Legal and Financial Issues in Health Care Practice Transactions
Whenever a health care professional seeks to buy or sell a practice, various legal and financial matters come into play, impacting both parties. Understanding these nuances beforehand is crucial for a successful transaction.
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Understanding the Legal and Financial Issues that Arise During the Purchase or Sale of a Health Care Practice Presented by: Stephanie Rodin, Esq., of Rodin Legal, P.C., Business Attorney for the Healthcare Professionals
Introduction Whenever a health care professional seeks to purchase or sell an existing practice, there are numerous legal and financial issues that accompany the transaction. Understanding the nuances of such undertakings before the actual sale may greatly increase the satisfaction of all parties.
ASSET PURCHASE AGREEMENTS ARE NECESSARY WHEN BUYING OR SELLING: A BUSINESS INTANGIBLE PROPERTY
TWO PERSPECTIVES TO KEEP IN MIND THAT OF: 1. THE PURCHASER, AND 2. THE SELLER
WHY DOES A PURCHASER NEED AN ASSET PURCHASE AGREEMENT? TO DEFINE THE SCOPE OF WHAT IS BEING PURCHASED TO PROTECT THE PURCHASER FROM THE SELLER S PRIOR HISTORY WITH RESPECT TO THOSE ASSETS TO PROTECT THE PURCHASER FROM UNREASONABLE COMPETITION WITH THE SELLER AFTER THE SALE
WHY DOES A SELLER NEED AN ASSET PURCHASE AGREEMENT? TO SECURE NON-DISCLOSURE AGREEMENTS THAT KEEP THE SELLER S INFORMATION CONFIDENTIAL EXCEPT FOR NECESSARY PURPOSES CONNECTED TO THE SALE TO ENSURE THAT THE SELLER MAY STILL PRACTICE AFTER THE SALE TO AVOID LIABILITY WITH REGARD TO THE PRACTICE AFTER THE SALE
KEY FACTORS FOR THE PURCHASER TO CONSIDER: REVIEWING AND UPDATING CONSENT FORMS HIPAA COMPLIANCE FORMING A LEGAL ENTITY TO LIMIT PERSONAL LIABILITY P.C. VS. LLC (PLLC in New York State) OBTAINING ALL INTELLECTUAL PROPERTY FROM THE PRACTICE
KEY FACTORS FOR THE SELLER TO CONSIDER: CLAUSES THAT ENSURE THAT THE SELLER MAY STILL PRACTICE AFTER THE SALE AVOIDING LIABILITY AFTER COMPLETION OF THE SALE OBTAINING ACCOUNTS RECEIVABLE UNDERSTANDING WORK-IN-PROGRESS/REMAKES AFTER THE SALE HIPAA COMPLIANCE
Stages of the Transaction 1. Negotiations 2. Contract 3. Closing 4. Post closing
Stage 1: Negotiations 1. Non-disclosure agreement 2. The term sheet
THE NON-DISCLOSURE AGREEMENT ALSO KNOWN AS A CONFIDENTIALITY AGREEMENT ALLOWS THE PARTIES TO REVIEW SENSITIVE INFORMATION IN ORDER TO DETERMINE THE TERMS OF THE PRACTICE PURCHASE SOME INFORMATION THAT MAY BE EXCHANGED INCLUDES THE FOLLOWING: FINANCIAL STATEMENTS EMPLOYEE STATUS, INCLUDING SALARIES AND BENEFITS MARKETING/ADVERTISING INFORMATION INCLUDED/EXCLUDED PRACTICE ASSETS
PRACTICE ASSETS DO NOT CREATE A LAUNDRY LIST OF WHAT S POTENTIALLY BEING SOLD THIS IS BETTER FOR THE PURCHASER EVERYTHING NOT SPECIFICALLY EXCLUDED IS PART OF THE SALE LIST WHAT IS NOT PART OF THE SALE EXCLUDING SPECIFIC ASSETS PROTECTS THE SELLER EXAMPLES: PERSONAL ITEMS, INCLUIDNG PHOTOS, FRAMED ART, JOURNALS, ETC
WHATS GENERALLY NOT CONSIDERED TO BE PART OF THE SALE: BANK DEPOSITS OF SELLER INSURANCE POLICIES OF SELLER ANYTHING NOT ASSIGNABLE CORPORATE DOCUMENTS/BINDER OF SELLER
THE TERM SHEET THIS IS A PRELIMINARY, NON-BINDING DOCUMENT THAT SERVES AS A TEMPLATE FOR THE EVENTUAL, FORMAL AGREEMENT THE TERM SHEET WILL CONSIST OF CERTAIN ASPECTS OF THE TRANSACTION, INCLUDING, BUT NOT LIMITED TO THE FOLLOWING: WHAT IS TO BE SOLD (IN GENERAL TERMS) LIABILITIES TO BE ASSUMED BY PURCHASER PURCHASE PRICE RESTRICTIVE COVENANTS ACCOUNTS RECEIVABLES INTELLECTUAL PROPERTY
THE PURCHASE PRICE DISCUSS WITH ACCOUNTANTS COMPLETE INDEPENDENT EVALUATIONS MUTUAL UNDERSTANDING OF WHAT IS INCLUDED EQUIPMENT/FURNITURE GOOD WILL (See Martin Ice Cream Co. v. C.I.R., 110 T.C. 189 (1998) to understand personal goodwill vs the company s goodwill) REAL ESTATE/LEASE ASSIGNMENTS ALLOCATION THIS WILL POTENTIALLY AFFECT THE BOTTOM LINE FOR TAXES OF EACH PARTY DIFFERENTLY, SO IT IS IMPORTANT TO DISCUSS WITH ACCOUNTANTS (when allocating purchase price, refer to 26 U.S. Code 1060)
STAGE 2: CONTRACT CONCERNS FOR THE PURCHASER RESTRICTIVE COVENANTS ACCOUNTS RECEIVABLE WORK IN PROGRESS/REMAKES EMR (ELECTRONIC MEDICAL RECORDS) CLOSING COSTS INTELLECTUAL PROPERTY REMEDIES FOR BREACH BY THE SELLER LIST OF ASSETS/EXCLUDED ASSETS BULK SALES 3RD PARTY CONTRACTS CURRENT EMPLOYEES/STAFF
Stage 2: CONTRACT CONCERNS FOR THE SELLER RESTRICTIVE COVENANTS ACCOUNTS RECEIVABLE WORK IN PROGRESS/REMAKES CLOSING ADJUSTMENT COSTS
REPRESENTATIONS OF PURCHASER CAPACITY AND AUTHORITY TO PURCHASE ASSETS THAT ANY PENDING LITIGATION HAS NO MATERIAL ADVERSE EFFECT ON THE PURCHASE BROKER (NONE OR INFO ABOUT BROKER) FULL DISCLOSURE: THAT NOTHING IS UNTRUE OR HAS BEEN OMITTED LICENSED IF LEGAL ENTITY, IN GOOD STANDING
REPRESENTATIONS OF SELLER SELLER HAS AUTHORITY TO SELL THE ASSETS NO CONSENT REQUIRED BY A THIRD PARTY FINANCIAL STATEMENTS ACCURATE NO MATERIAL ADVERSE CHANGES IN ASSETS AS A WHOLE SELLER HAS TITLE TO ALL PROPERTY BEING SOLD AND THERE ARE NO LIENS PRESENT NO LITIGATION THAT AFFECTS THE ASSETS TAXES: THAT THERE ARE NO OUTSTANDING TAX DEBTS OR LIENS NO BROKER NO OMISSION OF MATERIAL FACTS
Stage 2: CONTRACT: BOILERPLATE CLAUSES 1. GOVERNING LAW 2. SEVERABILITY OF UNENFORCEABLE SECTIONS 3. INDEMNITIES (See CBS, Inc. v. Ziff-Davis Publi g Co., 75 N.Y.2d 496, 554 N.Y.S.2d 449 (1990)) 4. WAIVER 5. NOTICES 6. MODIFICATIONS/AMENDMENTS
Stage 3: CLOSING 1. SIGNING AGREEMENT WITH FULL AMOUNT OWED 2. CLOSING WHERE BALANCE DUE AND ASSETS CONVERT TO PURCHASER
SELLERS CLOSING DOCUMENTS 1. BILL OF SALE 2. PROMISSORY NOTES 3. LETTER TO PATIENTS 4. EMPLOYMENT AGREEMENT 5. CONSENT TO TRANSFER 3RD PARTY CONTRACTS, IF NECESSARY (PHONE, SOFTWARE, ETC.)
PURCHASERS CLOSING DOCUMENTS 1. EXECUTION OF NOTE/CASH 2. EMPLOYMENT AGREEMENT 3. SALES TAX (See N.Y. Tax Law 1141(c)) 4. BILL OF SALE
Stage 4: POST CLOSING REMEMBER THE TWO PERSPECTIVES: THAT OF THE PURCHASER AND THAT OF THE SELLER
POST CLOSING: THE PURCHASER S PERSPECTIVE 1. ASSUMPTION OF LIABILITIES 2. RELATIONSHIP WITH SELLER AND SELLER S EMPLOYEES 3. OBTAINING ACCOUNT RECEIVABLES 4. HIPAA COMPLIANCE 5. UPDATING CONSENT FORMS
POST CLOSING: THE SELLER S PERSPECTIVE 1. AVOIDING LIABILITIES FROM PRIOR TO THE SALE 2. RETENTION OF REVENUE AFTER THE SALE 3. ABIDING BY RESTRICTIVE COVENANTS
CONCLUSION DILIGENCE IS VERY IMPORTANT IN THESE TYPE OF SALES, THROUGHOUT THE ENTIRE PROCESS, TO HAVE A SUCCESSFUL TRANSACTION FOR BOTH SIDES.
