Planning to Sell Your Medical Practice in the Future?

The sale of a medical practice requires planning and preparation. Here are some tips:

Improve the Financial Health of the Practice

A physician often cuts back on his/her schedule in the year or two prior to placing his/her practice on the market and then, to explain the decrease in the practice revenue, includes a statement in the listing that the practice revenue was higher a couple of years before. No matter this assurance, this decrease in practice revenue can impact the sales price. Put in the hours and increase your practice revenue during the two year period prior to listing your practice for sale.

Obtain a Contractual and Regulatory Compliance Assessment

Healthcare is one of the most heavily regulated fields in the nation with complex and ever changing federal and state laws, regulations, and policies. Medical practices are often not in compliance with law. Engage a compliance expert to conduct an evaluation of the contractual and regulatory compliance of the practice prior to placing your practice on the market. The practice may need to self-report violations of laws to federal and/or state authorities.

Organize the Practice Records

Prepare your financial documents, operational records, compliance materials, etc. This can include corporate charter documents, tax returns, P&L statements, balance sheets, compliance filings, staff employment agreements, vendor contracts, and patient demographics.

Obtain a Valuation of the Practice

Obtain a valuation of the practice from a medical practice valuation expert.

Note: If the practice is to be sold to a healthcare system or hospital network, make certain that the sale is structured so as to meet an exception under the Stark Law and fit within a safe harbor under the Anti-Kickback Statute, including the “fair market value” and “commercially reasonable” requirements and the exclusion from the purchase price of the value of goodwill, an ongoing business unit, covenants not to compete, exclusive dealing agreements, patient lists, and patient records.

Seek Professional Assistance

Engage professionals, such as a broker, attorney, accountant and other advisors, with knowledge and experience in medical practice operations and sales.

Be Cautious with Communications to Staff and Patients

Refrain from communicating your intention to sell the practice to staff or patients prior to signing a definitive document (i.e. an asset purchase agreement) with the buyer.

Prepare for Due Diligence

Make all documentation readily available for the buyer's due diligence. However, prior to the delivery of any confidential material regarding the practice, have the broker and buyer sign a Non-Disclosure and Confidentiality Agreement. Also, have the buyer’s accountant, counsel, and advisors sign a Business Associate Agreement for compliance with HIPAA.

Prepare for Negotiation

Prepare for rounds of negotiations, first between the broker and buyer, and then between your counsel and the buyer's counsel. Understand all the terms of the sale of your practice and any sale of related real estate as well as any post-closing arrangements, such as an employment or consulting agreement and seller financing agreements, instruments, and documents, both of which arrangements can be used to defer compensation. This is true of all practice sales, but especially those to private equity buyers.