Legal Considerations in Selling a Physician Medical Practice

At some point during their career, many physicians will be faced with an opportunity to sell their medical practice to another private physician practice or to a large-scale health network.  The consolidation of the health care market has resulted in integration at the physician level and, consequently, an increase in sole practitioner and small physician group acquisitions.  Selling a medical practice is an important decision and involves a variety of financial and legal considerations.  The following are some of the most common issues faced by physicians when selling their practice.

1. 1. Negotiation of Purchase Price: The physician should obtain an appraisal and consult a valuation expert to determine an appropriate purchase price for the medical practice.  This ensures that the practice obtains the highest price for the business, but also ensures that the acquisition is compliant from a regulatory perspective.

2. 2. Negotiation of Employment Agreement: Except in the case of a retiring physician, most physicians who sell their medical practice are seeking to continue employment with the successor to their practice.  This involves the drafting and negotiation of employment contracts that typically contain non-compete clauses.  These agreements are an integral part of a physician’s future practice, and determine how and where the physician can practice in the event the physician elects to continue employment elsewhere.  These should be negotiated agreements that adequately protect the physician, while simultaneously ensuring that the successor obtains value for its investment.

3. 3. Insurance Coverage: Physicians selling their practice must ensure that they have appropriate tail coverage following the date of sale to ensure that any lawsuits for professional liability are adequately covered.  Many successors to a medical practice do not provide insurance prior to the date of acquisition, and it is the physician’s responsibility to obtain appropriate coverage.

4. 4. Patient File Transition and HIPAA Compliance: It is a physician’s responsibility to ensure that all patient files are appropriately transitioned to the successor.  This includes compliance with HIPAA laws and obtaining patient consent. Failing to do so can result in patient migration to another health care provider and exposure to HIPAA penalties.

5. 5. Real Estate Considerations: Many physicians also own equity interests in a real estate holding company that often leases office space to the physician (e.g., a medical office building).  In most cases, the physician is required to be bought out of the medical office building company (including both the holding company and operating entity) upon the sale of the physician’s medical practice.  A buyout from an entity requires appropriate legal documentation to ensure the physician is receiving adequate compensation for the buyout and is adequately protected following withdrawal from the real estate business.

These are just a few of the most common considerations that arise during the sale of a medical practice.

If you have any questions concerning this post, please contact Sandra Jarva Weiss, Chair of our Health Care & Life Sciences Practice Group, at sjarvaweiss@norris-law.com.