Before Selling a Physician Practice, Weigh Tax Risks Carefully
Fully understanding asset valuation and other key issues in advance of selling a medical practice is imperative, but tax considerations should not be the driving force behind a deal, one expert says.
This article originally appeared in Managed Care Contracting & Reimbursement Advisor, October 2013.
Selling your practice is a major decision with revenue and tax implications that can affect you far into retirement. More physician practices are being approached with buy offers as accountable care organizations (ACO) form across the nation, so it is important to know the key issues beforehand.
"Over the past several years there has been an acceleration of hospital acquisitions of medical practices," says James B. Riley Jr., JD, a partner with the law firm of McGuire Woods in Chicago. "ACOs are increasing the sales, and so are other drivers like physician practice management groups." Both buyers and sellers must understand the tax implications of different practice acquisition structures, Riley says.
The structure of the sale is one of the first decisions to make, he says. Will it be a sale of assets or stock? Each option comes with different advantages and disadvantages with regard to taxes, and the form of a transaction is often dependent upon the transferability of seller obligations as well as the corporate practice of medicine (CPM) laws and fee-splitting laws of a particular state.
Riley explains that the CPM doctrine generally prohibits a business corporation from practicing medicine or employing a physician to provide professional medical services. In some states corporate employers, such as hospitals, HMOs, and professional corporations, are exceptions to the CPM doctrine prohibition. Other states merely prohibit the practice of medicine without a license or the sharing of fees between licensed and unlicensed individuals. Still other states flatly prohibit the ownership of medical practices or employment of professionals by nonprofessionals.
The CPM issue must be addressed early in the consideration of a sale, in accordance with state law. Once that issue is settled, you can move on to the tax implications of an asset versus a stock sale, Riley says.