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A Hospital Wants to Buy Your Practice-What do you do?

January 1, 2010

The mid 1990s saw a wave of physician practice acquisitions by hospitals.  Some worked out well; many didn’t, and the trend died out—until recently.  Physicians are an attractive target for hospitals because their relationships with patients make them a major influence on where patients are referred for services.   

Considering selling?  Take these steps to make an informed decision:

Healthcare laws require that the sale price be limited to “fair market value,” which is generally established by an independent third party valuation of your practice.  The sale comprises the more standardized elements of the overall transaction.  It is the structure of the post-sale arrangements that separates the good deals from the bad.

What should the post-sale business arrangements look like? 

For a solo practitioner or small group, the alternatives are very limited.  The physicians will probably have to become employees.  Employment agreements with guaranteed compensation arrangements and benefits for as long a term as reasonably possible are essential. 

Multi-specialty groups and certain large or well situated single specialty practices can often negotiate more favorable arrangements.  Such groups should consider keeping their PC intact and having it enter into a professional services agreement (“PSA”) with the hospital. This is a huge advantage over individual employment agreements, which the hospital can change at will once the term of the agreements expires.  The chief advantage of a PSA is that it provides a mechanism for the physicians to bargain collectively with the hospital. 

A PSA can provide many important protections; the following are just a few examples: 

If you can’t strike an acceptable deal with the hospital there may be other alternatives:

Consider your options carefully, seek experienced professional help, and above all, be realistic.  The “new normal” applies to hospitals and physicians alike.