A Seller’s Market: How to prepare your practice for sale to a hospital

Employment

While the purchase price for a medical practice is of key importance, a post-acquisition business arrangement with the hospital should also be negotiated and memorialized in writing. When a hospital purchases a medical practice, it is acquiring not just the patient base and equipment but the talent as well. In general, the hospital will either directly employ each physician via employment agreement or retain the collective services of the physicians using a professional services agreement. If a professional services agreement is utilized, the physicians are employed not by the hospital but rather by a third-party entity that contracts with the hospital to provide the professional services. In this scenario, the physicians will likely have an employment agreement with the third-party entity. Many physicians prefer the professional services agreement model because it allows them to negotiate collectively for beneficial contract terms. Additionally, professional service agreements are typically negotiated for a longer period of time. A professional services agreement often provides the physicians with a voice in hospital decisions. The agreement should also outline specific rights and powers the physicians have with regard to post-acquisition decisions. If the hospital wishes to hire a new physician for the acquired practice group, for example, the professional services agreement may give the current physicians veto power over the retention.

A Way Out

The purchase contract and post-purchase agreements, such as the professional services agreement or employment agreement, should include an exit strategy that will protect you if things don’t work out as planned. The parties to the contract may negotiate a “mutual reverse” right, whereby they can reverse the transaction to the pre-purchase status quo if the parties no longer find the arrangement desirable or fail to meet certain milestones.

Think Ahead

Selling your practice to a hospital can be advantageous for all parties involved. This type of sale is different from most, however, because you are not necessarily parting ways on the closing date. The contract terms governing the relationship post-sale are of equal or greater importance to the terms governing the sale of the practice. If you are considering embarking on this journey, be sure that it suits your current and future career goals.

Steven M. Harris, Esq., is a nationally recognized health care attorney and a member of the law firm McDonald Hopkins, LLC. He may be reached at sharris@mcdonaldhopkins.com.