Buysell agreements for medical practices

July 25, 2015

To download this article, click here: Buy/sell agreements for medical practices

Every group medical practice needs a buy/sell agreement. This contract spells out the transition of a current physician owner out of the practice upon certain events and how a new doctor may be admitted into the ownership structure of the practice. History has shown that once executed, many of these agreements never get looked at again until a buy out event forces it. Most agreements were drafted in times when indemnity insurance prevailed, reimbursement rates were good and physician incomes were quite healthy. However, as the health care marketplace continues to reform itself and as managed care continues to grow, most buy/sell agreements have become out of date.

This article provides a basic overview of buy/sell agreements, with particular concentration on the financial aspects of these contracts. It is the financial issues that will most likely impact both the physician owner and the practice itself either positively or negatively. Events requiring a buy out will be discussed, along with how buy out prices can be developed and paid for by the group practice. Particular emphasis is placed on valuation issues. Related tax consequences will also be mentioned.

Any medical practice with more than one physician owner needs a buy/sell agreement. The buy/sell agreement spells out the manner in which an owner can buy into the practice and how the practice will buy out an owner. Corporations have buy I sell agreements, which are sometimes called shareholder agreements. Partnerships generally have similar provisions as a part of their partnership agreement.

Buy/sell agreements must be reviewed and updated to take into account any changes that may have occurred in the health care industry since their last revision. Every group practice should have its agreement reviewed at least once a year, generally at the end of the practice’s fiscal or calendar year. Health care reform, the continued attacks on service reimbursements, Medicare cuts and the adoption of the resource-based relative value scale (RBRVS) payment system by other payers are just a few of the changes that have an impact on buy/sell agreements. These issues have the ability to directly impact the “value” of a physician’s ownership interest in a medical practice. In addition, physicians forming group practices must be armed with knowledge of the specific issues in buy/sell agreements so that such an agreement can be properly drafted as the group is formed.

To download the rest of this article, click here: Buy/sell agreements for medical practices

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