Risk Management

Thinking About Retirement? Read This.

By Daniel R. Evans, MD

Argus, April, 1993

In addition to risk management, you need to consider a myriad of issues when planning your retirement, including the contract of sale, pension plans and tax obligations.

The following are a few financial and legal suggestions for retiring ophthalmologists who are selling their practice.

Hire an attorney who is knowledgeable about medical practice buy/sell contracts as well as a CPA or other tax adviser competent to advise you about applicable federal and state tax implications of your sale.

Begin with an asking price that reflects last year’s gross income for the value of the practice itself. Add to that the market value of the depreciable assets and inventory and the accounts receivable. The medical and other equipment is typically sold at appraised value and a physical inventory of drugs, supplies, glasses, frames, contacts, etc. is usually taken at cost as of the closing date.

Keep in mind that as managed care and capitation become increasingly common, future projections for income may not be the same as in the past.

Remember that practice good will is personal to you and that the buyer will not view it as transferable to the buyer. Sometimes a value will be assigned to patient lists, which also may be amortizable.

Include a non-compete clause for the buyer, but tie that in with a consulting contract for the seller so you have the option of continuing to practice part time, if you choose. But be aware that federal safe harbor regulations do not protect the sale or purchase of a medical practice from the sanctions under the Medicare anti-kickback provisions if the seller practices in the same practice more than one year from the date of the agreement of sale.

Do whatever you can to collect your accounts receivable before selling the practice. After the sale, allow the buyer to collect remaining receivables for several months before paying you so that the buyer has use of these funds. This free use of the receivables should offset the buyer’s cost of collection.

If you own your building, include an option in the contract allowing the buyer of your practice to purchase the building in the future. Couple it with a right of first refusal should someone else make an offer on the building.

If you roll your pension plan account directly into an IRA, you will avoid the 20% federal withholding tax imposed on pension plan distributions. However, this withholding tax can be avoided only if you do not receive the distribution yourself and then transfer it to an IRA. If any part of your pension plan account represents a 401(k) plan, you will need to roll that amount into a new rather than an existing IRA.

If you retire to another state, you may be required to pay tax on active income earned in the state in which you practiced and in the state of residence at the time of your receipt of that income, subject to your right ordinarily to a credit against your tax in the state of your residence.

Payments to you that are considered to be practice income may reduce the amount of Social Security benefits you may draw, beginning as early as age 62.

Request honorary staff membership from those hospitals where you have privileges.

Notify all professional organizations in which you hold membership of your retirement. Most including the Academy, waive or reduce dues for members who are fully retired.