At some point, all local or regional independent O&P practices must contemplate a succession plan as principals look toward retirement. Some of these practices may have been family-owned for generations. In a landscape where clinical practices are consolidating more and more, smaller practices have struggled to compete with the economies of scale of these larger conglomerations.
We spoke to independent practice owners about the factors influencing their own future succession planning, and whether passing their clinics on to the next generation or another independent owner is still a viable option. We also spoke to professionals who work with practitioners during the buying and selling process about the trends they’re seeing.
Ryan Spill, CP/L, understands the independent succession route well. He came to R.J. Rosenberg Orthopedic Lab (RJROL), Ohio, in 2014, taking over for longtime owner Richard Rosenberg, CPO/L, who founded the clinic with his wife in 1980. RJROL has two locations, and Spill has been owner and clinical director since 2015.
He had previously completed his residency at the practice in 2001 and made enough of an impression that when the time came for Rosenberg to retire, he reached out.
“He called me up and asked if I would consider moving back to take over the business because he and his wife were ready to retire,” Spill recalls.
Spill says he is happy that he chose the path he did, and although retirement is still in the very distant future for him, he has given his succession plan some thought.
“Rich and I are still in touch and the thought was to bring in a resident who could take the reins in the future when it’s my time to exit,” he says. Spill is confident that a solo practitioner could still be a great fit but acknowledges that it is more challenging to purchase privately than it used to be.
“There is a lot to consider, particularly with so much change in the field around Medicare and insurance and the knowledge that is required,” he says.
Spill shared his thoughts on what an independent practitioner might consider when thinking about their own succession plan. Considering the O&P market, he recognizes the benefit of joining one of the larger organizations because of their deep resources and ability to step in and get things up and running quickly.
Spill makes it a priority to stay informed and aware of the challenges of private versus corporate practices.
“It’s harder to compete with the larger companies from a cost perspective, of course, and I am always on the lookout to keep a pulse on what is going on here and around the country,” Spill says. “I talk to others about what it’s been like when the bigger players have more market share in an area.”
He also mentioned the shift to manufacturers getting into the patient care game, and vice versa, and the impact that can have on independent practices. Hanger’s February acquisition of fabricator and manufacturer Fillauer is an example of this trend.
“With all that is going on, I believe it would definitely be more difficult to start a practice from scratch than it used to be,” Spill says.
Paul Leimkuehler, CPO/L, is the owner of multigenerational Leimkuehler Orthotic-Prosthetic Center, which has four locations in Ohio. Leimkuehler Orthotic-Prosthetic Center was founded in 1948 by his grandfather, also named Paul Leimkuehler, who had a transfemoral amputation on his left leg after being wounded in the Battle of the Bulge in 1945. His own need for a prosthetic leg led him to the business. When the elder Leimkuehler was ready to retire, his children stepped in.
“My father William and his siblings all got into the field and worked with my grandfather, and we are now third generation,” Leimkuehler says. “Myself and some cousins all work in O&P in private practices.”
He says he’s witnessed the increase in bigger companies, including Hanger Clinic, Össur, and Ottobock, entering into patient care via private practice acquisitions.
Like Spill, Leimkuehler is not yet close to retirement, but he says that when he thinks about his future succession plans, he recognizes the benefits of both corporate and private acquisitions. The resources provided by a corporate acquisition top the list of reasons this route may be appealing—especially when considering how much time independent practitioners lose managing back-office functions. This significantly cuts into the time these practitioners can spend with their patients, he says.
“In the corporate succession scenario, you have a whole financial team—attorneys, accountants, and maybe a business manager—but your flexibility is limited because you have to follow their model, and you have to stay on for a certain amount of time,” he says. “If you were to get acquired by a smaller player, you have a lot more flexibility and say. That person typically won’t have the same resources and maybe not all of the perks, but there may be less red tape to go through.”
When it comes to choosing a succession plan, protecting the practice’s legacy matters greatly to independent owners, Leimkuehler says. These practitioners take great pride in patient care, often valuing it over profit.
“Caring for their patients is more important than making an extra buck,” he says. “Especially the older generations that were in this before all of the large organizations—and that sentiment still exists. In the last ten years insurance is dictating a lot of the care, and the landscape has changed so it often ties your hands.”
Leimkuehler is far from retirement and intends to keep growing his practice to help as many more patients as he can. That will not only fulfill his own dream, but he believes it will allow him to keep his options open.
“We look for acquisitions, but we are also growing organically,” he says.
Regardless of the path a practitioner chooses, Leimkuehler says it is not easy to leave the business; it requires a lot of work and planning to walk away feeling good about your exit.
Preparing Staff and Patients for a Smooth Transition
Whether a practitioner chooses to sell to another independent successor or to merge with or be acquired by a national clinic system, it is important to prepare staff for the changes.
In Spill’s case when taking over RJROL, Rosenberg stayed on through the transition, which Spill says was key to his success as the new owner.
“I loved it when Rich was still coming in,” he says. “It’s very helpful if the person can stay on board and do more training to make a smoother transition.”
Not only did Rosenberg’s continued presence help Spill, it also eased the transition for two other longtime employees at the practice. Tammy Franklin, CFm, is clinical director of Personal Symmetrics, which provides postmastectomy services to women who have undergone full or partial breast removal or reconstructive surgery. She has been with RJROL since 1984. Robert Terry has been lab coordinator for the practice since 1985.
“They were both here long before me and now we’re talking about their succession plans,” Spill says.
Easing the transition for employees is critical, according to Spill, because the ability for owners to feel confident they are leaving their practices and patients in good hands comes down to the clinicians and teams left in place.
“Like any other business, it’s the people in place that determine whether or not you can succeed,” he adds. “I would feel good about leaving so long as the person that will take my place has the same skill level and can provide the same level and quality of service to my patients.”
The patients are the heart of the business and Spill’s favorite part about what he does, so who he entrusts them to is, of course, his biggest consideration when he thinks about his future retirement and succession plan.
“Getting to know these people and watch them succeed and overcome the personal traumas they’ve endured is my favorite part of what I do,” he says. “If you attract similar people to your team, you are going to be okay no matter your exit route. As long as the team you leave in place can lead with empathy and do right by the patients, that is the most important thing.”
That team, he says, must include experts across all areas of your business, including patient care, fabrication, and billing and revenue operations.
Leimkuehler agrees that alignment on core values is a major factor in choosing a successor. He says it’s important to stay around to assist with the transition, but practitioners must also get the timing right when it comes to leaving.
“If you’ve been doing this for years, you want to make sure your practice is taken care of in the same manner you have cared for your patients,” he says. “But some wait too long and don’t have a plan for their exit, so they don’t have time to spend and oversee the transition. It is unique for everyone and it’s hard to walk away, especially if you hate the tech and changes and just want to see patients, then it’s hard to transition.”
Like Spill, Leimkuehler recognizes that a practice’s staff is as significant as the patients when choosing a succession plan.
“I want to make sure that the employees that are here and are going to continue to be here are taken care of, so being able to be involved to oversee that transition for a significant amount of time would be ideal,” he says.
Fostering Entrepreneurship in O&P
As founder of New Vision Orthotics & Prosthetics, Delano Massey says he is on a mission to help the world of O&P become more entrepreneurial while also driving greater access to patient care. By becoming more business savvy, he says private practice owners can better position themselves for a transition to retirement. Like other small business owners across industries, he believes O&P practitioners too often don’t have a succession strategy in place.
“Small business owners are usually in the weeds just trying to get things done,” he says. “And it’s no different in the O&P industry.”
Massey says there is a perception that corporate acquisition will deliver a larger payout than a private sale. Since clinicians don’t typically have a lot of experience with mergers and acquisitions, he says they don’t prepare for a profitable acquisition.
“Family successors see the struggle in running a business and overcoming the challenges of the day, so we tend to lose them to other opportunities because they think another, non-O&P path might be easier,” he adds.
Massey believes that if these practitioners saw more business success, they would be much more interested in private sales and acquisitions. That is why his company has tried to put a stake in the ground within O&P. New Vision O&P has gathered together a think tank,” he says, composed of industry veterans who each bring with them a best practice or system to contribute to this framework. The team covers insurance, negotiation, business operations, team building, growing locations, and other areas.
“We need to create a way for our children to stand on our shoulders—building on decades of time, resources, business acumen, and innovative investments,” Massey says. “If we get this down, practitioners can hand their practice down to their family and existing employees without them feeling resentful or obligated.”
Massey says that when the clinicians are prioritized, the patients get better care and both patients’ and practitioners’ lives are improved. “This is something the next generation wants to be part of, where both profit and purpose are achieved” he says. “They see someone being successful, fulfilled, and happy versus being constantly drained and overworked.”
“When one attempts to bring a new technology, methodology or solution to market, but doesn’t have the skill or experience to navigate the murky waters of free enterprise, that innovator usually gets the short end of the stick,” Massey says. “This is why our think tank is committed to equipping our owner-operators with the support system needed to balance patient care with self-care.”
Although the industry is changing, Massey believes independent ownership is making a comeback. The entrepreneurial training New Vision O&P touts will further support that trend, he says. According to Massey, O&P lags behind other industries when it comes to best business practice advancement. He cites not having a solid franchise model in the industry as one example of that.
“How have we matriculated down to the point where people see no other option but selling to large and aggressive competitors?” he asks. “It’s because most clinicians haven’t been exposed to and supported entrepreneurially in this industry.”
Practitioners get into this business to help others and effect change for those living with limb difference and limb loss. Massey says that practitioners must capitalize on the fact that social good is also good business, and social impact as a service is not just for nonprofit organizations.
As president and founder of Lloyds Capital, Barry Smith has been helping private business owners with their exit plans for more than 35 years. In that time, he has worked with many independent O&P clinic owners. Smith says he’s seeing more of a “rush to the exits” in the profession in recent years, largely driven by the problems associated with running a small business.
“Practitioners want to be focused on patients, but there is a long list of things that falls on their desk as an owner,” Smith says. “The Hangers and other large corporations out there that are buying can do all of these things and leave you to do what you do best, which is patient care.”
Despite the eagerness he’s seeing among owners to sell, Smith says the owners stay on board with the practice after the sale in roughly 75 percent of the transactions he oversees. How long they stay on, however, varies.
“One thing that hasn’t changed is that buyers really need people to stay and run those offices—and if you’re not going to, then it becomes a less attractive sale,” he says.
Many don’t stay because they have a difficult time transitioning from owner to employee. But that isn’t something that’s unique to the O&P profession. “They often don’t want to answer to someone half their age or be told what hours to work.”
Of course, when it comes to larger corporate buyouts, it matters less whether the owner stays since those corporations have plenty of boots on the ground to come in and take over a clinic’s operation if the previous owner wants to leave within months after a sale is done.
Timelines also drive an owner’s chosen path. Small deals obviously move faster because the diligence process is a bit less daunting compared with larger deals. Regardless of the succession path an owner chooses, Smith says he likes to remind his clients that exiting is a process, not an event.
The types of deals Smith is seeing vary. There are many single practitioners with perhaps a spouse or another relative running the office—and while those practices are sellable, the sales are not usually high dollar.
The clinics doing $5 million-plus in revenue with more clinicians on staff are fetching bigger dollars, but even those vary greatly, according to Smith. In general, he says he is seeing an EBITDA-to-sale range of 3-9 percent. EBITDA (earnings before interest, taxes, depreciation, and amortization) can be used as a measure of profitability. Aside from the number, the viability of a sale often comes down to geography, he says.
Although Smith says the current market is limited due to a lack of buyers, it is still robust.
“I think we’re about halfway done with successions in terms of the number of clinics out there,” he says. “There are still a lot out there and this isn’t going to end tomorrow.”
Tara McMeekin is a writer and editor based in Colorado.
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