Whether you’re entering employed practice or retiring after a long career as a solo practitioner, understanding the options for selling your practice will help you maximize value before putting it on the market.

The following issues will play a key factor in the selling or closing of your practice:

The buy-sell agreement should include:

  • the amount of the purchase price
  • the allocation of the purchase price between tangible and intangible assets
  • the exclusion of prepaid expenses
  • the amount of any deposit(s)
  • any adjustments to the purchase price
  • the amount of any closing payments

Generally in the purchase of a practice, the accounts receivable are not an acquired asset and therefore are not sold to the purchasing physician. The selling physician usually retains the accounts receivable and there should be a mechanism in the seller agreement to ensure the purchasing physician’s ability to collect the selling physician’s accounts receivable post closing.

Additional practice assets not typically included in the sale of a practice may include:

  • Real property
  • Cash and bank accounts
  • Pension funds
  • Insurance proceeds/cash value of an insurance policy
  • Artwork, personal effects, diplomas and certifications of the selling physician

The liabilities of the practice should also be listed on a schedule of the buy-sell agreement identifying those that will be assumed by the buyer at closing. These  may include:

  • Lease agreements, including equipment leases
  • Service agreements for equipment, billing, staffing and janitorial services
  • Government audits and investigations

Physicians will also need to determine the structure of the transaction and whether the buy-sell agreement should be a stock purchase agreement or an asset purchase.

Key documents for selling a practice may include:

  • Non-disclosure and non-compete agreements
  • Letter of intent
  • Buy-sell agreement
  • Consulting agreement
  • Physician employment agreement
  • Patient notification letter
  • Staff termination and transition letter

Practice transfer

The buy-sell agreement should include pre-closing and post-closing responsibilities of all involved parties. If the selling physician is remaining in the geographic area and will not have a continuing professional relationship with the purchasing physician, restrictive covenants should be included  in the buy-sell agreement. Such restrictions are enforceable if reasonable in length, duration and geographic area in all states except California.

Indemnification provisions also protect the purchasing physician in the event the selling physician breaches any representations or warranties of the buy-sell agreement. A selling physician will most likely be expected to indemnify and hold harmless the purchasing physician from losses that arise for any misrepresentations of the selling physician.

Patient notification

If the practice is being sold, the physicians who are selling and buying the practice should consider who will ultimately be responsible for the medical records upon the sale or transfer of the practice. When the medical records are transferred with other assets as part of a practice sale, the seller should advise and notify patients of such transfer to comply with the terms of the Asset Purchase Agreement, licensing requirements, and ethical and professional standards.

Physicians who are closing their practice should consult with their attorney regarding the storage or destruction of the medical records and consider providing patients with notice and an opportunity to retrieve their medical records prior to the practice closure.  Upon identifying patients who have been treated by the practice, physicians should send a notification letter which:

  • Informs the patient of the practice sale or closing
  • Includes the last date of the practice’s operation
  • Identifies where the patient can pick up their medical records
  • Informs the patient where future medical record requests can be sent

Medical records

Pursuant to state and federal regulations, patients must be given the option to choose another physician and have a copy of their medical records sent to the physician of their choice. Medical records should not be transferred to another physician or practice without the patient’s consent.

Physicians should check state and federal regulations regarding record retention. When selling or closing a practice, physicians should review their medical records to ensure that the records contain all information and documentation as required by state and federal law. During the sale or closure of a practice, the issue of who actually owns the medical records often is raised. Generally, the physical medical record is owned by the physician or corporate entity responsible for compiling and maintaining the medical record.