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Buying a Medical Practice: Business Lawyer’s Corner

Acquiring a Medical Practice ǀ A Guide for Doctors and Physicians

Buying a medical practice is one of the significant professional decisions with financial constraints and obligations. Therefore, if you are a doctor or a physician, it is vital for you to seek adequate professional legal and financial advice before signing that sales deed. This is where this post is going to help as you will learn about the factors you need to consider when acquiring a medical practice.

Things to Consider when Acquiring a Medical Practice

It is every doctor/physician’s dream to own a private medical practice someday. The medical practice of your own can help offer the treatments of your choice and have more control over your patient’s care. That said, acquiring a medical practice sounds easier than it actually is and comes with its own sets of perks, challenges, and risks. Therefore, it is imperative that you understand the entire process of buying a medical practice. So, without further ado, let us dive right in and look at the factors you must consider.

Know Your Needs

Knowing your needs is the very first and the most important aspect to consider when deciding to acquire your own medical practice. For this, you will need clarity on what type of medical treatments you would be offering at your new facility. You must also think about the patients you wish to treat and the area where you want to open your practice. This will not only help you narrow down your choices but also focus on specific goals instead of planning haphazardly.

Gauging the Existing Culture

If you are thinking about acquiring a medical practice that is already operational, you must consider numerous factors other than your needs and locale. Ask yourself the following questions first:
  • Does your area of specialization align with what the medical practice currently offers?
  • Does the area/location of the practice have patients that may need the treatment you specialize in? Or is there a demand for what you specialize in?
  • Will you continue to serve the existing patients of the practice or target new patients? For the latter, you may require a marketing strategy to attract patients looking for the treatments you plan to offer.
  • Will you be taking over the existing staff or hiring your own team?
  • Speaking to the practice’s existing staff and patients may help you highlight problematic areas or issues faced by the practice.
  • Will you need to make additional financial investments into buying equipment?
  • What is the current management model of the medical practice?
  • Do practice staff organize and document all medical records, bill, and payments? How?
Apart from the abovementioned questions, you must also learn about the current patients’ onboarding process. Learning about the resolution strategy for billing disputes will also help you gain insight into how smooth the medical practice’s operations are.

Understanding Corporate Practice of Medicine (CPOM)

Corporate Practice of Medicine or CPOM is a legal guideline that protects the interest of patients against the commercialization of medical practices. According to CPOM guidelines in Texas, corporations and businesses cannot practice medicine unless they meet certain exceptions. Similarly, non-physician entities or corporations cannot employ a doctor to offer healthcare services in the state of Texas. CPOM is also applicable when it comes to structuring the acquisition of medical practice. If the sales transaction is purely asset-based, you must select the type of entity buying the assets, and this entity must comply with the CPOM.

A Non-Binding Letter of Intent

Once you have selected the medical practice you wish to buy, you may consider agreeing to a letter of intent which is a non-binding agreement. The letter states certain terms, conditions, and expectations from both parties and can also be a document for resolving issues before completing the purchase process. A letter of intent may also set the groundwork for your final purchase agreement.

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A Thorough Investigation Never Hurts

No matter how great or well-organized the medical practice may appear to be, it is always wise to be diligent in your approach. After all, you need to ensure that the practice you wish to buy is worth it and offers long-term value. Read more about the due diligence process here. Some areas you need to focus on include:
  • Cash flow
  • Revenue records and future forecast
  • Practice’s current accounts payable and accounts receivable
  • Current assets
  • Debts
  • Permits/licenses
  • Ongoing contracts
  • Equipment including the condition
You must also get an appraiser to assess the current state and integrity of the building. This will ensure that the medical practice you wish to acquire is compliant with the local building code and is in a safe condition. If you are working with an attorney, you may even request a background check on the seller to ensure there is no ongoing litigation or financial claims pertaining to the medical practice. All of this information and answers to questions will help you determine the financial feasibility of the medical practice while eliminating the chances of any potential risks. Additionally, this will also give you peace of mind that you will get your money’s worth if you ever decide to sell the medical practice in the future.

It is a Numbers Game

While the price that the seller is asking does play a major role in whether you can afford to acquire a medical practice, there are other cost factors you need to consider. For instance, you need to determine how much will it cost you to run this practice? Would you need to buy more equipment or make enhancements to the practice’s infrastructure and décor to bring it up to the standards that you have in mind? To determine all of these costs, you must make a comprehensive list of all operational expenses such as:
  • Utility bills
  • Payroll
  • Building repair and maintenance
  • Equipment repair and maintenance
  • Medicinal and other inventory
  • IT services
  • Cost of making any changes to practice’s infrastructure
  • Hiring new employees etc
  • Purchase of new equipment
  • Buying new furniture making other aesthetic improvements
Feel free to add any other expenses specific to your needs or circumstances. The calculation of all your money coming in and going out will help you determine whether this practice will be profitable once you have acquired it.

Your Financing Options

Now that you know your needs, the costs, and how much money you need, it is time to start searching for sources to finance your new medical practice (unless you have enough cash in hand).  You have to remember that this may be a personal or commercial loan, and the lenders will consider your credit history as well as your personal finances. Therefore, you must seek an accountant or financial advisor to determine your eligibility to secure a bank loan.

Tips for Acquiring a Medical Practice

Apart from the abovementioned factors, here are some additional tips that will help you understand and ace the acquisition of medical practice.

Image Source: Pexels

Understanding the Sale Process

The acquisition of medical practice is a 3-step process that involves negotiation, exchanging of contracts, and completion. In negotiation, you sit down with the seller to discuss what you are buying and for what price. You will most likely be entering into a document known as “Heads of Agreement.” Usually, it is a seller’s responsibility to draft a Sale Agreement and forward it to you. In exchange for the contract, both parties sign the contract, and you (as a buyer) pay the deposit. The date you pay the full payment owed to the seller is known as the completion.

Get an Itemized Purchase Summary

You will not need to pay stamp duty on intellectual property. However, you will be paying duty on other assets included in the sales deed. Therefore, you must ask the seller to provide an itemized list summary with the price of each asset. It would also be wise to get legal advice from an attorney specializing in the acquisition of medical practice.

Lease Validity

While acquiring a medical practice, you need to find out if the sale is dependent upon or requires you to obtain a long-term lease. But watch out! Commercial leases can be tricky. Take a few minutes to review our guide on commercial leases here.

Explore the Restrictive Covenant Option

In some cases, you can restrict the seller practitioner from practicing within a certain radius of your premise for a specific time period. However, you must first explore whether you can apply such restrictive covenants. Once again, you will require the assistance of a legal attorney to ensure the enforcement of any such terms and conditions.

Transparency in Communication

Keeping communications with the seller, attorney, and other authorities when acquiring a medical practice helps you save time money and avoid frustrations. If you plan to make amendments to the terms related to the sale, then you must communicate any such changes to all parties immediately.

No Room for Emotions

It may not sound of much importance for you, but you must keep your emotions at bay and approach acquiring a medical practice purely with business acumen. Remember, you are spending a lot of money, and emotional highs or lows may lead to wrong decisions. So always sideline the emotions.

Post Sales Obligations

It would be best if you did not forget to take out practice insurance once your sales date finalizes and the entire process is over. You need to ensure that you have all the licenses and insurances before you start practicing.

Conclusion

If you are a doctor or a physician thinking about acquiring medical practice in Texas, obtaining competent legal counsel should be one of your top priorities. Contact Ryan Reiffert, an experienced lawyer with a heart of an entrepreneur, to help you through the process of acquiring a medical practice. Contact us or give us a call at (210) 817-4388 to schedule a FREE initial consultation.

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