Chicago, IL—“Practice acquisitions have many nuts and bolts components beyond regulatory issues, including the type of purchase (asset or stock purchase) and physician compensation structure,” said Alan H. Einhorn, of Foley and Lardner, LLP, Boston, at the Cancer Center Business Summit.
Acquisitions can be either a stock or an asset deal. “In a stock deal, you’re buying stock and all the liabilities, you’re buying the entity. In an asset deal, you are not buying the entity. The practice entity is left behind, but you’re buying specific assets and liabilities,” Mr Einhorn said.
Most buyers prefer to purchase assets to limit their liability exposure and because it is easier to be selective with the assets.
Because the buyer generally has a greater exposure to liability in a stock deal, the purchaser may want to create a special escrow for indemnification. “Sellers obviously like to limit escrows and indemnification; that is part of the negotiating process,” Mr Einhorn noted.
In asset purchases, clinical and nonclinical staff typically become employees and/or leased employees of the hospital or health system clinic that purchased the assets. Physician employees are compensated at fair market value in Stark Law–compliant employment arrangements.
Physicians can also remain employed by the physician practice and enter into a long-term professional services agreement for fair market value compensation. This arrangement will also require contracts that define the duration of the agreement.
Termination rights and the basis for termination are also important factors. Termination provisions may relate to material changes in payment methodologies as global payments and bundling enter the market, potentially changing the terms for fair market value.
The basis for physician compensation—fixed fee, relative value unit (RVU); fixed fee plus productivity—will also need to be negotiated.
“If the compensation is on an RVU or productivity basis, one of the things you’ll want to consider as a physician, and you’ll have to address with the buyer, is whether there will be any antidilution protection,” Mr Einhorn explained. “In other words, will you be protected in case your practice erodes somewhat, particularly in Stark? And what happens if the buyer brings on new physicians that may also erode your ability to generate RVUs?”
What role the physician will play in governance is another question. “This is a factor for both the hospital and the physician,” he said. “Will physicians have a meaningful say in the service line or how the market practice will operate postclosing? Will they have a role in determining the strategic plan or in determining the budget?”
Other considerations in the transaction are:
- Will there be a comanagement agreement associated with the transaction?
- Will the seller have a right of first opportunity at the hospital once it sets up a new site, and will the seller have the opportunity to participate?
- Will there be a noncompete agreement, and if so, what will it cover (ie, which services, the geography, the duration, will there be a basis for terminating the noncompete agreement)?
- Will there be an unwind?
If an unwind does occur, it generally means that the professional services agreement terminates. The right to purchase your assets back at fair market value can also be part of that unwind. l