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The University of Texas School of Law
19th Annual Health Law Conference
April 11-13, 2007
Houston, TX
Buying and Selling Physician Practices
Kevin Reed
Lawrence Foust
Kevin Reed
Davis & Wilkerson
1801 South Mopac, Suite 300
Austin, Texas 78768-2283
[email protected]
Lawrence Foust
Kaiser Foundation Health Plan
One Kaiser Plaza
Suite 1900
Oakland, California 94612
[email protected]
Continuing Legal Education • 512-475-6700 •
Kevin Reed & Larry Foust
Selected Health Law Resources
Part I: Preparation
Form 1
Form 2
Inventories of Contracts
Inventory of Accounts Payable Not Represented by Written
Part II: Confidentiality Agreements
Form 3
Confidentiality Agreement
Part III: Letters of Intent
Form 4
Letter of Intent
Part IV: Sale and Purchase Agreements
Form 5
Asset Sale and Purchase Agreement
Part V: Preparation for Closing
Form 6
Form 7
Form 8
Form 9
Due Diligence Checklist
Notice of Assignment/Non-Consensual
Notice of Assignment/Consensual
Landlord Consent and Estoppel Certificate
Form 10
Form 11
Form 12
Form 13
Notice of Termination of an Unassigned Contract
Mutual Termination
Notice of Excluded Assets
Status Report on Third Party Consents
Part VI: Closing Instruments
Form 14
Form 15
Form 16
Form 17
Form 18
Form 19
Form 20
Form 21
Form 22
Form 23
Form 24
Form 25
Form 26
Closing Checklist
Assignment and Assumption Agreement
Assignment of Office Lease
Bill of Sale
Seller’s Closing Certificate
Buyer’s Closing Certificate
Seller’s Incumbency Certificate
Buyer’s Incumbency Certificate
Seller’s Corporate Approvals
Buyer’s Corporate Approvals
Seller’s Legal Opinion
Buyer’s Legal Opinion
Physician Employment Agreement
This is a modest attempt to set forth observations and methods as to how sellers and buyers can
reach an agreement to acquire a physician’s practice. Since there is a great number of variations
among exempt, publicly traded, and roll-up buyers, on one hand, and partnerships, professional
associations, and solo practitioners, on the other, these materials use as a base model the
paradigm of an asset acquisition of a solo practice (organized as a professional association) by a
Texas certified nonprofit health organization where the selling physician will become the
employee of buyer. The base model also presumes there is no sale of real estate in the
transaction. Instead, it is based on the physician assigning his lease to the buyer and continuing
to practice at the same office. During the presentation, some of the complications and variations
will be discussed, but at over 100 pages, the written materials simply could not accommodate the
many variations that exist.
Like the ABA model acquisition documents, these model documents have a slight bias towards
the buyer. From a normative point of view, acquisitions are highly situation-specific. What is
“best” is what works well for both the buyer and seller. Accordingly, the solutions and
observations offered ought to be understood as possible solutions -- but not necessarily the only
solutions -- for any particular acquisition.
The authors admit, however, to two biases. The first bias is that time is the enemy. It may be
more of an enemy to sellers, but can be the enemy of buyers as well. Acquisitions tend to be
corrosive to relationships, and therefore the value of a healthcare business. Employers,
customers, vendors, and suppliers as a general rule dislike change and acquisitions are nothing if
not change. Accordingly, the resolutions to problems offered tend to favor the quick. Generally
speaking, sellers and buyers should seek the fastest, most secretive transaction with the fewest
third party consents required.
The second bias is that solutions ought to be simple, even when the problems are not. The
financial, regulatory, psychological, and political issues of acquisitions are often difficult,
complex, and controversial. Also, because much of health care is focused on specialized
personal services, as opposed to one-time transactions, the preservation of relationships among
buyer, seller, customers, employees, and suppliers is vital. Accordingly, the resolutions offered
tend to favor solutions that are easily understood and administered, and reasonably comforting,
to both seller and buyer. These are the key attributes of a simple solution.
Texas Corporate Practice of Medicine. Texas Medical Practice Act, Texas Occupations Code,
Subtitle B, Chapters 151-165.
Section 155.001 provides that a person may not be licensed to practice medicine in the
State of Texas unless they hold a license;
Section 155.003 describes the eligibility requirements for a license to practice medicine
which can only be met by a natural person;
Section 157.001 authorizes physicians to delegate certain medical acts but prohibits the
delegation to a person who represents to the public that that person is authorized to
practice medicine when they are not;
Section 164.052(8) prohibits a physician from using or selling the physician’s medical
degree or license to practice medicine; subsection (13) prohibits a physician from
permitting another to use the person’s license or certificate to practice medicine; and
subsection (17) prohibits a physician from directly or indirectly aiding or abetting in the
practice of medicine by a person, partnership, association, or corporation that is not
licensed to practice medicine.
Section 165.156 specifically provides that a person, partnership, trust, association, or
corporation commits an offense if it in any manner indicates that a person, partnership,
trust, association, or corporation is entitled to practice medicine when it is not licensed to
do so.
See also exceptions to the prohibition located at Sections 162.001, 162.051, 162.201 and
151.055 of the Texas Occupations Code.
Stark Self Referral Law & Regulations. 42 U.S.C. § 1395nn (2003); 42 C.F.R. §§ 411.350 –
411.389 (2006)
Personal Services Exception. 42 U.S.C. § 1395nn(e)(3); 42 C.F.R. § 411.357(d)
Physician Recruitment Exception. 42 U.S.C. § 1395nn(e)(5); 42 C.F.R.§411.357(e)
Isolated Transactions Exception. 42 U.S.C. § 1395nn(e)(6); 42 C.F.R. § 411.357(j)
Employment Exception. 42 C.F.R. § 411.357(c)
Federal Anti-kickback Statute & Regulations. 42 U.S.C. § 1320a–7b (2003);
Sale of Practice Safe Harbor. 42 C.F.R. § 1001.952(e)
Personal Services Safe Harbor. 42 C.F.R. § 1001.952(d)
Sale of Practice Safe Harbor. 42 C.F.R. § 1001.952(e)
Employment Safe Harbor. 42 U.S.C. § 1320a–7b(3)(B); 42 C.F.R. § 1001.952(i)
Recruitment Safe Harbor. 42 C.F.R. § 1001.952(n)
12/22/92 Application of anti-kickback statute to the acquisition of physician practices
(letter to IRS) at
Texas Anti-Kickback Statutes.
Texas Occupations Code §§ 102.001 et seq. (any person)
Texas Occupations Code § 102.051 (practitioners except physicians)
Texas Occupations Code § 165.055 (physicians)
Texas Health & Safety Code §§ 164.001 et seq. (mental health)
Texas Commercial Bribery Law, Texas Penal Code § 32.43
Health Insurance Portability and Accountability Act of 1996 - Privacy Rules
Practice Purchase. 45 C.F.R. § 164.501 “Health Care Operations” (6)(iv) & §
Covenants Not to Compete in Texas. Texas Business & Commerce Code §§ 15.50 et seq.
Federal Tax Exemption.
Revenue Ruling 76-91, 1976-1 C.B. 149
Hospital Audit Guidelines (March 27, 1992) §§ 333.3(3)(e) & (12). Manual Transmittal
1995 CPE Text, p. 166
1996 CPE Text, pp. 410-436
Medicare Reassignment Rules for Employees. Medicare Claims Processing Manual Chapter
One, §30.2.6 (online version)
Sellers should organize their due diligence files long before the first buyer appears
So that skeletons in the closet can be managed
So that seller can prepare for buyer’s questions and thereby convey a sense
of control and confidence rather than surprise and defensiveness.
So that seller can prepare for debates over representations and other terms
So that schedules can be started in advance and not detract from the
negotiation and preparation of the purchase agreement
To identify in advance where third party consents are required, not only
for the closing, but for due diligence.
Seller and buyer should each form a clear view of their closing objectives before
they begin discussions
The effect of the annual market cycle on the timing of closing
Nature of purchase price
The delicate balancing of representations, due diligence, indemnification
and conditions precedent
The common wisdom and transaction etiquette is for buyer to draft the acquisition
documents. Under certain circumstances, however, seller should prepare the draft
acquisition documents. Those circumstances are:
Auction sales
Seller’s business is extremely complex
Seller has the ability, wherewithal, and negotiation strength to seize the