Selling your Medical Practice to the Hospital

By Dennis Hursh | Physician Contracts

Oct 21
Physician Contract
Here are a few considerations when you are selling your practice to a hospital:
·       Covenant not to compete.  This is really a physician employment agreement issue, but sometimes they try to stick it in a sales agreement as well.  If you have an established practice, then it does not make any sense for you to turn that practice into the hospital and then agree never to compete with the “hospital’s” practice.  Of course, if they are willing to pay you for such a covenant you may want to consider it.
 
·       Patient records.  Hospitals like to pretend that these are worthless assets.  They also like to inform you that they cannot pay for goodwill of the practice because of fraud and abuse laws.  Neither of these assumptions is completely true.  If you are selling these assets, consider what the law would pay you to reproduce them if requested to do so by an attorney.  That may be a reasonable value to place on this data.  Some practices do not sell the records.  This makes it easier to “unwind” the transaction later, as long as you did not agree to a covenant not to compete.
 
·       Real estate.  If you own the medical office building where your practice is located, consider if you want to sell it or merely lease it to the hospital.  Here again, it is much simpler to unwind the deal if you can stay in the same location.
 
·       Sell all the assets.  Your practice has many assets beyond the furniture and equipment it uses.  For example, the right to use the telephone numbers of the practice should be worth something.  As noted above, patient records are extremely costly to reproduce, and should be valued accordingly.  In addition, if you have any particularly advantageous agreements (e.g., lease agreements for equipment or real estate) there should be a value attached to your assignment of these agreements to the hospital.
 
·       Accounts receivable.  This is a difficult one.  It is generally easier to retain the accounts receivable and use your billing company to collect the tail.  Valuation of this asset can be tricky, especially since hospitals are notoriously bad at collecting for physician services.


Before you sign anything, take a look at my post on Letters of Intent in Physician Contracts




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About the Author

I am a healthcare attorney with over 34 years of experience, focusing on physician contracts, regulatory compliance and sales of medical practices.

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