Buying a Gastroenterology Practice: What to Consider
Buying a gastroenterology practice can give a physician an established patient base, referral relationships with primary care offices, trained staff and, in many cases, an interest in the endoscopy center where procedures are performed. For gastroenterologists who want ownership without building from scratch, an acquisition is often the most direct route.
It is also one of the more complex transactions in outpatient medicine. GI practices often combine clinic visits, procedures, ancillary services and real estate, and each piece needs its own review. This guide walks through the main considerations. Ownership rules, credentialing and billing requirements vary by state and payer, and nothing here is legal, tax, billing or compliance advice.
Why Buying a Gastroenterology Practice Appeals to Many Physicians
Many independent GI practices are small groups led by one or a few physicians. As senior owners approach retirement, some prefer to sell to another physician rather than to a larger organization. That can create opportunities for younger gastroenterologists, especially those already working in the community.
An established practice may offer:
- An existing panel of patients and a steady flow of screening and diagnostic referrals
- Relationships with primary care physicians, hospitals and other specialists
- Experienced nurses, schedulers and billing staff
- Existing payer contracts, although these should not be assumed to transfer
- Access to an endoscopy suite or an ownership stake in an affiliated surgery center
Step 1: Understand What You Are Actually Buying
A GI “practice” may be several businesses under one roof. Before making an offer, map out which entities are part of the sale. The professional practice may be separate from an ambulatory surgery center, an anesthesia company, a pathology arrangement, an infusion program or a real estate holding company.
Each entity may have different owners, governing documents and transfer restrictions. A buyer who expects to receive surgery center shares, for example, needs to confirm that those shares are actually available and on what terms. Healthcare counsel should review how each piece is structured.
Step 2: Review Revenue Sources and Payer Mix
GI revenue often depends heavily on procedures such as colonoscopy and upper endoscopy, along with office visits and ancillary services. Buyers should review revenue by service line and by payer over several years.
Questions to ask include:
- How much revenue comes from professional fees versus facility or ancillary income?
- What share of patients are covered by Medicare, Medicaid and commercial insurers?
- Is procedure volume stable, growing or dependent on one referral source?
- How long do claims take to be paid, and what does accounts receivable aging show?
Billing and coding practices should be reviewed by qualified billing or compliance professionals rather than assumed to be sound.
Step 3: Evaluate Owner Dependence
In a small GI group, the selling physician may perform a large share of procedures and hold key referral relationships. If that physician leaves immediately, volume may decline.
Buyers should understand how many procedures the seller personally performs, which referring physicians send patients specifically to the seller and whether the seller is willing to stay on for a transition period. A clear transition plan, documented in the purchase agreement, can help protect the practice’s value.
For more on this situation, see our guide to buying a practice from a retiring gastroenterologist.
Step 4: Understand How the Practice Is Valued
Value is generally driven by documented cash flow after a market salary for the physicians doing the work. Ancillary income, payer mix, the age of the physicians, procedure volume trends and the condition of equipment all play a role.
Offers from private equity groups have influenced seller expectations in many markets. A physician buyer financing the deal with debt, however, needs a price that the practice’s cash flow can support. Our article on gastroenterology practice valuation explains the main value drivers in more detail.
Step 5: Complete Thorough Due Diligence
Due diligence for a GI acquisition typically covers:
- Tax returns, financial statements and bank statements
- Production and collections by physician and by service line
- Payer contracts, enrollments and credentialing status
- Endoscopy equipment condition, service agreements and existing equipment leases
- Surgery center, anesthesia and pathology agreements
- Office and facility leases, including assignment rights and landlord consent
- Employment agreements and restrictive covenants, which counsel should review because enforceability varies by state
- Malpractice history, licensure and any past audits or claims
Findings during this process can affect the price, the structure or whether the buyer proceeds.
Step 6: Plan for Credentialing and Payer Contracts
Payer contracts, Medicare and Medicaid enrollments and hospital privileges should not be assumed to transfer when a practice changes hands. Depending on how the deal is structured, the buyer may need new enrollments or re-credentialing, and claims may be delayed while that work is completed. Healthcare counsel and credentialing professionals can help plan the change of ownership.
Step 7: Arrange Financing
Most buyers finance a GI acquisition rather than paying cash. Options may include SBA-backed loans, conventional practice loans and, in some cases, seller financing. Lenders and loan programs may limit earnouts, and seller notes are typically subordinate to senior debt.
SBA 7(a) loans may be used to help finance the purchase of an existing practice and related working capital. Eligibility and terms depend on the business, the buyer, the use of proceeds, program rules and lender review. Every loan is subject to approval, and nothing here is a commitment to lend.
Lenders generally review historical cash flow, the buyer’s clinical experience, credit, liquidity and the deal structure. Our guide to GI practice acquisition financing covers these factors in depth.
Step 8: Budget for the Transition
Payroll, rent and supply costs continue while new enrollments are processed and claims are paid. Building working capital into the financing plan can give a new owner more flexibility during the first months after closing.
Common Mistakes to Avoid
- Assuming surgery center or ancillary interests are included without confirming it
- Underestimating how much volume depends on the selling physician
- Assuming payer contracts and enrollments will transfer
- Paying a price the practice’s cash flow cannot support under debt financing
- Leaving too little cash for the transition period
Final Thoughts
Buying a gastroenterology practice can be a rewarding path to ownership, but GI deals often involve more moving parts than other specialties. Understanding each entity, the payer mix, owner dependence and the financing structure before closing can help buyers avoid surprises.
US Medical Funding helps gastroenterologists finance the purchase of established practices. Learn more about our gastroenterology practice acquisition financing and our full range of gastroenterology practice financing options.
