Buying a Medical or Professional Practice: What’s Different From Buying a Regular Business?
Acquiring a medical practice, law firm, dental practice, accounting firm, or other professional services business involves legal considerations that are materially different from buying a typical commercial business. Buyers who approach a professional practice acquisition using the same framework as a retail or service business acquisition often encounter issues they were not prepared for. This post identifies the key areas where professional practice acquisitions diverge from standard business deals.
Licensing and Regulatory Requirements
Many professional practices can only be owned by licensed individuals or by entities specifically authorized under the applicable professional licensing statutes. In New York and New Jersey, the rules governing who may own a medical practice, dental practice, or law firm are set by professional licensing law and are distinct from the general business corporation or LLC statutes. A buyer who is not licensed in the applicable profession may face significant restrictions on whether and how they can own and operate the practice.
For practices that involve licensed professionals working within a larger entity — such as a management services organization (MSO) structure — the legal arrangements must be carefully structured to comply with both the corporate practice of medicine doctrine and applicable fee-splitting prohibitions.
Goodwill: Personal vs. Enterprise
In many professional practices, a significant portion of the business value is attributable to the personal goodwill of the practitioner — the referral relationships, reputation, and client loyalty that attach to a specific individual rather than to the business as an entity. Personal goodwill is generally not transferable in the same way that enterprise goodwill is.
Buyers need to understand how much of the practice’s value will transfer with the acquisition and how much depends on the seller’s continued involvement. Transition agreements, non-solicitation provisions, and earn-out structures are commonly used to address the personal goodwill issue in professional practice acquisitions.
Payer Contracts and Assignment
Medical and dental practices typically operate under contracts with insurance payers — Medicare, Medicaid, and private insurers. These contracts may not be assignable without the payer’s consent, and in some cases a change of ownership may require re-enrollment or credentialing with the new practice entity. The transition plan for payer contracts is an important due diligence item in any medical practice acquisition.
Employment and Non-Compete Considerations
Professional practices often have employed professionals — associate physicians, dentists, attorneys, or accountants — whose continued employment is important to the business’s value. The employment agreements for those professionals, including any restrictive covenants, need to be reviewed as part of due diligence. The enforceability of non-compete provisions for licensed professionals in New Jersey and New York has specific rules that differ from those applicable to ordinary employees.
Buyers considering a professional practice acquisition should work with a business attorney familiar with both the transactional and regulatory aspects of professional practice deals in New Jersey and New York. For more, see our pages on buying a business and business contracts.
Buyers considering a professional practice acquisition are welcome to schedule a consultation with Russo Law LLC to discuss the transactional and regulatory aspects of professional practice deals in New Jersey and New York.
Disclaimer
The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. This corporate lawyer blog post is for informational purposes only and does not constitute legal advice. It is not an offer for Russo Law LLC to represent any party, nor does it create an attorney-client relationship. No action or inaction should be taken based on the information provided without seeking professional legal counsel. This post is intended for businesses in New York and New Jersey. It may not reflect laws in other jurisdictions.
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