Selling Your Practice to a Private Equity-Backed Group?
Private equity-backed groups have become active buyers of medical practices throughout California. These deals can offer real advantages, including liquidity, administrative support, and a path to retirement. They also come with unique structural and regulatory issues that a traditional practice sale to another physician does not raise. Here, our California business lawyer for buying and selling a business outlines what physicians should know before signing on with a private equity-backed buyer.
Selling a Medical Practice to a Private Equity-Backed Group: What to Know
Understand the Deal Structure Before You Negotiate Price
California’s corporate practice of medicine doctrine generally prohibits a non-physician entity from owning a medical practice outright. Private equity-backed buyers typically work around this through a management services organization, or MSO, model. The MSO purchases the practice’s non-clinical assets and provides administrative, billing, and management services under a long-term agreement, while a professional medical corporation owned by a licensed physician continues to hold the clinical practice. The management fee, contract length, termination rights, and control retained by the MSO over staffing and operations all affect the real value and risk of the deal, often more than the headline purchase price.
California Now Requires Advance Notice of Many Health Care Transactions
California’s Office of Health Care Affordability now requires many health care entities to file a notice at least 90 days before closing certain transactions that involve a material change in ownership, control, or governance. OHCA reviews the notice and decides whether to conduct a cost and market impact review before the deal can close. Depending on the size of the practice and the buyer, this notice requirement may apply to a sale involving a private equity-backed group, and missing the filing deadline can delay or jeopardize closing. It is important to determine early in negotiations whether this requirement applies to your transaction.
Protect Your Interests Before You Sign
A private equity buyer’s paperwork is drafted to protect the buyer. Before signing a letter of intent, physicians should review the deal with an eye toward:
- How the purchase price is structured, including any portion tied to future performance, earnouts, or continued employment
- The length and terms of the physician employment or professional services agreement that follows the sale
- Whether restrictive covenants, forfeiture provisions, or non-solicitation clauses are enforceable under California law
- Representations, warranties, and indemnification obligations tied to prior billing, coding, and compliance practices
- Whether any required regulatory notices or filings, including an OHCA notice, apply to the transaction
Physicians who negotiate these terms early, rather than after a letter of intent is signed, generally retain far more leverage over price and post-closing control.
Contact Our Business Lawyer for Medical Practices Today
Lynnette Ariathurai is a California business attorney who advises medical practices on sales, mergers, and acquisitions throughout the Bay Area. If you are considering selling your medical practice to a private equity-backed group, our business attorney can help you evaluate the deal. Please do not hesitate to contact us today for a confidential consultation.