Considerations in Selling or Buying a Medical Practice
When beginning the process of purchasing an existing medical practice, a purchasing physician first needs to decide whether he or she wants to purchase the seller’s entire professional service corporation, which includes certain, defined assets, or merely the assets of that corporation, which can include everything from medical equipment and supplies to the practice’s name, logo, commercials, and perhaps most importantly, its current patient list. While both parties will need to sign a stock purchase agreement in the sale of a professional service corporation, a purchase and sale agreement or a asset transfer agreement can be used to finalize the sale of specific assets, which will be expressly identified in an asset list attached to the sale agreement. Your Contract Lawyer can help you make a well-grounded determination about which sale structure will provide you and your business with the best outcome, whether you are the buying or selling physician in your potential transaction.
After determining the sale structure, both parties need to negotiate a final purchase price and agree on how that purchase price will be paid by the buyer to the seller. Though there are a multitude of payment options, payment for the sale of a medical practice typically occurs via one of the following methods: (1) a lump sum payout at closing; (2) monthly, quarterly, or annual payments that may increase, decrease, or remain the same over a set period; (3) a combination of a lump sum payout and payments over time; or (4) payments set up as part of a loan issued by the seller to the buyer. In this last method, which is most commonly utilized by doctors, lawyers, dentists, and other professionals, the seller issues a loan to the buyer with a negotiated interest rate, payment schedule, and term. The loan is secured by the practice itself, which allows for the seller simply to regain his or her ownership of the practice if at any point during the term of the loan the buyer defaults. While the purchasing doctor is able to spread out the purchase price over time utilizing this method, the owner of the existing practice is provided with greater, simplified protections to make certain that he or she receives the total purchase price agreed to in the sale agreement.
While purchase price, payment terms, and sale structure are without question critical elements of any transaction that must be included in any sale agreement, regardless of whether a stock purchase agreement, purchase and sale agreement, or asset transfer agreement is utilized, another crucial detail that needs to be sorted out by both parties prior to any closing is whether or not the buyer will continue to treat patients in the medical practice’s current location. As one can imagine, the ability to continue treating patients at the medical practice’s existing location may be essential to the continued success of the practice after ownership has been transferred and may therefore impact the potential purchase price agreed to by both parties. While the office space used by the existing practice can simply be included in the sale as an asset if the seller owns the location, if the seller’s practice location has been under lease, the buyer will need to meet with the seller’s landlord to either take over the seller’s lease via a lease assignment or sign a new lease agreement, either of which should take effect on or after the closing date for the sale of the practice.
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