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Before Selling a Physician Practice, Weigh Tax Risks Carefully

HealthLeaders Media Staff, for HealthLeaders Media, October 15, 2013

"Hospitals are paying very, very little for assets and instead they are looking to employ the doctors," he explains. "The employment contract might take into account the value of the practice and assets, but the hospital doesn't want your old computers and desks. They don't need them."

An office lease also can become an issue. The hospital may want the physicians to move into the hospital's property, leaving the practice to make its own deal to get rid of its current office space. In some cases, the hospital will sublease the space or buy some of the practice's equipment as part of the employment deal. It is unlikely that the hospital really wants the office space or equipment; this kind of offer is probably just made to sweeten the deal, Maxwell says.

"Always work with an accountant on any deal like this, not just an attorney," he says. "Generally if one component of the deal is good for you, it's not good for the other side. This all becomes a negotiation and there is a lot of money at stake."

Overall, the sale process can be challenging; even financially savvy physicians and their advisors can make mistakes, Maxwell notes. That's why he advises always including an "unwind" provision in the sale contract. "Let's make sure that if it doesn't work out in a year or two, we can get back to where we were," he says. "Not everyone is going to agree to it, but if they argue that, you can tell them to give you a five-year guarantee instead. It's a negotiation."

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