Buying a practice: The devil is in the details
By Steven Conway, DC, DACBOH, JD, Esq.

I’ve come to realize that buying a practice is more than just finding financing and signing on the dotted line. What are some of the finer details I should be alert to in the contract?  

An old proverb says, “The devil is in the details.” How true this is when it comes to buying (or selling) a practice. When you make this transaction, you must read the contract closely for clauses concerning noncompetition, nonsolicitation, transitioning, and warranties. 

• Noncompetition. This clause creates more problems than you would expect. The basic concept is the purchaser is paying a price to the seller to prevent the seller from starting a similar business for a period of time and within a specific geographical radius.

The purpose of the clause is to allow the purchasing doctor the ability to manage the practice without interference from the selling doctor. If you are the purchasing doctor, have an attorney who understands the laws relating to noncompetition review this clause carefully. If the document is drafted incorrectly, the clause may be invalid. 

Although noncompete laws vary from state to state, the basic guidelines appear to be that restrictions on time and geography need to be reasonable.

The courts seem to treat employment noncompetition complaints differently from business-purchase noncompete breaches. While both are noncompetition agreements, one involves the sale of business, while the other deals with preventing a former employee from working within a specific boundary. 

It would also be prudent for the purchasing doctor to include in the purchase document remedies, such as the ability to place injunctions, even if temporary, on the selling doctor if there is a potential breach of this clause.

• Nonsolicitation. The nonsolicitation clause is similar in nature to the noncompetition clause, in that it puts restrictions on the selling doctor to give the purchasing doctor a chance to transition into the practice without any interference by the selling doctor. The nonsolicitation clause is included in the final document to prevent the selling doctor from soliciting previous patients and/or staff to leave the purchasing doctor.

The purchasing doctor should review this clause carefully to prevent the selling doctor from taking the patient list and directly soliciting patients to come to his or her new location. Staff solicitation is also a common problem that should be addressed prior to signing the final document.

• Transitioning. This is one of those clauses that many doctors fret over, but should never be a deal breaker. Purchasing doctors often fear that unless the selling doctor stays with the practice for an extended period of time, existing patients will leave.

Experience suggests the opposite is true, and the actual transition time should be as short as possible. I recommend the purchasing doctor request a short in-office transition time and then be able to consult by phone with the selling doctor for a period of six to 12 months to cover any issues that may arise.

For the selling doctor, if the purchasing doctor requests you to stay beyond the agreed upon dates or amount of time, it is not unreasonable to request additional payment for that service

• Warranties. The purchasing doctor wants as much security as possible that the information obtained during due diligence is accurate. Warranties in the final document assist both sides in this process. Once the practice is purchased, the buyer assumes the liabilities and obligations associated with the practice.

A common clause in purchase agreements is entitled “seller indemnification.” This clause lists the liabilities that the buyer will not assume. It generally includes such items as the seller’s income-tax obligations, accounting fees, and payroll taxes or employee compensation due before the actual purchase is completed, among other things.

Additionally, the buyer should work with his or her attorney to include language that protects against any reimbursement requests and fines or penalties from Medicare/Medicaid or other insurance companies for services provided before the purchase.

(Be sure to review billing codes for any fraudulent or questionable services that may affect the viability of the practice. You do not want to get caught in a Medicare or insurance fraud investigation based upon the actions of the selling doctor.)

For many doctors, purchasing a practice is a one-time event and any error can affect their retirement or financial future. The use of local counsel to review the final purchase document is necessary. The use of practice brokers, who have walked down this path many times, can also be of great benefit to both sides to assist in the evaluation, negotiation, and financing processes.

Steven Conway, DC, DACBOH, JD, Esq., is a partner in True North Chiropractic Consultants LLC, which provides guidance and ethical solutions to the barriers found in chiropractic practices. He can be contacted through truenorthchiropracticconsultants.com or by e-mail at chirolaw@aol.com.

DISCLAIMER: This column is provided for educational purposes only. The accuracy or timeliness of the information presented is not warranted. The information is not presented as legal advice and no attorney-client relationship is established.