Selling a Medical Practice? Transitioning is Often Better Than Abrupt Termination

Selling a San Diego medical practice is different and more complex than selling another type of business. With a medical or other healing arts practice, two somewhat competing goals are in tension – the desire to maximize the value paid for the practice and the desire to ensure that the patients continue to receive the best medical care that they can. The same can be said for many other types of professionals including dentists, veterinarians, lawyers, accountants, and others. One strategy for harmonizing these goals is to structure the sale of the practice as a transition process rather than as an abrupt termination. This can be done in several different ways and there are downside risks. But, under many circumstances, particularly if there is compatibility between the old and new owners, a transition-type sale succeeds in accomplishing both goals. Here are a few thoughts.

San Diego Corporate Law: Structuring a Transition-Type Sale

In general, there are three key issues with respect to structuring a transition-type sale – control of decision-making, training, and salary/wages for the continued services of the previous owner. The new owners want maximum control, favor training, but do not want to overpay for the continued services of the previous owner. At the same time, the new owners understand that the continued services of the old owner increases the chances that the customer/patient base can be retained. Most commonly, the structure used is a short-term employment relationship — often an at-will relationship. There is often a fine line between the old owners staying to help and overstaying their welcome. This is something to be discussed up front and something that should be delineated in the sales contracts. Furthermore, the best practice is to draft an employment agreement between the company and the old owners (which can still be done as an at-will arrangement).

San Diego Corporate Law: Advantages and Disadvantages of a Transition-Type Sale

Under various ethical rules, patients are entitled to notification when a healing arts practitioner leaves a practice. Under California law, the practice does not “own” the patients, even if they may own the medical records. See discussion here. The patients cannot be forced or coerced into remaining with the old practice; they are free to make their own choices.

These facts explain why a transition-type sale is often advantageous. Since the patients must be notified anyway, it can be helpful to the new owners of the practice to be able to notify the patients that the old owners will remain on staff for however long has been agreed. This accomplishes the following:

• Gives a level of comfort to patients
• Provides transition time for any patients/customers who want to seek alternatives
• Encourages patients/customers to experience services under the new ownership
• Increases the chances that the new owners will be able to retain the customers/patients

Disadvantages of a transition-type sale most commonly involve personality conflicts, differing management styles, and new pricing structures. Some of these potential conflicts can be dealt with in the sales and employment agreements. As an example, provisions like this can be included:

“SELLER understands that BUYER intends to institute new pricing structures and policies. SELLER agrees that such decision are and will be made at the sole discretion of BUYER. SELLER agrees not to disparage or otherwise speak negatively about said new pricing structure.”

The main solution to other circumstances that might create undue friction is a short transition period (with renewals) or various quick, easy and no-cause “exits” if the transition period is expected to be six months or longer.

Call San Diego Corporate Law Today

If you need legal advice relating to setting up or selling your medical corporation, call experienced business attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2015, 2016, 2017, and 2018 by SuperLawyers.com. Call Mr. Leonard at (858) 483-9200 or via email.

We look forward to helping you sell your medical practice. We can also help if you are in the market to purchase.

You Might Also Like:

Selling Your San Diego Medical Practice? Focus on These Areas to Maximize Your Value

Forming A Professional Corporation For A Medical Practice

For Group Practitioners: Tips for Selling Your Part of the Medical Practice

Medical Corporations: Company Policies May Help Avoid Malpractice Lawsuits