Negotiating the Sale of Your Medical Practice

The sale of physician practices to hospitals continues at a steady pace. For those physicians currently considering an offer to acquire their medical practice (or who may consider it in the future), today’s blog will talk about some issues that require attention when negotiating the sale of your practice.

1. Make sure all the important points of your deal are captured in the Letter of Intent (LOI). Too often, my physician clients fail to take the time to negotiate the terms which are “deal breakers” at the LOI stage, only to find the hospital is unwilling to stray from the LOI when it’s time to draft the final documents. The LOI is the most important piece in determining whether the parties have a deal that both sides can live with. Make sure you bring legal counsel into the negotiation process as soon as you are presented with an LOI that the practice is willing to consider. When my clients call me after the LOI is already signed, there is little I can do to improve the deal or correct misunderstandings.

2. An LOI will usually have a provision that does not allow you to negotiate with other parties after the LOI is signed until the final documents are executed or a certain date is reached (and the parties have failed to consummate the transaction by such date). Physicians who are trying to play different potential buyers against each other for the best deal must understand they may no longer be permitted to “shop” the practice once the LOI is signed.

3. If a practice wants its employees to be treated a certain way once the practice is acquired, this expectation must be made clear to the buyer. This includes protecting staff from being reassigned to a different position or location or from being terminated following the sale. In addition, be sure you are familiar with your existing employment contracts. Even if the practice is going to be sold, the practice must honor the notice provisions (and other promises) in its existing contracts, particularly for those employees not being retained. When it comes to informing employees about the sale of practice, be strategic. Informing staff too soon can lead to anxiety and the departure of those who feel uncertain of their future. A meeting with staff once it seems that a deal is likely is advisable. Sharing information and providing assurances can go a long way to preserve your best employees.

4. Electronic health records are an issue often overlooked at the LOI stage; however, if the practice acquired its own EHR which is still not fully paid for, and the practice will be unable to use it following the sale, this issue must be addressed. The hospital may be unwilling or unable to cover the additional cost of the unusable EHR and the debt must be addressed with counsel to see if it impacts the ability to complete the transaction.

A related issue can arise if the EHR is tied to a hospital/system other than the one which has made the offer to acquire the practice. It may be necessary to coordinate the transfer of electronic information from the old EHR to the hospital-buyer and avoid potential gaps in access to information. Not surprisingly, cooperation from the non-purchasing hospital is often not forthcoming.

5. If your practice will collect its own accounts receivable following closing, be sure you understand how this will be accomplished. Most hospitals are not willing to allow their staff (your old employees) to collect the old accounts receivable during work hours. Often a hospital buyer will agree to collect accounts receivable on behalf of the practice (based on a percentage of collections) or will allow the practice to pay hourly for use of the staff. This is something that should be discussed at the LOI stage.

In my next blog I will cover some of the compensation, covenant, and termination issues that should be addressed in negotiating to sell your practice. If you have particular questions about the process that you would like to see answered, please let me know!

Find out more about Ericka Adler and our other Practice Notes bloggers.