Things to Think About in the Sale of a Medical or Dental Practice

We are continuing to see and be involved with large numbers of outright sales of medical and dental practices. This article will focus on some of the more important issues to be aware of and questions to ask when involved in such a transaction.

  1. Confidentiality and Non-Disclosure Agreement (“NDA”).

a. Before sharing information on the Practice, the Seller generally gets the potential Buyer to sign an NDA.

b. It may include terms such as all parties agreeing to not disclose that they are even having discussions and that any shared, confidential information (such as finances, numbers of patients and the like) may not be disclosed to anyone else (other than a party’s attorney, consultant, and accountant for purposes of evaluating and negotiating the proposed deal).

  1. Do You Need a Letter-of-Intent (“LOI”)?

a. LOI’s often state that they are not legally binding (except for some express terms).

b. Nevertheless, once they are signed, the other side will usually state something along the lines of “why are you trying to change something we already agreed to in the LOI?”

c. If there is going to be an LOI, we generally want it to include as much substance as possible.

d. Do not sign one casually or without first obtaining legal advice.

  1. The Asset Purchase Agreement (“APA”).

a.The APA deals with the “purchase/sale” side of things.

b. What is the Purchase Price?

(i) What is the Number?
(ii) What are the Payment Terms?
(iii) What are the tax ramifications?

c. What assets are and are not being sold? This often includes a discussion as to accounts receivable, deposits and tangible and intangible assets.

d. What is and is not being assumed by the Buyer?
(i) Contracts (Service Contracts and Billing Agreements are two         common ones).
(ii) Leases (Office and Equipment).
(iii) Payables
(iv) Liabilities/Debts.

e. Who is buying?

  1. Non-Competition Provisions.

a. Generally in the APA and in the contract dealing with the post-sale Employment Agreement (“EA”) or the Independent Contractor (“IC”) arrangement.

b.What is precluded?
(i) What services/work?
(ii) What geographic area is encompassed?
(iii) For how long does the restriction apply?
(iv) What are the remedies if violated?

  1. Non-Solicitation Provisions.

a. May be in the APA and the EA or IC.
b. May be related to patients, staff, referral sources and/or contracts.
c. For how long does it apply?
d. What are the remedies?

6. Equity.
a. Will the Seller retain any equity in the Practice or a related entity?

7. Office Realty.
a. Who owns it?
b. A Lease or sale/purchase option or right of first refusal may be needed.
c. What about the Security Deposit?
d. What is the Term for the Lease?
e. Determine if it is legally compliant.

  1. Post-Sale Employment Agreement or Independent Contractor Agreement.

a. What is the Term?
b. How is it terminable?
c. What is the W-2 remuneration?
d. What are the Practice-paid business expenses and fringe benefits?
e. Malpractice Insurance needs to be addressed (relating both to pre-and post-sale). Is occurrence coverage in place or is the coverage claims-made with the need to pay for a tail premium?  If the latter, who bears the financial responsibility?
f. Non-Competition provisions are often in the EA/IC and the APA.
g. Non-Solicitation provisions are often in the EA/IC and the APA.
h. What entity is the employer? It may be different than the Buyer.
i. What PTO is provided?
j. Who sets the hours of work, on-call schedule, location of work and with whom the Seller will work?
k. Will “outside activities” be allowed?

Each of the above topics could merit a full article on its own, but the purpose of this article is to highlight things meriting consideration on a “big picture” basis.

Vasilios (“Bill”) J. Kalogredis has been advising physicians, dentists, and other health care professionals and their businesses for over 40 years.  He is Chairman of Lamb McErlane PC’s Health Law Department.; phone, 610-701-4402; or fax, 610-692-6210.