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Checklist for Selling or Buying a Health Care Practice

When preparing to buy or sell a health care practice of any type, there are many things to consider. The following is a starting place, not an exhaustive list:

  • To properly value the practice, get an appraiser, and ideally plan for more than one bidder. The value of a practice is generally three separate assets: tangible equipment and furniture, accounts receivables, and goodwill. Goodwill is often the most valuable. It comprises staff, reputation, client base, location and market share. It is also the most difficult to value. Any controlled substances on the premises are not to be considered assets, and should be disposed of properly.
  • The books of the practice should be in tip top order. SELLERS should continue to promote and advertise as usual, reconcile books, accounts receivables, clean up any bad debt/write offs. BUYERS should be informed of and review all practice contracts, including employment agreements, leases, service contracts, vendor agreements. BUYERS should carefully review them, as well as accounts receivables and aging of claims, and make sure everyone’s credentials and provider contracts are current and on file.
  • SELLERS and BUYERS can agree on a transitional patient notification and ongoing marketing strategy to benefit them both, and plan for a reasonable time frame of no more than one year to complete the sale. The SELLER needs time to properly notify all patients of the transition, to prevent allegations of patient abandonment. Allow at least 30-60 days to send proper written notification to all patients seen within the past 3 years, giving them salient information about continuity and continuation of care, as well as transitioning care. The SELLER may agree to stay on for a total of 90-120 days to introduce patients to the new BUYER as they learn the patients and practice. This provides valuable preservation of the practice value that will benefit all parties involved.
  • The Charts should be in order and maintained with patient privacy as paramount. They cannot be sold per se. EHR systems have value, paper charts do not. Paper charts become a burden and a liability. After proper notice to patients, BUYERS and SELLERS must make a decision about who is going to be responsible for paper charts, such as making conversion to electronic, incurring paper file storage costs, and the responsibility of responding to patient requests and HIPAA privacy over the charts for years to come.
  • The facility equipment may be part of the sale, but the real property is a separate transaction. BUYERS may want to relocate the practice elsewhere, or stay and lease the current space, rent to own, retain an option to buy, or buy it outright. The SELLER may be a tenant, in which case, the BUYER should contact the property owner or lessor. If the SELLER owns the property, the SELLER may agree to become a landlord, hire a property management company to collect the rent and maintain the site, or sell the space to a property investor.
  • SELLERS must decide whether to remain as an employee of the new owner or to move on, move out of the area, or retire and do something else. If BUYERS become employers, there is a separate employment agreement transaction that needs to be negotiated. The new BUYER may not calculate productivity, RVUs or do billing or collections as the SELLER did. In all cases, restrictive covenants must be carefully worded, such as non-solicitation, non-compete and non-disclosure language. This should all be thoroughly negotiated.
  • Stark, Anti-kickback and fee-splitting safe harbors for one-time provider-to-provider sales may apply. Though only available in limited circumstances, they may help both BUYERS and SELLERS of designated health services and supplies, not involving immediate family members, that are going to extend the total sales horizon for not more than one year from the beginning date of the sale, and where the seller will not remain in a position to continue to refer to the practice thereafter.
  • BUYERS and SELLERS must decide if the sale includes any valuable managed care contracts. If so, make sure those contracts each have a clause that allows for assignment, and if it does, whether the payors have to give their consent first. If any contracts will be closed, those patients must be given appropriate time to access alternate care.
  • BUYERS and SELLERS must decide who is the successor in liability for overpayments or underpayments. This can be a problem if there is a future audit and one party is mistaken about their responsibility. Medicaid has a special rule about selling accounts receivables, they call it factoring. BUYERS should find out if the SELLER already do this. If they did, they cannot be re-factored. Try to avoid factoring. Instead, the best way to handle this issue is often for the sale to stay open for a manageable amount of time. Any fees for services already rendered by the SELLER can still flow to the SELLER, and the BUYER can receive the fees for any services they render, and at the end of a couple of billing cycles (2-3 months) it is concluded.
  • BUYERS and SELLERS should notify all required parties, including Professional Liability Insurance Carriers, and the New York State Education Department, with respect to appropriate registration. Neither party should hide an impending sale from certain key employees, but notice should be timed wisely, especially to other providers in the practice or uniquely skilled employees such as account managers. As described above, their cooperation with preparing the practice for the sale, cleaning up the books, maintaining the practice value, and the smooth transition to the benefit both the BUYER and the SELLER, as well as the patients, is very valuable.
  • Carefully consider the terms if a SELLER is being asked to finance any portion of the sale to the BUYER. A financially qualified BUYER is much preferred.
  • With all of the above, get tax help, and plan as many years in advance as possible. This type of transaction is, for both BUYERS and SELLERS, a series of sub-sales. Each has value, gains or losses at different tax rates.

Colligan Law, LLP is pleased to assist you with any health practice sales or purchases you may be considering. 

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Colligan Law is pleased to assist you with any health care practice sales or purchases you may be considering.


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