M&A Medical, an M&A support organization certified by the Small and Medium Enterprise Agency, explains the overall picture of medical succession (business succession for hospitals, medical corporations, and clinics / medical M&A). This guide covers the three succession methods, the process, costs, taxation, and success stories.

What is Medical Succession?

Medical succession refers to the transfer of management and operational rights of medical institutions such as hospitals, clinics, and medical corporations from the current management to the next generation. Unlike business succession in general companies, medical succession requires specialized knowledge in designing succession schemes due to factors such as licenses based on the Medical Care Act (designation as an insured medical institution, change of operator), qualification requirements as a physician or dentist, and consistency with regional medical plans.

The shortage of successors is a serious issue in the medical industry as well. According to the Ministry of Health, Labour and Welfare’s Survey of Medical Institutions, the average age of clinic directors exceeds 60, and more than half of clinics without beds are operated by directors aged 60 or older. In over half of cases, there is no successor physician within the family, leading to a growing interest in third-party succession (medical M&A) year by year.

Three Methods of Medical Succession

There are broadly three methods for medical succession: “Family Succession,” “Employee (Salaried Doctor) Succession,” and “Third-Party Succession (Medical M&A)”. Each has its own advantages and disadvantages, and the optimal method varies depending on the subject of succession (individual clinic or medical corporation), the presence of a successor, and the seller’s desired conditions.

Family succession is an option when children are qualified physicians and often offers tax advantages. However, careful consensus-building is necessary regarding the successor’s intentions and independence. Employee succession involves transferring the practice to a long-serving salaried doctor, which has the advantage of minimizing the impact on patients and staff. Third-party succession, through methods such as changing members of a medical corporation, transferring ownership shares, or business assignment, involves transferring the practice to an external physician or medical group. It is gaining attention as a method to maintain regional medical care while securing proceeds from the sale.

The Process and Timeline of Medical Succession

Medical succession generally proceeds in the following order: “Consultation and Current Status Assessment” → “Condition Refinement and Scheme Design” → “Search for Counterparty and Matching” → “Basic Agreement” → “Due Diligence” → “Final Agreement” → “Closing and Licensing Procedures”. The standard period from the start of consultation to closing is 6 to 12 months, followed by an additional 1 to 3 months for licensing transfers such as change of operator notifications to the public health center and regional medical payment office.

Correctly understanding the succession process chronologically and establishing a plan that considers the legal constraints for both the seller and buyer is the first step toward successful medical succession.

Costs and Taxes Involved in Medical Succession

The main costs incurred in medical succession include “Sale Price,” “Taxes (Capital Gains Tax, Gift Tax, Inheritance Tax, Corporate Tax),” “Advisor Fees,” “Professional Fees (Lawyers, Tax Accountants),” and “Licensing Procedure-Related Costs”. The sale price is calculated based on the business value (EBITDA, net assets, patient numbers, location, specialty, etc.). For clinics without beds, it is typically 0.5 to 1.5 times the annual revenue, and for medical corporations, it is generally evaluated using a combination of the Discounted Cash Flow (DCF) method and the comparable company multiples method.

In terms of taxation, the tax burden structure differs significantly between medical corporations with ownership shares and those without (e.g., fund contribution type, social medical corporations). Detailed simulations in collaboration with tax accountants and certified public accountants are essential, including methods for valuing ownership shares, the inheritance tax prepayment system, and reducing inheritance tax burdens by transitioning to a specific medical corporation.

5 Key Points for Successful Medical Succession

First is “Early Start.” If you wait until the director’s or president’s health or financial situation deteriorates, your options will be limited. Ideally, start preparations with a 5- to 10-year perspective while you are healthy.
Second is “Thorough Confidentiality.” Leaks of information to staff, patients, business partners, or financial institutions can directly damage the business, so it is important to conduct succession considerations privately with a limited number of experts.
Third is “Appropriate Business Valuation.” Organizing the sale conditions based on objective value calculations, rather than emotional asking prices, greatly enhances the efficiency of finding a buyer.
Fourth is “Designing Conditions with the Post-Succession Period in Mind.” Factors other than price, such as maintaining staff employment, continuing the medical specialty, retaining the practice name, and the treatment of the outgoing director, significantly influence satisfaction after the transaction.
Fifth is “Utilizing Experienced Advisors.” Since M&A for general companies and medical M&A differ significantly in legal and practical aspects, engaging advisors specializing in the medical industry increases the probability of success.

Common Pitfalls in Medical Succession

Typical failure patterns in medical succession include “Staff departures due to inadequate confidentiality,” “Lack of buyers due to overvaluation of the business,” “Opening gaps due to delays in licensing procedures,” “Unexpected tax burdens due to flawed tax schemes,” and “Post-transfer problems (discovery of off-balance sheet liabilities or labor issues)”. All of these can be prevented through meticulous preparation and due diligence beforehand.

Based on our experience supporting dozens of medical succession cases, we propose succession schemes that identify risks in advance and incorporate contingency plans.

M&A Medical’s Support for Medical Succession

As an M&A support organization certified by the Small and Medium Enterprise Agency, M&A Medical specializes in supporting the succession of hospitals, medical corporations, and clinics.
・M&A advisory specializing in the medical industry
・Cooperative system with certified public accountants, tax accountants, and lawyers
・Matching through a nationwide network of physicians and medical corporations
・Free initial consultation and success-based fee (no upfront charges)
・Strict confidentiality and long-term partnership (3 years of follow-up after succession)

We handle all types of succession needs for medical institutions, from solving successor issues to strategic group restructuring.

Frequently Asked Questions (Regarding Medical Succession)

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• Step-by-Step Guide to Medical M&A and Hospital Succession | Explaining the 6 Steps from Consultation to Closing with Real Examples