Dialysis Clinic Business Succession: Maintaining Patient Base, Facility Standards, and Keys to Success

Succession of a dialysis clinic hinges on maintaining a stable patient base and strict facility standards. In an aging society, the demand for dialysis treatment remains robust, making these clinics indispensable to regional healthcare. However, due to a lack of successors or limitations in management resources, many medical institutions opt for M&A for business succession. This article focuses on the unique issues in dialysis clinic business succession, particularly ensuring patient continuity and maintaining facility standards, and explains the key points for successful transitions.

Characteristics of the Dialysis Clinic Market and the Significance of Business Succession

Dialysis clinics primarily provide maintenance dialysis for patients with chronic kidney failure. Dialysis patients are generally elderly, and continuous medical care is essential to manage complications and maintain their quality of life. Due to the characteristics of this patient demographic, dialysis clinics tend to generate relatively stable revenue. However, securing physicians and nurses, investing in the latest medical equipment, and maintaining and updating strict facility standards require considerable management resources and specialized knowledge.

For medical institutions facing a lack of successors or aiming to build a more specialized management structure, M&A offers a viable option for business succession. Acquirers benefit from inheriting an existing patient base and medical expertise, enabling them to continue contributing to regional healthcare. In particular, acquiring a dialysis clinic can strengthen the business portfolio for medical groups specializing in dialysis or hospital groups involved in chronic care and home healthcare. Through M&A, it becomes possible to enhance the management foundation, improve the quality of medical services, and redefine the role within regional healthcare plans.

Generally, the valuation of a dialysis clinic is determined by comprehensively considering factors such as the number of dialysis beds, patient numbers, location, profitability, and the impact of medical fee revisions. The value per dialysis bed and annual profitability (e.g., sales or EBITDA) are crucial determining factors. For instance, for clinics with annual sales ranging from 500 million to 2 billion yen, the transfer price often falls within the range of 200 million to 1 billion yen, but this is a general guideline and can vary significantly depending on individual circumstances.

Ensuring Patient Continuity: The Most Critical Issue in Business Succession

The core value of a dialysis clinic lies in its patient continuity. Dialysis treatment is directly linked to patients’ life support, requiring them to attend the clinic three times a week for extended periods. For patients, a familiar clinic, trusted doctors and nurses, and proximity to their living area are extremely important factors influencing treatment continuity. Therefore, during the M&A process, establishing a system where patients can continue their treatment with peace of mind is the top priority for the acquirer.

Specific Steps to Ensure Patient Continuity

1. 1Thorough Information Provision and Confirmation of Intent: It is crucial for the seller and buyer to cooperate closely on the timing, method, and content of informing patients about the M&A to minimize their anxiety. This may involve direct information sessions or individual meetings tailored to specific situations.
2. 2Staff Retention and Collaboration: Doctors, nurses, and technicians who have cared for patients for many years are a testament to patient trust. Retaining as many staff members as possible and striving for smooth information sharing and team cohesion will lead to greater patient confidence.
3. 3Maintaining Treatment Policies and Schedules: Avoid sudden changes to current treatment policies and dialysis schedules, prioritizing the maintenance of patients’ Quality of Life (QOL). Adjustments should be made gradually while ensuring consistency with the acquirer’s medical policies.
4. 4Continued Use of Facilities and Equipment: Make efforts to maintain and continue using the dialysis equipment and environment that patients are accustomed to, as much as possible.

Through these initiatives, it is important to prevent patient transfers and maintain or improve the business value after succession. The seller must understand that the acquirer will strongly emphasize considerations for patient continuity during M&A negotiations.

Maintaining Facility Standards and Smooth Transfer of Licenses

Operating a dialysis clinic requires meeting the facility standards set by the Ministry of Health, Labour and Welfare. This includes personnel standards for doctors, nurses, and clinical engineers; equipment standards for dialysis machines; and operational standards for safety management and infection control. These standards are also requirements for receiving medical fees, and failure to meet them can lead to reduced medical fee reimbursements or, in the worst case, revocation of the facility’s designation. Therefore, during the due diligence (DD) for business succession, a thorough check is conducted to determine if these facility standards are currently met and if a system can be established to meet them in the future.

Checkpoints for Maintaining Facility Standards

• Personnel Allocation: Whether the qualifications, experience, and number of doctors (full-time/part-time), nurses (dialysis experience, number of staff), and clinical engineers meet the standards.
• Equipment: Whether the number and maintenance status of dialysis machines, water quality management systems (RO units, water quality testing), and emergency response equipment (AEDs, defibrillators, emergency medications) are appropriate.
• Operational Structure: Whether infection control manuals, safety management systems, in-house training implementation, and medical safety reporting systems are in place.
• Medical Records/Chart Management: Status of electronic health record implementation, backup systems, and personal information protection measures.

Furthermore, operating a dialysis clinic requires various licenses and notifications, such as opening permits from the public health center and designation as a medical institution from the regional bureau of health. When the management entity changes due to M&A, these licenses and notifications must be smoothly transferred. The acquirer must accurately grasp the types and validity periods of the licenses held by the target clinic and systematically proceed with advance consultations with the relevant authorities and preparation/submission of necessary documents. Generally, these procedures can take several months, so it is important to incorporate them into the M&A schedule.

Medical Corporation Types and Issues Regarding General Meetings of Members and Funds

The considerations for M&A differ depending on the type of medical corporation operating the dialysis clinic. In particular, the legal treatment varies significantly between medical corporations with equity (old system only) and those without equity (similar to NPO corporations). For medical corporations with equity, the valuation and transfer of equity are the main issues in M&A. Since it is subject to capital gains tax, the tax implications must be thoroughly discussed with experts.

On the other hand, for medical corporations without equity, M&A is primarily conducted through the succession of the medical corporation itself or through business transfer. In this case, resolutions at the general meeting of members and procedures for changing members (directors, auditors, etc.) are important. Additionally, for corporations that established funds at the time of incorporation, the refund or succession of these funds is also a consideration. Funds are the property of the medical corporation and are generally not refunded until the corporation is dissolved and liquidated. However, depending on the M&A scheme, the seller may refund the funds, and the buyer may contribute new funds.

Comparison of Considerations by Medical Corporation Type

These issues are complex and require specialized knowledge, making it essential to proceed in collaboration with experts such as tax accountants and lawyers.

Capital Gains Tax and Acquirer’s Acquisition Strategy

One of the most significant concerns for sellers in the M&A of dialysis clinics is capital gains tax. Particularly for medical corporations with equity, income tax (or corporate tax) is levied on the portion where the valuation of the transferred equity exceeds the transfer price. This valuation is generally calculated based on net asset value and earnings value, requiring a detailed assessment by experts. Furthermore, the tax implications vary depending on the scheme, such as business transfer or the transfer of certain assets. Early consultation with experts is crucial when considering tax-saving measures.

On the other hand, for acquirers, the key strategy is to efficiently and advantageously acquire dialysis clinics that have a stable revenue base and patient base. When selecting potential acquisition targets, it is necessary to comprehensively evaluate not only the figures on the financial statements but also the feasibility of maintaining patient continuity and facility standards, the status of licenses, and the clinic’s position within regional healthcare plans. Potential acquirers may include medical groups aiming to expand their dialysis business, hospital groups seeking to strengthen their integrated community care systems, or even companies from other industries considering new market entry.

M&A Process and Acquisition Strategy Points

When calculating the acquisition price, it is necessary to consider the risks of future medical fee revisions and the impact of advancements in regional healthcare plans. Furthermore, developing a Post Merger Integration (PMI) plan early on and aiming for a smooth transition of business operations is crucial to maximize the acquisition’s effectiveness.

Responding to Medical Fee Revisions and Regional Healthcare Plans

The management of dialysis clinics is directly affected by revisions to medical fees. The revisions, occurring every two years, may alter factors such as basic dialysis fees, additional charges for specific diseases, and requirements for equipment and staffing. Especially as enhanced functionality is demanded to cope with aging populations and increasing complications, the revenue structure can change significantly depending on the revision details. Acquirers must analyze past trends in medical fee revisions and assess future revision risks when formulating their business plans. Sellers should also understand how their clinic’s future financial situation might be affected by upcoming revisions, which can lead to fair negotiations on the transfer price.

Moreover, the importance of responding to “Regional Healthcare Plans” has been growing in recent years. These plans aim to differentiate and coordinate hospital functions and optimize healthcare provision systems based on future projections of healthcare demand in each region. Dialysis clinics, as a vital part of the regional healthcare system, are also being evaluated for their role. For example, possibilities include functioning as a receiving facility for dialysis patients from acute care hospitals or providing new services such as support for home dialysis. Aiming to contribute to a broader regional healthcare network through M&A can be a success factor for business succession.

Preparation for Medical Fee Revisions and Regional Healthcare Plans

Business succession that considers these elements goes beyond a mere transaction of a clinic; it is a significant initiative that contributes to the sustainability of regional healthcare as a whole.

The business succession of a dialysis clinic is a crucial process with significant implications for patients, staff, and the local community. Success requires ensuring patient continuity, maintaining facility standards, and adapting to the evolving healthcare environment. At M&A Medical, our team of experts specializing in M&A and business succession for medical institutions offers optimal proposals tailored to your clinic’s situation. Please feel free to consult with us.