The Practice Transition (Part II): Navigating the Exit – Sale or Succession?

Introduction

Every physician-owner eventually reaches a critical point at which the question is no longer whether they will transition out of practice ownership, but how they will do it ‒ and what that decision will mean for their legacy and their next stage in life.

Part I of this series examined why exit planning must begin well before an owner-physician is set to move on from their practice, whether they are retiring or transitioning to the next stage of their career. It highlighted the reality that practice value is shaped long before a transaction, that transitions require operational, financial, and personnel preparation, and that unplanned or last-minute exits almost always result in lower value, disrupted patient continuity, and pressure-filled decisions. Part I emphasized the need for a forward-looking mindset: building transferable business systems, stabilizing financial and operational performance, preparing junior clinicians for leadership, and ensuring the practice can function independently of any single owner. With that foundation established, we further the discussion toward the strategic inflection point most owners eventually face: choosing how to make that transition happen.

Aligning Strategy with Vision

For any owner-physician, the practice exit decision eventually shifts from ideas to actions. Whether driven by age, burnout, financial planning, or readiness for a different career chapter, the transition requires a deliberate choice between two fundamentally different exit paths: selling to an outside buyer or transferring ownership to the next generation of physician leadership within the practice.

Either can achieve success, meeting the financial goals of the departing owner and preserving continuity of patient care. What differs ‒ subtly but powerfully ‒ is what happens after the transaction: how culture changes (or does not), how employees experience their place of work, what clinical autonomy looks like, and how the practice’s role in the local healthcare environment evolves.

This section explores both pathways in depth, then illustrates each with real-world style scenarios before comparing the two options in a way that equips a physician-owner to make a clear, grounded decision.

Selling to a Third Party: Strategic Partnership and Institutional Support

Choosing to sell a practice to a private equity-backed platform, a regional medical group, or a large health system can offer structure, resources, and a defined exit timeline. Many physicians gravitate toward this path because it provides a predictable transaction process, a clear valuation methodology, and oftentimes an appealing immediate financial outcome.

An external buyer may bring scale advantages ‒ centralized administrative support, advanced analytics, capital for expansion, and formalized systems that remove operational burdens from physicians. For owners who are tired of running the business side of medicine, this can represent meaningful relief. These organizations typically have teams dedicated to executing practice acquisitions, which can make the process efficient and highly organized.

That said, integration into a larger entity inevitably brings change. Decisions that the owner-physician once made independently ‒ hiring, compensation design, clinic workflows, technology choices, and service lines ‒ shift to the domain of corporate leadership. This is not inherently negative; many physicians benefit from being part of a structured system. But it is different, and the degree of control retained varies widely depending on the buyer.

Physician-to-Physician Succession: Preserving Independence, Identity, and Practice Culture

The alternative path ‒ transferring ownership to associate physicians or recruiting a successor ‒ keeps the practice independent and maintains the character that patients, staff, and the community recognize. Succession requires more intentional planning and often more time, but it offers distinct advantages for physicians who value autonomy, continuity of care, and preservation of the practice’s identity and the owner’s legacy.

Unlike external sales, succession maintains local decision-making. Incoming owners benefit from joining a system that already works ‒ a culture built over decades, a team that knows its workflows, and a leadership style developed by an individual who understands the community. Patients experience minimal disruption, staff retain their structure, compensation model, and internal communication style, and the practice continues to operate with the flexibility and responsiveness that define independent medicine.

Financially, succession can be just as competitive as an external sale depending on structure; the difference is that the capital stays with physicians rather than being transferred to a corporate or financial entity. For owners who built their practice around personal relationships and clinical independence, this path allows that legacy to continue. Let’s look at two illustrative examples of how succession might work in practice.

Case Scenario 1: Mentorship-Based Succession Within a Single-Owner Clinic

Consider a well-regarded, 20-year concierge dermatology & aesthetics clinic owned and founded by a single physician nearing retirement. As she thinks of next steps with the practice, she identifies a talented Mohs surgeon who shares her approach to patient care delivered through a premium services model built on patient relationships. The founder decides to develop a structured mentorship plan over a five-year period.

During this time, the new physician gradually assumes additional responsibility, first clinical, then operational, then financial, accumulating equity in the practice along the way. The founder introduces the physician to the practice’s referral network, mentors him on the nuances of patient communication, and involves him in strategic decisions, from staffing to vendor contracts. Over time, the physician gains the experience and institutional aptitude necessary to run the practice independently, while the founder winds down her own clinical output and depth of administrative responsibility.

The founder eventually retires completely, and the new owner-physician brings in additional physician assistants to absorb additional volume as the practice grows. All-the-while, the clinic retains its autonomy, culture, and operational philosophy, ensuring continuity for patients and staff alike. For the original founder, this approach preserves the integrity of the practice she built while achieving a smooth, low-risk transition.

Case Scenario 2: Multi-Staged Transfer of Partnership Interest Within a Group Practice

Consider a five-owner orthopedic surgery group with strong volume, an ASC partnership, and a long-established brand in its region. Two of the original partners are planning to retire in the next three to five years. Among internal discussion among the partners of potentially selling the practice, they decide to methodically recruit two fellowship-trained orthopedic surgeons to join as associates with a clearly defined ownership track, one within a year and the other after three years.

Over several years, the entering physicians ramp up their encounter volume, engage in governance meetings, and learn the practice’s operational philosophy. When the most senior partner exits the practice, his ownership interest is appraised and purchased by the existing partners under a buy-in arrangement supported by practice financing.

The retiring partner receives fair value for his equity stake, which is then repurchased from the owners by the most senior associate surgeon. The process is repeated with the next most senior partner and associate. The result is that the new owners each step into ownership of a functioning, independent practice, staff leadership remains intact, the ASC partnership continues under physician control, and the practice retains the agility and culture that made it successful.

The transition is smooth ‒ because it was planned, modeled, and executed well before the retirement date. Autonomy is maintained as the practice remains physician-owned and aligned with its original mission.

Comparing the Two Paths: Financial Reality, Cultural Impact, and Long-Term Vision

External sales and internal succession are both legitimate exit strategies, and both can be successful when chosen intentionally. A third-party sale can offer strong financial incentives, operational support, and a simplified transaction process. For some physicians ‒ particularly those ready to step away quickly ‒ this path provides clarity and convenience.

However, succession offers advantages that align deeply with what many independent physicians value: autonomy, culture preservation, continuity of care, and a practice environment shaped by clinicians rather than institutional infrastructure. If an owner has spent decades building a practice centered on personalized care, lean operations, loyal staff, and flexible decision-making, succession ensures those elements survive beyond their tenure.

Succession maintains the identity of the practice. It protects the culture that staff often cite as their reason for staying for a decade or more. It allows physicians to pass on not just an asset, but a philosophy of care, and it strengthens the local medical community by keeping control in the hands of clinicians who have devoted their professional lives to practicing medicine.

For owners who built their practice around their name, their reputation, and their commitment to patient-centric care, internal succession often aligns more organically with the legacy they want to leave behind.

Executing the Strategy – An Overview

With the two transition paths clearly defined, the ultimate step is putting a high-precision implementation plan into motion. Here, we discuss the operational, financial, legal, and leadership components necessary to actualize either a sale or a succession, thus converting theory into execution.

Whether selling externally or transferring ownership internally, a transition fails or succeeds based on preparation, transparency, and timing. We will not go in depth with the execution process, as it is too involved for the scope of this article; however, the following sections illustrate how the typical process for each strategy differs in practice by outlining each at a high level, from initial planning to final exit. As discussed in Part I of this series, most of the “best practices” detailed herein are general best practices for any practice, even those that are nowhere close to a transition or exit stage.

Operational Readiness: Stabilizing the Foundation

A transition ‒ regardless of type ‒ rests on the operational health of the practice. From a financial and operational standpoint, buyers and successors alike evaluate the same core elements: reliability of revenue streams, clarity of workflows, scalability of staff functions, and independence from any single physician’s personal systems.

Key operational readiness steps include:

• Standardizing and documenting clinic and administrative workflows.
• Demonstrating consistent financial performance over multiple years.
• Ensuring the practice is not overly dependent on any single owner for clinical volume, referral generation, administrative oversight, or strategic vision.
• Updating technology systems and tightening revenue cycle processes.
• Strengthening midlevel management capabilities to reduce owner reliance.

The more durable and systematized the practice becomes, the smoother any transition will be and the higher its value ‒ financially and strategically.

Financial and Valuation Preparation

A clean, well-organized financial profile is essential. This includes historical performance, trend lines, margin stability, overhead structure, physician productivity, ASC-related distributions, and any atypical or one-time expenses.

For an external sale, valuation typically centers on EBITDA normalization, risk assessment, payer mix, and growth runway.

For succession, valuation must also reflect fairness, affordability, and sustainability for incoming physicians. Models often include:

• Seller-financed buy-ins.
• Bank-backed financing.
• Gradual ownership transitions.
• Retained minority interest during wind-down period.

Financial modeling should be done early so successors know exactly what they are stepping into and exiting physicians have an idea of what they can expect to receive.

Legal Structuring and Governance Alignment

Legal structure must match the transition strategy.

External sales require:

• Transaction agreements.
• Employment contracts.
• Noncompete and restrictive covenants.
• Real estate considerations (sale vs. lease).
• Post-close governance structure.

Succession requires:

• Shareholder agreements.
• Buy / sell structures.
• Call provisions.
• Compensation redesign.
• Updated governance models to accommodate new owners.

These documents should be drafted or refreshed several years before the exit, not weeks before.

Leadership Transfer and Culture Preservation

Leadership transition is often the most underestimated part of the entire process.

For external sales, leadership shifts toward the acquiring entity. The focus becomes transparent communication with staff and patients to minimize uncertainty.

For succession, leadership must be consciously cultivated within the practice. That means:

• Involving successor physicians in key decisions 2–3 years before ownership changes.
• Transitioning committee roles and governance seats.
• Gradually shifting operational oversight to the next generation.
• Teaching incoming owners the business model, not just clinical workflows.

Culture preservation does not happen by default. It requires deliberate rehearsal, exposure, and internal development.

Communication Strategy: Staff, Patients, and Partners

Clear communication prevents fear, rumor, and disruption.

For both pathways:

• Staff should receive structured, honest updates on what will change and what will not.
• Patients should receive assurance of continuity of care.
• External partners (hospitals, referring providers, vendors, ASC partners) should be notified strategically and in a coordinated manner.

Communication missteps are one of the most common causes of internal instability during transitions ‒ even when the underlying plan is strong.

Final Handoff and Post-Transition Integration

The final phase is the stabilization period. Exiting owners gradually reduce clinical roles, hand off administrative responsibilities, and ensure that operations continue without disruption.

External sales move quickly into integration with the new organizational structure, while succession transitions move into the first cycle of independent physician governance under new leadership.

The measure of success is straightforward: the practice continues to operate smoothly, staff remain confident, patients experience consistency, and the owner exits with the financial, professional, and personal outcomes intended from the beginning. That being said, success is ultimately whatever the departing physician defines it as.

Conclusion

By building on the planning principles established in Part I and understanding the strategic options and basic implementation principles of practice transitions, an owner-physician in independent practice can methodically transfer control and ownership with clarity, stability, purpose, and financial success. The decision between selling or succession is meaningful, but the key to maximizing value ‒ financial, cultural, and personal ‒ is disciplined preparation and a commitment to leaving the practice stronger than it was found.

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