Situation: In the mid 1990’s physicians were experiencing the financial effects of widespread managed care. PPO, HMO and other types of managed care were becoming the norm. As a result, the average lone physician could not economically afford to offer participation as a sole practitioner. Many physicians wanted to sell their practice, however the capital gains on the sale lessoned the likely hood of a sell since the price of the practice would lesson the probability of sale.
In addition, once the practice was sold, where would the physician affiliate his/her services?
Plan of Action: Start a company that would create strategic alliances with Physician Practice Management (PPM) organizations that were being formed to capitalize on managed care. Create a buy/sell agreement that would capitalize on the tax advantages of the split-dollar concept of insurance to protect capital gains consideration from taxes at the prevailing rates, thereby sheltering income while generating additional income from funds deposited in the split-dollar program.
Results: In the course of one year, more than 1400 physicians agreed to sell their practice. Fees were generated from the commissions earned from the split-dollar insurance vehicle and additional fees were received from the PPM agreeing to hire these new “Free Agents” into their organization. The PPM would pay for the practice and deposit funds on an agreed upon schedule into the split-dollar vehicle.
This allowed the new company to generate:
- More than $50,000,000.00 in revenue in one year.
- Created relationships for future opportunities.