CHICAGO – Legal pitfalls lie along the path of transitioning from an independent practice to hospital employment, an accountable care organization, a medical home, or a merger to build a multispecialty group practice, legal experts warned at a physicians’ legal issues conference held by the American Bar Association.
"As a seller, you need to know what you’re getting into when you’re selling" your practice, said Hal Katz, an attorney in Austin, Tex. "Due diligence for you is just as important as it is for the buyer. The business structure you move into is going to be something you’re going to have to live with for the long term. You want to make sure it’s a good fit."
Mr. Hal Katz
At the due-diligence stage, doctors partnering with another entity should ensure that they review a number of critical records from the other organization, such as corporate records, financial information, payer contracts, and real estate information, he said. Additionally, physician sellers should be aware of any litigation against their future partner and be knowledgeable about their affiliated entities and financial relationships.
Financial troubles or issues with federal regulation compliance are possible red flags for physician sellers. Examples include overpayments, repayments, audits, investigations, subpoenas or corporate integrity agreements.
Medicare providers changing ownership must inform federal authorities. A change of ownership (CHOW) generally happens when a Medicare provider is being purchased or leased by another entity. The CHOW results in the transfer of the former owner’s Medicare identification number and provider agreement to the new owner.
Adequately valuing the practice is another essential – albeit complex – process for physician sellers, Clinton Flome said at the ABA conference.
"Understanding price, understanding value, and most importantly understanding what physicians’ compensation is going to be going forward," are crucial, said Mr. Flome, senior manager at VMG Health in Dallas, a business valuation company. Knowing those criteria is "going to determine whether you have available" funds.
The three primary practice valuation methods include income, asset, and market approaches. The income approach examines historical financial and production information to estimate the future level of cash flows, Mr. Flome said. The asset approach takes into consideration the cost of replicating a comparable asset, security, or service with the same level of utility. The market approach estimates value by comparing the value of similar assets, securities, or services traded in a free and open market and the subject asset, security, or service.
"Everybody (should) be on the same page as to what the transaction is going to look like," Mr. Flome said. "Is this a 100% asset transaction or are you looking at some other alternatives?"
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