What to Know Before Selling a Medical Practice

Selling a medical practice is not as easy as selling a car. Most medical practice owners know that, but they still make mistakes that leave money on the table or lead to a bad deal. Having an experienced healthcare business transaction attorney review the deal before the sale is finalized is always best, but here are some things that medical practice owners should keep in mind.

What Should Sellers Look for in the Purchase Agreement?

The purchase agreement is one of the most important documents in a medical practice sale. It sets out the parties’ legal obligations, defines the transaction terms, and determines how the sale will be completed. Sellers should review each provision carefully to ensure the agreement protects their financial interests and limits post-closing liability.

Major provisions to review include:

• Purchase price and payment terms: Confirm the total purchase price, payment schedule, and any conditions that could delay or reduce payment. If the deal includes seller financing or earnout payments, establish clear deadlines, performance requirements, and protections against nonpayment.
• Assets and liabilities: Identify exactly which assets are being sold, including equipment, furniture, goodwill, and other business property. Clarify which debts, contractual obligations, and potential liabilities the buyer will assume and which will remain your responsibility.
• Representations and warranties: These provisions state the practice’s financial condition, contracts, billing practices, regulatory compliance, and other matters. Overly broad representations can expose sellers to post-closing claims.
• Indemnification: Determine when you may be required to reimburse the buyer for losses arising from pre-closing events or alleged breaches of the agreement. Negotiate reasonable liability caps, time limits, and procedures for resolving claims.
• Closing conditions: Review any requirements that must be satisfied before the transaction can close, including financing, third-party consents, regulatory approvals, and other contingencies. 
• Post-closing obligations: Understand your responsibilities after the sale, including assisting with the transition, maintaining records, addressing billing issues, and cooperating with future audits or claims.

Do not assume a standard business purchase agreement adequately addresses the legal and operational considerations of a medical practice sale. Having a healthcare transaction attorney review the purchase agreement can help avoid costly mistakes.

Frequently Asked Questions

When does it make sense to sell a medical practice?

Selling a medical practice makes sense when your personal, professional, or financial goals begin to change. Retirement, burnout, rising operating costs, and increasing administrative responsibilities can all signal that it may be time to consider a sale. Other physicians choose to sell to access the value they have built, reduce financial risk, or join a larger healthcare organization. 

How long does it take to sell a medical practice?

The timeline for selling a medical practice depends on several factors. It generally takes at least months, but many factors influence how long the process ultimately is. The timeline for selling a medical practice varies with its size, financial performance, valuation, and operational complexity. Buyer financing may delay the process if loan approvals or funding arrangements take longer than expected. Regulatory requirements, including healthcare compliance reviews, payer contract approvals, and patient record transfer arrangements, can also extend the process. Other factors, such as negotiations, due diligence findings, and preparing legal documents, may also affect the closing date.

How can a healthcare attorney help with the sale of a medical practice?

A healthcare attorney can make selling a medical practice easier. From reviewing the initial offer to finalizing the sale, an attorney helps protect your interests throughout the process.

Here are a few ways a healthcare attorney can help:

• Reviewing contracts: Ensuring the purchase agreement clearly outlines terms, payment structure, and each party’s responsibilities.
• Addressing compliance issues: Identifying potential concerns involving healthcare regulations, payer agreements, and patient records.
• Negotiating sale terms: Helping secure favorable terms and reduce legal risks.
• Managing liabilities: Reviewing outstanding debts, employment agreements, and potential legal claims.
• Coordinating the closing: Ensuring required documents, approvals, and legal obligations are addressed before the transaction is completed.

How do you determine the value of a medical practice before selling?

Determining a medical practice’s value before selling requires evaluating its financial performance, assets, patient base, and market position. A professional valuation helps physicians establish a reasonable asking price and negotiate favorable sale terms. Several factors influence the overall value of a practice, including:

• Financial performance: Revenue, profitability, operating expenses, and outstanding debts.
• Patient base: Patient volume, retention rates, and recurring revenue.
• Physical assets: Medical equipment, office furniture, technology, and property.
• Market conditions: Demand for the specialty, local competition, and sales of comparable medical practices.
• Intangible assets: Practice reputation, goodwill, brand recognition, and established referral networks.

What happens to patients when a medical practice is sold?

Patient care should be a top priority when selling a medical practice. A change in ownership can create uncertainty for patients, especially those with long-standing relationships with their physician or who rely on ongoing treatment. Before the sale is finalized, you should consider how the new owner will manage patient appointments, medical records, prescriptions, and ongoing treatments. Clear communication and adequate notice can help patients understand their options and decide whether to continue care with the new provider.

What should both parties consider regarding medical practice employees?

The buyer and seller should review existing employment agreements, salaries, benefits, job responsibilities, and any applicable notice requirements. Depending on the deal, employees may continue working under the new owner or receive updated employment terms.

Contact an Experienced Healthcare Transaction Attorney 

Before selling your medical practice, consult a healthcare transaction attorney who understands the legal, financial, and regulatory complexities of medical practice sales. An experienced attorney can help medical practice owners review the purchase agreement and assess any liabilities. He can also help you avoid costly contract provisions, protect your interests during due diligence, and maximize the value you receive from the sale. Contact us today.