We ask two experts the same question on a complex issue.
Question: I want to buy charts from local offices. Do I pay a certain amount per chart, or is the value determined some other way?
MARIA G. MELONE, CPA, CVA
The acquisition of patient records is a great way to increase both top-line revenue and bottom-line earnings, but this comes with risks and challenges. The first step, and maybe the most critical, is to determine the value of each record. Most commonly, buyers and sellers agree on a per-record fee of somewhere between $25 and $150, and then negotiate which records this applies to—all records in possession of the seller, records of patients of a certain age range, or active patient records for which there is no standard definition.
Once the record count has been determined and the fee is agreed upon, the buyer makes the calculated payment to the seller. Typically, a seller will send a letter to patients encouraging them to transfer their care to the buyer, but patients ultimately have the right to choose their next provider. This structure leaves the buyer with a significant amount of risk by paying for something up front with no guarantee of any return on the investment.
The ideal scenario is for the buyer to pay only for those patients who transfer their care to the buyer. Unfortunately, setting up such a structure is prohibited by state anti-kickback statutes. One solution is to have the seller work in the buyer’s practice for a short time to ensure the patients’ transfers. Having the seller work for the buyer allows the buyer to pay the seller for those patients who do come into the practice by paying the seller a percentage of the revenues generated from those patients.
Maria G. Melone, CPA, CVA, began her accounting career at KPMG. She then spent 10 years working for one of the largest dental support organizations, handling all aspects of the buying side of dental transactions. She has helped facilitate hundreds of transactions and has valued even more. She is a founder of MORR Dental Solutions LLC, and dentaldealmate.com. She can be reached at [email protected].
JONATHAN VANHORN, CPA/ABV
Purchasing charts is almost more of an art than a science. We’ve had clients purchase charts in which as many as 85% of patients move over and as low as 15% of patients move over.
Expect this investment to be highly volatile in nature. We recommend that all clients purchase charts on a contingency basis only. If the seller requires a down payment, we recommend not paying more than 20% of the total “value” of the charts.
The reason for the hard-line stance on a contingency is that ultimately, if you pay out the seller completely on the front end, there is no incentive for the seller to assist in having patients move to the purchasing doctor’s practice.
If the seller won’t sell the charts on a contingency basis or it’s unreasonable given the circumstances—for example, if the selling doctor is deceased—we recommend looking very hard at the type of patients you’d be acquiring, and consider your investment into the patient charts as being significantly riskier.
With more risk, you should be willing to pay less for the investment, even 50% less than market value. This could very well lead you to passing on the opportunity.
Jonathan VanHorn, CPA/ABV, created the Dental CPA firm, Dentistmetrics.com, to solve the problem facing many dentists, which is having a complicated business and not enough time to run it. DentistMetrics aims to completely automate and outsource the bookkeeping, financial reporting, and tax portion of dentists’ businesses so they can focus on their patients.