, but, to be perfectly frank, I'm more than happy that I took that step.”

Satisfactory solution

In the end, it appears all players got what they wanted. The father and son are working together, and the practice, in some ways, is staying in the family. Martin Health System was able to keep both physicians caring for patients in the region.

“We have an aging physician work force, and, from our perspective, this was succession planning,” Myrick said. “It made sense.”

Thus far, the arrangement appears to be working well. The practice is implementing an EMR system that it could never have afforded without Martin Health System. Both doctors are learning it. The practice cares for as many patients as it did before, but the senior Dr. Ngo is spending far less time on administration.

“It's almost like I'm practicing just like I did before, but I don't have to spend my weekend and after-office hours looking into my business,” he said. “I have more free time.”

Giving up the administration, however, means some loss of control over the business, such as who can work in the practice. Josefina Ngo lost her job because of Martin's rules restricting spouses from working together, although she doesn't seem to mind. The senior Dr. Ngo does not seem to miss many aspects of running a solo practice. Less hassle at the office may be translating into less stress at their home.

“It's hard for me to explain the look on Domingo's face when he knew Benjamin was going to be his partner,” Josefina Ngo said. “But I got the feeling he was excited.

“Probably, eventually he would like to retire, but he seems to be really enjoying practice so much more now.”

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ADDITIONAL INFORMATION

Where residents want to work

When he was a resident, Benjamin Ngo, MD, was hardly alone in wanting to work somewhere other than a solo practice. Merritt Hawkins & Associates, a physician placement agency based in Irving, Texas, surveyed 302 residents about their plans at the end of training. Interest in hospital employment grew significantly from 2001 to 2011, while the number open to group employment or solo practice went down.

Resident plans after training
Placement20012003200620082011
Hospital employment3%4%52%22%32%
Partnership21%41%71%24%28%
Single-specialty employment24%30%91%23%10%
Multispecialty group employment28%13%60%16%10%
Outpatient clinic8%2%17%8%6%
AcademicN/AN/AN/AN/A2%
Locum tenens3%1%9%0%1%
Solo8%4%8%1%1%
Association0%2%9%4%1%
HMO1%1%6%1%1%
UnsureN/A2%5%1%9%
Other4%0%1%1%N/A

In 2006, residents had the option of giving multiple responses. In all other years, only one response was allowed.

Source: 2011 Survey of Final-Year Medical Residents, Merritt Hawkins & Associates, Oct. 5, 2011. (link)

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How to do what the Ngos did

Experts say few practices have a continuation plan for retirement or departure of physicians. Some doctors believe they will be able to sell to another physician, although as more younger physicians seek employment, this may not be realistic.

Hospitals and large medical groups may be the more likely purchasers. So experts have advice for physicians with small or solo practices exploring such an acquisition deal as a means toward continuation.

Approach local players in the health system. Gastroenterologists Domingo Ngo, MD, and Benjamin Ngo, MD, thought about joining other medical groups but decided on Martin Health System, based in their hometown of Stuart, Fla. Dr. Domingo Ngo, who owned his solo practice and wanted his son to join him, has long been on the organization's medical staff.

Have realistic expectations. Because of regulatory and marketplace constraints, hospitals and large health systems are not paying for goodwill, or intangible assets, such as a physician's name and reputation. Martin Health System paid Dr. Domingo Ngo fair market value for the hard assets of the practice. He still owns the building, and the hospital pays him rent. The contract took five months and numerous meetings to negotiate. Larger groups, those wanting to sell real estate or practices that need to renegotiate leases may need more time when selling to a hospital or health system.

“Be prepared for a lengthy process before you come up with something that works for everybody,” said Steven Myrick, assistant vice president for the Martin Medical Group.

Expect some loss of autonomy. Even the most hands-off arrangement will mean that a physician gives up some control over how the practice is run. This will vary widely. Some systems are more hands-off than others. “There's going to be a tradeoff. We're not micromanaging. We stay out of their hair. We're a resource to help manage the business end, but it's not a magic bullet. There will be some degree of autonomy that is lost,” Myrick said.

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External links

2011 Survey of Final-Year Medical Residents, Merritt Hawkins & Associates, Oct. 5, 2011 (link)

“Health Reform and the Decline of Physician Private Practice,” The Physicians Foundation, October 2010 (link)

Annotated Model Physician-Hospital Employment Agreement, 2011 edition, American Medical Association. Free to members; available to nonmembers for a fee. (link)

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Correction

The original version of this article incorrectly stated the numbers of hospitals and medical centers of Martin Health System, based in Stuart, Fla. Martin has two hospitals and 12 locations. American Medical News regrets the error.

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