Selling a Professional Practice
Selling a Professional Practice
A chiropractor contemplating selling a practice must consider more than just the sale price and closing date. For example, chiropractors who sell their practices must be careful to avoid abandoning their patients, must be mindful of patient records, and must ensure they have a qualified buyer. Plus, to protect everything you have worked so hard to build, everything needs to be reduced to a legally binding sale contract. While this article provides some best practices, it is crucial that any selling (or buying) chiropractor retain legal counsel to guide them through the sale process.
Avoiding Patient Abandonment
Patient abandonment usually occurs when there is unilateral severance by the chiropractor from the patient, without adequate notification, while the patient still has a need for care. To prevent patient abandonment, write to your patients letting them know you are selling your practice. This serves two purposes. First, your letter will inform the patients of your plan and subsequent departure. Second, the letter provides an opportunity to introduce the purchasing chiropractor along with his or her credentials. This will help them retain patients and is generally a part of buy-sell agreement. Included in this letter should be a recommendation to the patient to obtain continuous care, as well as the last date you will be available. At a minimum, this letter should be sent 30 days prior to the transfer of closing of the office. It is important that this letter is mailed to all of your patients. This letter should be sent by certified mail, return receipt requested, and a copy of the letter with return receipt should be kept in the patient files. It is also a good idea to announce the sale or transfer in one or more local newspapers. This helps avoid claims of patient abandonment for those patients who were not reached by letter.
Transferring Patient Records
Prior to selling the practice, you should make sure that you have all patient records properly documented. In California, the sale of a practice does not include the sale of patient records. Those records belong to the patient, not the seller. The buyer, however, often takes possession and then uses the record once the patient consents to the transfer. You should get legal counsel to ensure the proper transfer of patient files. That is because you need to simultaneously avoid HIPAA and patient abandonment issues. It is generally helpful to ask the patients to authorize the transfer to the buyer in a notice letter – discussed above. Ask them to sign the authorization and send it back to you. This simply allows their files to remain where they currently are. You should also be sure to include language retaining a right to access the records for a reasonable time after the sale in the event that a malpractice claim or government audit necessitates your use of the records. California law requires that chiropractors retain active and inactive patient records for five years from the last date of treatment (Cal. Code Regs., tit. 16, § 318). If a patient doesn’t consent to a transfer of the file, send them their file – and retain a copy of proof of mailing.
Check the Background of the Purchaser
Make sure your buyer is able to buy – before you sell! Everyone isn’t who they say they are. Get their license number early on, and check it. With this, you can avoid transitioning your patients to an unlicensed chiropractor. Information regarding licensing can be obtained from the State Board. Equally as important, have the seller prove that they have the funds to pay for your practice. You do not want to notify the patients of the sale, only to have the buyer fail to deliver agreed funds.
Anti-Kickback and Stark Laws
A practice sale can implicate the federal Anti-Kickback law, Stark laws, and state anti-kickback laws. Specifically, you cannot sell or buy referrals. You should become familiar with these laws. It is strongly recommended that you retain an attorney to make sure the proposed sale does not violate such laws. Occasionally, more sophisticated – and less scrupulous – sale agreements are really just complicated fee-for-referral deals. Avoid these.
A practice sale generally also includes the transfer of tangible and intangible assets. These include office equipment, leave rights and good will. It is important that you consider the already claimed depreciation tangible assets’ before stating their value. You should have a comprehensive list of tangible assets. This will allow the buyer to know exactly what is and is not being transferred. Make a separate list of items you are not selling so there is no confusion.
Valuing intangible assets is more difficult to do. Goodwill is the primary example of an intangible practice asset. In practice, goodwill is usually a positive advantage that has been acquired by chiropractors in developing their practice over many years in a community. It is advised that you seek legal counsel before stating the values of these assets in the sale contract. In addition to legal counsel, you likely also need tax counsel as well, as the valuation and sale can have huge tax ramifications on you.
These considerations are just a few of the things chiropractors should consider when selling a practice. It is not a complete list, nor should you consider it as professional advice. Due care should be exercised when selling, closing, or departing from a professional practice. A “simple” practice sale is rarely so simple. Do not give away all you have built up by not safeguarding your practice.
By Keith W. Carlson and Jehan Jayakumar