6 Tips for Selling Your Practice to a Corporation

Todd Neely, President of NanoImproved, and Marybeth Regan, PhD, for HealthLeaders Media , October 14, 2010

For these physicians, everything proceeded as planned during the first year of operation after the sale. There were, predictably, some adjustments for them inherent to working for a corporation, but the physicians did see their practices expand.  Most of the physicians doubled, and some even quadrupled, the number of patients they treated.  Everything was great, until. . .

At the end of the first year, the physicians expected a large payment from their practices' increased profits.  But the large bonuses never came.  In negotiating the sale of the practice and the employee contract, the physicians had not required the company to specify in the contract what expenses the corporation would charge the individual practice and what accounting rules would be followed.  So the corporation charged the practices for marketing, accounting, human resources, financing and other services, wiping out the profits of the practice.  The corporation recorded the practice's income not on the practice's income statement but instead on the company's.  According to the corporation, the individual practices had little or no profit. 

In negotiating with the physicians, the corporation knew exactly what it was doing.  The contracts specified in precise terms the physicians' responsibilities: non-compete provisions, confidentiality, dispute resolution, and the like.  But, while the individual contract did state the corporation's initial responsibilities—mainly making payment on the negotiated purchase price—it phrased the company's other obligations in remarkably vague terms or (astonishingly) did not specify them at all.  The company was to make its "best efforts" to accomplish certain things, but the contract left the phrase "best efforts" undefined.  The phrase turned out to be quite malleable.  The company's other responsibilities were to be determined at a later, unspecified time. 

The company's best efforts always turned out to be whatever efforts the company chose to make.  When the time arrived to determine the corporation's unspecified other responsibilities, the determination always favored the corporation, to the detriment of the physician. 

The company was successful in contract negotiations because it understood what physicians wanted and structured the negotiations to satisfy the physician's needs.  Physicians have the same basic wants, desires and goals as anyone else.  But they also have three particular traits that the company exploited in the negotiations:

  1. The physicians' training,
  2. The physicians' record of success,
  3. Special frustrations unique to physicians.   
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