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What to Know About Medical Practices in California

Building, operating, and developing a medical practice in California is complicated. Not only is medicine a highly competitive industry from a business perspective, but there are many unique rules and regulations that you need to be aware of. Lynnette Ariathurai is a business law attorney who helps doctors with the full range of commercial matters—from medical practice formation to compensation structures to selling the business.

Here are some topics for your consideration:

Buying (or Selling) a Medical Practice

When buying (or selling) a medical practice in California, thorough due diligence is key for understanding financials and ensuring counterpart reliability. The structure of the transaction matters. It could be a stock sale or asset sale. Notably, there are also some unique legal considerations that need to be addressed during the buying/selling of a medical practice, including adherence to the Moscone-Knox Professional Corporation Act, patient notification requirements, HIPAA compliance for medical records, and proper handling of controlled substances.

Compensation Structures for Medical Practices

In California, medical practices usually employ one of three compensation structures for physicians: payment based on individual collections, a percentage of group collections, or a hybrid model blending individual and group performance. Each has its pros and cons. Beyond that, any physician profit-sharing must comply with federal and state regulations, including the Stark Law and anti-kickback statutes, to avoid conflicts of interest and ensure decisions prioritize patient needs.

Securing a Medi-Cal License Before You Purchase a Medical Practice

Medi-Cal, California’s Medicaid program, requires medical practices to enroll as providers. Timing is crucial in the Medi-Cal application process. Indeed, a premature application—one submitted before establishing a business—can lead to denial. However, for those acquiring Medi-Cal enrolled practice, they may qualify for “transferee applicant” status to expedite enrollment.

Buy-Sell Agreements for Medical Practices

All parties that own a medical practice in California should have a well-drafted buy-sell agreement in place. It is especially important given the legal requirements of Moscone-Knox Professional Corporation Act. The law mandates that group medical practices are owned and operated by licensed medical professionals. Buy-sell agreements outline the process for transferring shares when an owner exits due to death, disability, or retirement. Among other things, it will help to ensure that a licensed professional is in position to take over the business.

Updates to the California Family Rights Act (CFRA)

In 2022, the California Family Rights Act (CFRA) was expanded. The state law now applies to many small businesses, including many medical practices. Most notably, the law allows eligible employees to take up to 12 weeks of unpaid, job-protected leave for family or medical emergencies. As of 2022, the CFRA now covers businesses with five or more employees. All small and mid-sized medical practices in California should ensure that their practices are in full compliance with the CFRA.

Get Help from Our California Business Lawyer for Medical Practices

Lynnette Ariathurai is a business attorney with extensive experience working with group medical practices. Have a business law question? Contact us today for a confidential consultation. With an office in Fremont, our firm works with medical practices throughout the Bay Area.