Buying a medical practice in Texas: what to know before you sign

A physician client once brought me a signed letter of intent to buy a practice and asked me to “paper it up.” The price was fine. The problem was that the LOI described a purchase of the seller’s professional association, which meant my client was about to inherit every Medicare overpayment that entity had ever received, plus a billing audit nobody had mentioned. We restructured it as an asset deal. The seller grumbled and the deal closed. That is roughly the value a lawyer adds to a practice acquisition: not the closing documents, but the structure decisions made before anyone drafts them.

Here is what I walk physician buyers through.

Most practice sales are asset purchases. You form your own entity, and it buys the equipment, the patient records (subject to the rules below), the lease, the phone number, the goodwill, and whatever else is on the schedule. The seller’s entity keeps its own liabilities and, usually, its accounts receivable.

The alternative is buying the seller’s entity outright – the stock of the professional association or the membership interests of the PLLC. Sellers often prefer this for tax reasons. Buyers generally shouldn’t, because you take the entity’s history with it: overpayments, unpaid payroll tax, employee claims, and anything a payor decides to claw back later. In an asset deal you can usually leave that behind. In an entity deal you own it.

There is one wrinkle that pushes some buyers the other way. Medicare enrollment belongs to the entity, not the practice location. Buy the entity and you generally step into its billing privileges through a change-of-ownership filing. Buy the assets and your new entity has to enroll from scratch, which can mean weeks or months of seeing patients before you can bill for them. That gap is real money, and it is one of the few reasons to consider an entity deal despite the liability. A good deal team will price it either way and let you choose.

Texas follows the corporate practice of medicine doctrine, which in plain terms means a business that is not owned by physicians generally cannot practice medicine or employ physicians to do it. The entity buying the practice has to be one that Texas law allows to own a medical practice – typically a professional association or professional limited liability company owned by licensed physicians. There are exceptions (certain certified nonprofit health organizations, hospital districts, and a few others), but they are narrow and specific.

This matters most when a non-physician is part of the picture. A spouse, an investor, or a management company cannot simply own a piece of the practice entity. The workaround that has developed is the management services organization structure, where a physician-owned entity holds the practice and a separate company provides administrative services for a fee. It is common and it can be done correctly, but “correctly” is doing a lot of work in that sentence, and the Texas Medical Board has views on fee arrangements that look like profit-sharing. If anyone other than a licensed physician expects to own part of this deal, that conversation happens before the LOI, not after.

The LOI is where the important decisions get made while everyone still thinks they’re being informal. Price, structure (asset or entity), what happens to accounts receivable, whether the seller stays on and for how long, the noncompete – all of that generally gets sketched here and is very hard to renegotiate later.

Most of an LOI is non-binding, and it should say so. A few pieces should bind: confidentiality, exclusivity for a set period so the seller isn’t shopping your offer, and who pays for what if the deal dies. I’ve written more about the purchase process generally, and the LOI advice there applies here.

Ordinary business diligence (financials, contracts, litigation, liens) applies, and the general checklist covers it. Medical practices add a layer.

Payor contracts. Ask which contracts are assignable. Many commercial payor agreements are not, which means your new entity will be re-credentialed from scratch, and credentialing timelines of two to four months are normal. If the practice’s revenue is concentrated in one or two payors, find out now whether they’ll contract with you at all.

Billing and coding. A sample audit of recent claims by someone who does this for a living is worth its cost. It tells you whether the revenue is real and whether there’s overpayment exposure. In an entity deal that exposure becomes yours.

Patient records. Texas requires physicians to keep medical records for set periods, and when a practice changes hands the records have to go somewhere with a custodian responsible for them. The Texas Medical Board also generally expects patients to be notified when a physician leaves or a practice changes, so the purchase agreement should spell out who owns the records, who is custodian, and who sends the notice.

Licenses and registrations that don’t transfer. The seller’s DEA registration is personal and stays with the seller. CLIA certificates, radiology registrations, and similar permits generally need to be obtained by or transferred to the new entity, and each has its own timeline.

Employees. Whether you’re hiring the staff fresh or assuming their contracts, review the existing employment agreements, especially any noncompetes with associate physicians, since those may or may not be assignable to you.

Real estate. If the practice leases its space, the lease is often the single most important contract in the deal, and landlord consent to assignment is not automatic. I’ve written about commercial leases and have a longer guide if you want the detail.

Malpractice. Ask about pending and threatened claims, and make sure the seller is buying tail coverage. Your policy will not cover their prior acts.

Almost every practice sale includes a covenant that the seller won’t set up shop down the street. Historically, a noncompete given in connection with the sale of a business has been easier to enforce in Texas than one imposed on an employee. Physician noncompetes, however, have their own statute, and that statute was amended in 2025 to add limits on duration, geography, and buyout price. As of this writing there is real uncertainty about how those new limits apply to a covenant given by a physician who is selling their practice rather than leaving a job. This is a drafting problem, not a reason to skip the covenant, but it is one to hand to a lawyer rather than copy from the last deal. I’ve covered the Texas noncompete rules at more length, including the 2025 changes.

The headline price is one number. The purchase agreement will allocate it among equipment, goodwill, the noncompete, and other categories, and that allocation drives both parties’ taxes for years. Buyers and sellers usually want different allocations. Settle it in the agreement and report it consistently.

Accounts receivable are their own negotiation. The cleanest deal leaves them with the seller: the seller collects what was billed before closing, you collect what you bill after. Some deals sell the A/R at a discount. Either works; what doesn’t work is silence, because patients and payors will send checks to whoever they feel like for six months after closing.

Financing is usually a bank loan (SBA programs are common for practice acquisitions) or seller financing, or both. A lender will want to see the same diligence you’re doing, so doing it well shortens the loan process.

A buy-in is a different transaction. Rather than acquiring a practice, you’re purchasing an ownership share in an existing entity from the practice or its current owners, often after a year or two as an employed associate.

Because you’re buying equity, you get the entity’s liabilities along with its assets, so the diligence points above still apply. The documents that matter most are the ones governing life after closing: how compensation is calculated, how decisions are made and by whom, and what happens when someone leaves, retires, dies, or gets divorced. Those buy-sell provisions are where most partnership disputes are won or lost, and they’re far easier to negotiate before you own anything. Valuation of goodwill in a buy-in is contentious enough that many practices use a formula fixed in the company agreement rather than an appraisal at each transition.

Enrollment and credentialing continue for months. Patient notices go out. Tail coverage gets bound. The bank account, EIN, and group NPI are new. Staff are re-hired onto your payroll under your handbook. The seller, if staying on, is now your employee or contractor under an agreement negotiated alongside the purchase. None of this is difficult, but each item has a date attached, and the business lawyer who handled the purchase should be tracking the list with you.