Medical Practice Transitions: Buying or Selling a Practice

Buying or selling a medical practice is one of the most significant transactions a healthcare professional will undertake. Unlike a standard business acquisition, medical practice transitions involve regulatory requirements, licensure issues, patient continuity obligations, payer contract assignments, and compliance considerations that do not exist in other industries. Whether you are a physician purchasing your first practice, a group expanding through acquisition, or a retiring practitioner planning your exit, the legal and regulatory complexity of the transaction requires careful planning and experienced guidance.

This guide covers the key legal issues in medical practice transitions in New York, from valuation and due diligence through regulatory compliance and post-closing integration.

Practice Valuation

The first step in any practice transition is determining the practice's value. Medical practice valuation considers several components: the tangible assets (medical equipment, furniture, office improvements, inventory), the intangible assets (goodwill, patient relationships, referral sources, assembled workforce, practice name and reputation), the accounts receivable (money owed by patients and insurance companies for services already rendered), and the real estate (if the practice owns its office space). Valuation methods commonly used for medical practices include the income approach (capitalizing the practice's normalized earnings to determine value), the market approach (comparing the practice to recent sales of similar practices), and the asset approach (totaling the fair market value of all assets minus liabilities).

Fair market value is the standard for healthcare transactions because the Stark Law and the Anti-Kickback Statute prohibit compensation arrangements between healthcare providers that are based on the volume or value of referrals. Paying more than fair market value for a medical practice could be interpreted as paying for the referral stream, which creates regulatory risk. Your attorney and a qualified healthcare valuation expert should work together to ensure the purchase price reflects fair market value and is defensible under federal and state fraud and abuse laws. For more on these regulations, see our Stark and Anti-Kickback guide.

Due Diligence

Due diligence in a medical practice acquisition is broader than in a typical business purchase because it must cover regulatory compliance in addition to financial and operational matters.

Financial Due Diligence

Review three to five years of financial statements, tax returns, and production reports. Analyze revenue by payer (Medicare, Medicaid, commercial insurance, self-pay) and by provider (if the practice has multiple physicians). Examine the accounts receivable aging to assess collectibility. Review the fee schedule and compare it to prevailing rates in the area. Identify any revenue concentration risks (excessive dependence on a single payer or a single referring provider).

Regulatory Due Diligence

Verify that all providers hold current, unrestricted licenses to practice in New York. Confirm that the practice's Medicare and Medicaid enrollment is current and that there are no pending audits, investigations, or overpayment demands. Review the practice's compliance program (HIPAA policies, billing compliance, coding practices) for adequacy. Check the NPDB (National Practitioner Data Bank) for any reports involving the selling provider. Confirm that the practice is not subject to any corporate integrity agreements, settlement agreements, or exclusion from federal healthcare programs. For HIPAA-specific compliance, see our HIPAA compliance guide.

Operational Due Diligence

Review all employment agreements, independent contractor agreements, and vendor contracts. Evaluate the practice's staff (qualifications, compensation, tenure) and assess retention risk. Review the office lease, including term, rent, renewal options, and assignment provisions. Evaluate the practice's technology infrastructure (EHR system, billing software, patient portal). Assess the condition and remaining useful life of medical equipment.

Deal Structure: Asset Purchase vs Stock/Interest Purchase

Medical practice acquisitions are typically structured as either an asset purchase or a stock/interest purchase. In an asset purchase, the buyer acquires specific assets of the practice (equipment, patient records, goodwill, practice name) and assumes specified liabilities. The seller retains the legal entity and any liabilities not assumed by the buyer. This is the most common structure because it allows the buyer to select which assets to acquire and which liabilities to avoid. In a stock or membership interest purchase, the buyer acquires the ownership interests in the legal entity that operates the practice, inheriting all of the entity's assets and liabilities. This structure is simpler from an operational continuity standpoint but carries more risk because the buyer takes on the entity's historical liabilities.

The choice of structure affects tax treatment, payer contract assignment, employee transitions, and liability exposure. Your attorney and tax advisor should evaluate both options based on the specific circumstances of the transaction. For more on business purchase structures generally, see our buying or selling a business guide.

Regulatory Considerations

Stark Law and Anti-Kickback Compliance

The purchase price, any employment agreements with the selling physician, any non-compete provisions, and any consulting or transition services arrangements must all satisfy the fair market value and commercial reasonableness requirements of the Stark Law and the Anti-Kickback Statute. Payments that exceed fair market value, that are tied to the volume or value of referrals, or that lack a legitimate business purpose can trigger liability under these laws. Your attorney should review all financial arrangements between the buyer and seller for compliance.

Corporate Practice of Medicine Doctrine

New York's corporate practice of medicine doctrine generally prohibits non-physicians from owning medical practices or employing physicians to practice medicine. This means the buyer of a medical practice must be a licensed physician or a professional corporation (PC) or professional limited liability company (PLLC) owned by licensed physicians. If the buyer is a hospital, health system, or management company, the transaction must be structured to comply with the doctrine, typically through a management services organization (MSO) model where the non-physician entity provides administrative and management services under contract while the physician entity retains clinical control.

Payer Contract Assignment

The practice's contracts with Medicare, Medicaid, and commercial insurance payers must be properly assigned or re-enrolled under the buyer's credentials. Medicare and Medicaid enrollment changes require specific applications and have processing timelines that should be factored into the closing schedule. Commercial payer contracts may require consent to assignment or new credentialing. If payer contracts are not properly transitioned, the buyer may be unable to bill for services rendered after closing, creating a gap in revenue. For guidance on healthcare practice formation, see our practice formation page.

Patient Records and Continuity of Care

The transition of patient records is a critical aspect of any medical practice sale. In New York, patients have the right to access their medical records, and the selling provider must ensure that records are properly transferred to the buyer or made available to patients who choose a different provider. The purchase agreement should address ownership of the patient records after closing, the process for notifying patients of the transition (typically a written notice sent to all active patients), the patient's right to transfer their records to another provider, and the retention obligations for records of patients who do not continue with the buying practice. New York requires medical records to be retained for at least six years from the date of the last treatment (or, for minors, until three years after the patient reaches age 18, whichever is longer).

Employment and Staff Considerations

The practice's employees are often critical to its value. Experienced clinical staff, billing specialists, and front desk personnel have relationships with patients and knowledge of the practice's operations that are difficult to replace. The purchase agreement should address whether the buyer will offer employment to the practice's existing staff, the terms of employment (compensation, benefits, tenure credit), any obligations under the WARN Act if a significant number of employees will not be retained, and the treatment of accrued vacation, sick time, and other employee benefits.

If the transaction is structured as an asset purchase, the selling entity's employees are technically terminated and rehired by the buyer. If structured as a stock or interest purchase, the employees remain employed by the same entity, and the transition is less disruptive. In either case, the buyer should evaluate the employment agreements of key employees (particularly non-compete and non-solicitation provisions) and determine whether those agreements are assignable. If key employees have restrictive covenants that would prevent them from continuing to work for the practice under new ownership, the purchase agreement should address this issue.

Financing a Medical Practice Acquisition

Medical practice acquisitions are frequently financed through a combination of the buyer's capital contribution and bank financing. Lenders experienced in healthcare transactions (including banks that specialize in healthcare lending and the SBA 7(a) loan program) understand the unique characteristics of medical practice revenue and are accustomed to lending against accounts receivable and projected income. The lender will typically require a personal guarantee from the buying physician, a lien on the practice's assets, and evidence of the buyer's qualifications and experience. Your attorney should review the loan documents to ensure the terms are consistent with the purchase agreement and that any restrictive covenants in the loan (such as limitations on additional debt or requirements for minimum revenue) are manageable.

Post-Closing Transition

A smooth transition preserves patient relationships, staff morale, and referral sources. The purchase agreement should include a transition services provision under which the selling physician remains available for a defined period (typically three to twelve months) to introduce the buyer to patients, referring providers, and hospital administrators, to provide clinical consultations on complex patients, and to assist with payer enrollment and credentialing. The transition services compensation must satisfy fair market value requirements under the Stark Law and Anti-Kickback Statute. For more on healthcare regulatory compliance, visit our healthcare law practice page.

Non-Compete Agreements in Medical Practice Sales

A non-compete agreement from the selling physician is standard in medical practice sales. Without one, the seller could open a competing practice nearby and recapture the patient base the buyer just paid for. Non-competes in the context of a business sale are subject to a more favorable enforceability standard than employment non-competes. New York courts generally enforce post-sale non-competes of three to five years in duration covering a reasonable geographic radius (typically 5 to 15 miles, depending on the practice's draw area and whether it is in an urban or suburban market). The non-compete should also include a non-solicitation provision preventing the seller from actively soliciting the practice's patients, and a confidentiality provision protecting the practice's proprietary information. For more on restrictive covenants, see our restrictive covenants guide.

Frequently Asked Questions