Purchasing a medical practice is probably one of the most important decisions that you will make in your life. The type of practice, location, and size are just a few factors that will influence the growth and success of your practice. Unlike many other professions, you can’t just change jobs after purchasing a medical practice. The medical practice you purchase will establish roots for you in that location, in the community and the hospitals that you send your patients to. Our firm has helped many doctors evaluate their options to negotiate the best possible medical practice to benefit their life and career.
Before you purchase or even begin to negotiate purchasing a medical practice, consider the following factors in your decision making process:
1) Type of Purchase. The purchase of a medical practice could take the form of stock purchase or an asset purchase. In a stock purchase, the purchaser is acquiring assets such as equipment, fixtures, accounts receivables as well as liabilities. It is important to note that liabilities include all accounts payables and any malpractice suits that may be ongoing against the practice. In most cases, a stock purchase occurs when a current employee of the practice, usually on a partnership track, becomes a full or part owner of the practice. He or she then also becomes liable for the practice’s liabilities. For example, if you purchase into a practice where one of the partners has a high number of malpractice actions named against him or her and the practice, you may also be sharing any liability not covered by insurance. Additionally, if that partner has a higher than normal rate of malpractice insurance because he or she has been sued more often, your income will be affected if medical malpractice insurance is a shared expense. In such a case, you may want to negotiate that each physician pay for his or her own medical malpractice insurance separately.
In an asset purchase, the buyer steps in and takes over the practice. The purchaser normally acquires the remaining inventory and office supplies. The purchaser does not take on the liabilities or the accounts receivables. You should make sure to get the seller’s patient list with telephone numbers and addresses. Since you are paying for the entire practice, make sure the telephone number, fax, and e-mail address stay the same. You should also have access to the website if there is one.
2) Purchase Price. The purchase price is the most difficult factor to determine. You must negotiate this price. In order to determine the purchase price, take the value of the assets that you’re acquiring such as furniture, computers, equipment, supplies and add it to the goodwill. Goodwill is a difficult number to measure as it is based on how well the practice is doing, its location, reputation, and how long it has been in business. Also obtain the financial statements from the past five years to see how the practice is doing and whether it is growing.
3) Non-Compete Agreement. A non-compete agreement is crucial to ensure that the seller does not take back the practice that he or she just sold you. A well drafted non-compete clause should ensure that the seller does not open up a practice across the street from you or anywhere in your targeted geographic location. This is extremely important because if the seller opens up a practice nearby, you will most likely lose your patients.
Purchasing a medical practice is an extremely complicated business decision that will affect you, your career, and your family. If you are considering purchasing a private practice, call our Physician Employment attorneys at Villanueva & Sanchala at (800) 893-9645 to help you evaluate, negotiate and guide you in your purchase.
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