2012 02

1. Presented by Coastal Physicians Purchasing Group Contracted Vendors:
HMWC CPAs and Business Advisors Tredway Lumsdaine & Doyle LLP
Advanced Session:
“MERGING AND CONSOLIDATING
MEDICAL PRACTICES”
A special educational session offered to the members of
Coastal Physicians Purchasing Group
February 13, 2012
Presenters:
HMWC: Steve Williams
TLD: Mark C. Doyle & Matthew L. Kinley

2. Advanced Session:
“Merging and Consolidating Medical Practices”
Steve Williams, CPA Mark C. Doyle
Jay Wikum, CPA, CMPE Matthew L. Kinley
17501 E. 17th Street 1920 Main St.
Suite 100 Suite 1000
Tustin, CA 92780 Irvine, CA 92614
P: (714) 505-9000 P: (949) 756-0684
steve@hmwccpa.com mdoyle@tldlaw.com
jay@hmwccpa.com mkinley@tldlaw.com
www.hmwccpa.com www.tldlaw.com

3. TREDWAY, LUMSDAINE & DOYLE LLP
 Tredway Lumsdaine & Doyle LLP, a law firm that represents
individuals and businesses in a full range of legal services,
celebrates 50 years of service to its clients and the community.
The firm has 4 conveniently located offices throughout Los
Angeles and Orange County and provides legal services in
many areas including business and corporate law, employment
law, family law, healthcare law, civil litigation, personal injury,
probate, estate planning, trust administration, real estate and
taxation.
 “We are proud to be celebrating 50 years of service,” said Matt
Kinley, TLD partner. “Our service extends to our clients, to the
community, and to the family that makes up our firm. Our
commitment to family is the hallmark of our success.”

4. HMWC CPA’s & Business Advisors
Since 1968, HMWC CPAs & Business Advisors has
specialized in serving the financial and tax needs of
privately-held businesses and their owners throughout
Southern California.
HMWC CPAs & Business Advisors specializes in
business strategies for healthcare professionals. We offer a
wide range of services, including sophisticated techniques
to help your practice improve productivity, reduce costs,
and maximize reimbursement. Additionally, we work
strategically with our clients on issues ranging from
practice affiliation decisions to income distribution formulas
to buy-in/out calculations. Our clients include primary care
physicians, specialists throughout Southern California.

5. Consolidating Medical Practices: Hypothetical
“A” “B”
“B”
“A” Big City Medical Group Inc.
Aardvark Anesthesia Professional Corp
CA General Partnership
Multi Specialty Practice
50 Doctors
25 Doctor Share Holders
25 Doctor Employees
401K Plan
Pension Plan
Dr. “B” Inc. Big City Surgery
Dr. “A” Dr. “C”
Professional Corp. Center Inc.

6. “A” Wants to Join “B”
1) Relieve Administrative burden on “A”
2) Improve negotiating position with
Hospital and Payers
3) Provide service through Surgery Center

7. “B” Wants to Acquire “A”
1) Provide practice support for “B” doctors
2) Improve negotiating position with
Hospital and Payers
3) Staff the Surgery Center

8. Advanced Session:
“Merging and Consolidating Medical Practices”
 If merger, consider:
 Why
 With whom
 Leadership of merged practice
 Funding of the merger
 Professional assistance team
 Legal
 Financial
 Operational

9. Advanced Session:
“Merging and Consolidating Medical Practices”
 Other factors to consider:
 Compensation model
 Pension plans and employee benefits
 Practice management system
 EHR system
 Ancillaries
 Legal structure and governance
 Other considerations…

10. Sale/Merger of Practice
Seller’s Perspective
 Motivated by consolidation strategy?
 Joining a new medical group?
 Retirement?
Buyer’s Perspective
 Expansion of Existing Services
 Expansion of Practice Area
 Capture Goodwill

11. Sale/Merger of Practice
Goals of Seller
 Obtain purchase price in a tax-friendly
manner
 Secure payments by Buyer
 Avoid or minimize scope of post sale
transactions
 Create reasonable exit strategy

12. Sale/Merger of Practice
Goals of Buyer
 Capture seller’s goodwill
 Expand practice or practice area
 Avoid assumption of pre-sale liabilities
 Maintain leverage over seller

13. Key Issues in Sale/Merger
Structure of Deal
 Sale of assets
 Sale of stock
 Merger

14. Key Issues to be Negotiated
in Sale/ Merger of Practice
 What Assets are Being Sold?
 Type of practice?
 Enterprise goodwill
 Practice location
 Equipment/Furniture
 Accounts receivable

15. Sale/Merger of Practice
Intangible Assets:
 Location Goodwill
 Introduction to Patients
 Telephone Numbers
 Workforce in place

16. Sale/Merger of Practice
 Purchase Price
 Payment Terms
 Down payment?
 Interest rate?
 Length of payout?
 Security

17. Sale/Merger of Practice
 Restrictive Covenants
 Non-competition?
 Non-solicitation?
 Scope of coverage?
 Length of time?
 Are they legal?
 Remedy for breach (e.g., liquidated damages)?

18. Sale/Merger Deal
 Representations and Warranties
 Ownership
 Litigation
 Financials
 Contracts

19. Sale/Merger of Practice
 Indemnification
 Malpractice
 Total coverage Insurance

20. Sale/Merger of Practice
Post-Sale Issues That Lead to Disputes
 New Practice Underperforms Financially
 Buyer/Seller Unhappy With New Practice
Culture
 Buyer Fails to Make Installment Payments
 Seller Breaches Restrictive Covenant(s)

21. Going Forward Transition:
Due Diligence
 Key Questions
 Does the proffered deal fit your strategy?
 Under what conditions can you get out?
 Under what conditions can you be
terminated?

22. Due Diligence
 Governance
 Physician leadership?
 Level of experience and expertise of
organizational leadership?
 Compensation System

23. Going Forward Transaction:
PSA
Key Amendments
 Can the compensation change without your
approval?
 Can the location change without your approval?
 Can the facilities and support change without your
approval?

24. Going Forward Transaction:
PSA
 “This is not what I thought.”
 Where/what is the exit strategy?

25. PSA: The Exit?
 Who keeps the name of practice?
 Who holds the third party payer contracts?
 Can I stay in “my” office?
 Can I retain my staff?
 Who owns the telephone number
 Who control/owns accounts receivable and
billing data

26. PSA:
Classic Deal-Making Errors
 Physicians may fail to appreciate importance
of both the “sale of practice” and the “going
forward” transactions
 Desire to obtain upfront money cripples ability to
negotiate future services agreement (employment of
PSA)
 Except for physicians near retirement, the economics
of the “going forward” deal are usually much more
importance than the after tax sale proceeds

27. Conclusion
 The devil is in the detail
 Spend the time to investigate the deal
 Consider all of your options

28. Health Records/Sharing Information:
HIPAA &Other Privacy Concerns
 Nondisclosure Agreements for review of information.
 Who must be notified that you are going to share
information?
 Status of Target Medical Records
 Accurate?
 Compliance?
 Who has access?
 Password?
 Encryption?
 Back-ups?
 Policies and procedures?

29. Labor Issues
 Physician Employment Agreements
 Independent Contractors
 Nurse Practitioners
 Key Employees
 Losers

30. State and Federal
Anti- Kickback Statutes
 Review Target for Violations
 Indicia of improper intent to induce referrals?
 Compensation agreements?
 Who receives compensation as part of the
transaction?
 Appraisal issues
 Disclosures to Patients

31. Self Referral Issues
 Federal and State Stark Laws
 Any payment to referring physician as part of the
transaction?
 Physicians in New Entity:
 What ownership do physicians have that may
complicate practice? Any ownership (direct or
indirect) in commonly utilized facility? Are there
exceptions?
 Appraisal issues

32. Consider an Earn Out Structure
 Encourages retention of shareholder physicians
 Reduces up front cost, paid for post closing cash
flow
 Danger: Most end-up in litigation
 Anti-Kickback violations?
 Stark Violations?

33. Medicare and Medicaid Issues
 List of Medicare/Medicaid provider numbers
 See: most recent Medicare/Medicaid
applications
 Medicare/Medicaid change of ownership
 Cost reports
 Recent Trend: Self Reporting

34. Private Insurance Issues
 See correspondence between company and
office
 See most recent contracts and managed care
agreements
 Are managed care contracts transferable?

35. Anti-Trust Issues
 Multi-specialty groups usually causes no
problem
 Single Specialty groups cause red flags
 Does it substantially limit competition?
 Is it a classic merger?
 How is competitive information handled during
merger?

36. THANK YOU FOR YOUR
ATTENDANCE!
Advanced Session:
“Merging and Consolidating Medical Practices”