How to Combine a Practice with Another Physician

Do you own and operate your own medical practice in California? You may be considering combining your professional practice with another physician. If so, it is crucial that you know how to effectively navigate the process so that you protect your rights and interests and put your new joint practice in the best position to thrive. Here, our California business lawyer provides an overview of key things to know about combining your medical practice with another physician.

Step #1: You Must Confirm Compliance with California’s Practice of Medicine Doctrine

Before merging two practices, physicians must confirm that their proposed structure complies with California’s corporate practice of medicine doctrine (Bus. & Prof. Code § 2400). Under state law,  licensed physicians must own at least 51% of a medical practice, and 49% may be owned by certain qualified licensed individuals. Non-physicians, management companies, and investors cannot hold any ownership interest or exercise control over clinical decision-making. When combining practices, physicians owners must hold active California licenses and agree on the governance and management of the new entity.

Note: The transaction must be structured as a merger or stock purchase of a professional corporation (PC) under the Moscone-Knox Professional Corporation Act.

Step #2: Review the Key Structural and Legal Considerations

Every merger of medical practices carries legal and operational implications. The following are essential elements that must be addressed before completing the combination:

• Entity form and ownership: As noted previously, you confirm that both existing practices are properly organized as professional corporations.
• Valuation and capital contribution: You should also determine how the assets, goodwill, and liabilities of each practice will be valued and how capital will be contributed to the new entity.
• Governance/voting rights: Next, you need to define decision-making authority, director and officer roles, and voting thresholds for key matters such as hiring, expansion, or dissolution.
• Employment agreements and/or partnership agreements: Be sure to update contracts to ensure consistent compensation structures, restrictive covenants, and dispute resolution provisions.
• Regulatory and payor compliance: You also need to notify Medi-Cal, Medicare, and private insurers of ownership changes to avoid billing interruptions or recertification delays.
• Medical malpractice coverage: Finally, you should coordinate tail coverage for each physician’s prior entity and ensure the new entity carries sufficient professional liability insurance.

Step #3: Prepare for the Integration of the Professional Practices

Once terms are finalized for combining the two medical practices, you must be prepared to execute the agreement in a proactive, detail-focused manner. It is important to ensure that any and all agreements are consistent with California corporate and medical board requirements. Among other things, you should file updated articles of incorporation, amend bylaws, and submit ownership updates to the Medical Board of California. Operational integration should include merging patient records in compliance with the Confidentiality of Medical Information Act, aligning EHR systems, and reconciling staff employment policies. As a best practice, you and your future partner may want to conduct a joint compliance audit and establish clear clinical governance procedures before the combined entity begins treating patients. Combining professional medical practices in California can be complicated. A top-rated Fremont, CA business lawyer can help.

Call Our California Business Lawyer for Medical Practices Today

Lynnette Ariathurai is a California business lawyer with extensive experience working with medical practices. If you have any questions about combining a practice with another physician, we can help. Contact us today for your strictly confidential, no obligation initial consultation.