NOV 15, 2018
10 Due Diligence Items for Purchase of an Ophthalmic Practice
In part 1 of a two-part series, Daniel M. Bernick, JD, MBA attorney/consultant and principal of The Health Care Group® and Health Care Law Associates, P.C. highlights 10 due-diligence tasks that should be completed before purchasing a private ophthalmic practice.
Watch for part 2 "11 Eleven Things to Know About Malpractice 'Tail' Insurance" in Practice Management Express (Dec. 16).
Purchases of private ophthalmic practices have soared in recent months with private equity funds, hospitals, group practices and younger entrepreneurial doctors all joining in on the hunt.
Purchasing an ophthalmic practice can be an excellent strategic or financial move for the buyers. Although there is no one-size-fits all approach, here are 10 due-diligence tasks that should be completed before signing the deal.
- Financial. Internal QuickBooks financials or accountant-prepared statements may have good detail on revenues and expenses. Look for overstated rent, family members on payroll and other “soft costs,” such as shareholder fringe benefits. Always double-check revenues against the tax returns. People tend not to paint an overly rosy picture for the IRS.
- Productivity. Ask for a breakdown of receipts by provider. Are any of these revenue streams at risk? (E.g., the provider may leave due to the sale.)
- Payer mix. Will there be any issues getting seller’s physicians recredentialed with their usual insurances once they become employees of the buyer? Is there a lot of Medicaid or other low-reimbursing insurance?
- CPT (current procedural terminology) volume report. Look for potential upcoding or excessive utilization of testing. Next, consider the volume of E&M services. Is the seller seeing 80 patients a day, while the buyer’s providers can only see 40 patients per day? If so, past revenues may not continue at the high prior rate.
- Liens. Check whether seller’s lenders or vendors have filed security interests against the equipment items that you will buy. You want a “clean” title. Be sure to check for tax liens. These can be substantial, including interest and penalties. And big tax liens suggest that seller may have a cavalier attitude about legal compliance generally.
- Clinical. Check the charts. Look for complications. Has the care provided been up to your clinical standards? Are you (the buyer) going to be comfortable taking over where seller left off? Or will you have to fix a bunch of badly treated problems and defend care that you feel has been poor?
- Audits, recoupments, litigation and investigations. Quiz multiple staff in the target practice about any such issues, either ongoing or in the past. Again, you want “clean” title, not entanglements with government authorities. Lawsuits with former partners are especially worrisome. Such lawsuits can be protracted and distracting.
- Office and equipment leases, vendor contracts. Ask for any contracts of any kind to which the target practice is a party. Do you want to assume any of these contracts? Are these contracts in fact assumable? Enlist the help of your attorney.
- Employment contracts. You, as the buyer, may wish to continue the services of various provider-employees of seller. Do these providers have existing employment agreements that can be assumed by the buyer? Can you afford their current salary rates? Do the employment agreements include noncompete clauses? Such clauses provide assurance that your new provider-employee cannot walk across the street and take his or her patients with him or her.
- Condition of equipment. Do a walk-through with seller in each exam room to inspect the equipment and, more importantly, to quiz the seller face-to-face about whether all items in each exam room work.
About the author: Daniel M. Bernick, JD, MBA is an attorney/consultant and principal of The Health Care Group® and Health Care Law Associates, P.C. He has advised ophthalmic practices for more than 25 years on practice-related transactions.
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