Considerations for Hospitals

Engage Professional Counsel. Just as physicians want the best terms for the sale of their practices, hospitals and health care facilities want real value for their investment in a private practice. Proper due diligence with the assistance of experienced lawyers and accountants will help the hospital make an informed decision and avoid potentially expensive missteps.

Carefully Analyze Financial Records. Arriving at a fair valuation for a medical practice requires hospitals to examine the underlying financial aspects of the practice’s operations, which are not always easily apparent. What is the quality of the practice’s billing and collection efforts? Are receivables in line with reimbursements and expenses or are they inflated? Are the reimbursement agreements favorable? What tangible assets does the practice own and what assets will the hospital need to maintain? What expenses can be carved out of the valuation (i.e. physicians’ personal, discretionary expenses) to identify the practice’s true earnings?

Consider the Non-Financial Aspects of the Practice’s Operations. Because medical practices and hospitals operate in a highly litigious and regulated environment, it behooves hospitals to assess a practice’s internal controls, compliance history and legal judgements before pursuing a practice purchase. Similarly, hospitals must consider their own legal responsibilities when structuring purchase agreements to avoid potential violations of tax laws, anti-kickback statutes and the Stark Law, which prohibits medical providers from making referrals to others with whom the provider has an existing financial relationship.

Prepare for Negotiations. The best way to ensure a smooth buy-sell transaction is for all parties to engage in open dialogue, build consensus and leave nothing to misinterpretation. Specificity and attention to detail can go a long way to ensure a win-win for all. Be clear on the terms of