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diligence” review of the practice and will furnish a comprehensive list of documents and information which it wishes to review. If the practice has most of the requested documents collected and organized as discussed above, this will enable a more efficient due diligence process. Similarly, the selling professionals will wish to review various documents and informa- tion concerning the private equity fund, so as to evaluate the investment they will make in the fund by accepting its securities as partial payment for the purchase price.
At some point after the due diligence process as begun, the potential purchaser will furnish a pro- posed purchase agreement and other transaction documentation, which will be reviewed by the selling health professionals and their legal counsel and will be negotiated with the potential purchaser and its legal counsel. Important terms include the assets to be sold to the purchaser, liabilities to be retained by the sellers or assumed by the purchaser, the struc- ture for the payment of the purchase price, the process to true-up (i.e., reconciliation) of the pur- chase price following closing, and schedules to be furnished by the sellers which list and define various items such as assets, liabilities and other matters. Some terms which were not addressed in the letter of intent will need to be negotiated (e.g., whether the selling professionals or the purchase will bear the cost of professional liability insurance tail coverage and if so, under what circumstances).
After the purchase agreement is signed, at which point the transaction proceeds to the closing/end phase, there will be various matters which the sellers and purchaser will need to address before they can close on the sale. For example, liens on assets may need to be released and consents to the assignment of agreements may need to be obtained. When the parties close the transaction, they will sign various documents which will transfer ownership to the purchaser and otherwise implement the transaction, such as executing new employment agreements if the professionals will continue employment with the practice. Thereafter, if the agreement provides for a
true-up (i.e., reconciliation) of the purchase price based on any difference in value between the prac- tice as represented and as determined post-closing per the standards set forth in the purchase agree- ment, the purchase price will be adjusted, with any amounts due to/due from the sellers to be paid. Additionally, the purchase agreement will define the process for the release of escrowed funds to the selling professionals or the purchaser.
How can a non-health care organization legally purchase a professional practice?
The corporate practice of medicine doctrine in Michigan and in other states bars persons from owning health care practices furnishing medical or dental services, unless they are licensed physicians or dentists. However, there are legally permissible ways by which non-licensed persons can acquire a practice’s assets and manage the professional practice. The permissibility of the proposed structure is an important issue which the seller’s legal counsel needs to evaluate.
Who can advise a health care practice and its professionals regarding a pro- posed transaction?
Any practice considering a sale, whether to other professionals, a health system, private equity, or others, needs to be advised by legal counsel experi- enced in similar transactions generally and in partic- ular health care transactions. In particular, private equity transactions are complicated and present sophisticated taxation and health care compliance issues which will require the assistance of experi- enced legal counsel. Additionally, the sellers’ certi- fied public accountant will need to be engaged, as many of the formulas in the purchase agreement are based on accounting treatment, and to ensure that there is consensus with the sellers’ attorney on the taxation treatment of the transaction.
Patrick J. Haddad is a member of Kerr, Russell and Weber, PLC. Kathleen A. Westfall is an associate attorney of Kerr Russell. Their legal practices focus on health care and insurance. Kerr Russell islegalcounseltotheOaklandCountyMedicalSociety. Formoreinformationaboutthisarticle, Mr. Haddad or Mrs. Westfall may be contacted at (313) 961-0200, phaddad@kerr-russell.com or kwestfall@kerr-russell.com. This publication is furnished for informational purposes only, and receipt hereof does not establish an attorney-client relationship. It does not communicate legal advice by the Oakland County Medical Society, Mr. Haddad, Mrs. Westfall or Kerr Russell. © 2019 Kerr, Russell and Weber, PLC
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MARCH/APRIL 2021 | WWW.OCMS-MI.ORG