- Valuation – how do I ensure I get a fair price?
- Type of Sale – am I selling assets or majority of stock/shares/membership interest in the entity?
- Due Diligence – how much research and risk assessment must I do in regards to existing liabilities (for both myself and the buyer) as well as the security/financing of the buyer?
- Verification of State, Federal Regulatory Compliance – who is responsible for verifying compliance with Fraud and Abuse laws, Stark Law, Anti-Kickback Statute, HIPAA, Tax Exempt Status, Anti-Trust laws, etc.?
- Restrictive Covenant – duration? location? key employees?
- Assumption of risk, indemnity – how is it expressed and covered?
- Holdover – how long should I remain onboard and accessible to the buyer – as an employee or an independent consultant?
- Termination – what will trigger cancellation of the transaction?
All of these questions warrant consultation with an attorney with experience in structuring such transactions.
However, in addition to the traditional machinations of such a transaction, you will need to receive consultation from an attorney aware of additional aspects of the healthcare profession that make the sale of a practice more difficult. Namely, you need to be aware of the requirements for patient consent of the transfer of files and HIPAA Compliance.
Notification Requirement to Patients
Pursuant to state and federal regulations, patients must be given the option to choose another health care provider and/or have a copy of their medical records sent to the physician of their choice. Specifically, medical records and other personal health information should not be transferred to another health care practitioner or practice without the patient’s informed consent. As such, when moving forward with a contemplated sale of practice, it is important that the mechanics of informing patients of the contemplated sale and providing them the option to choose their own provider is incorporated into the timing of the transaction.
Unfortunately, this often leads to the sale of the practice taking much longer than what might be within the parties' expectations.
Sharing Patient Files and Medical Records through Business Associate Agreement
As the above transition is unavoidable, buyers and sellers can and should embrace it. This can be accomplished by ensuring there is either a holdover of the old practitioner within the new practice–as an employee or an independent contractor. Furthermore, the seller is permitted to then share his or her patient files and medical records (i.e. PHI) with the buyer pursuant to a HIPAA-compliant Business Associate Agreement. This is permitted because the buyer, as a business associate, is using the PHI from the seller for “health care operations”, a permitted use under HIPAA. “Health care operations” include business management and general administrative operations of the entity, including the sale, transfer, merger or consolidation of all or part of the covered entity with another covered entity.
The American Medical Association provides further guidance for the transfer of patient records upon the sale of a medical practice. Ethical Opinion 7.04 states, “The transfer of records of patients is subject, however, to the following: (1) All active patients should be notified that the physician (or the estate) is transferring the practice to another physician who will retain custody of their records and that at their written request, within a reasonable time specified in the notice, the records or copies will be sent to any other physician of their choice… (2) A reasonable charge may be made for the cost of duplicating records.”
Priming or Retaining Medical Records
Practitioners should also check state and federal regulations regarding recordkeeping requirements and/or retention. When selling or closing a practice, practitioners should review their medical records to ensure that the records contain all information and documentation as required by state and federal law.
Medical record ownership is established by state law, licensing regulations, and judicial decisions. Generally, the practitioner's patient file and medical record is owned by the practitioner or corporate entity responsible for compiling and maintaining it, who also serve as the custodian of its contents. The Health Insurance and Portability Act of 1996 (“HIPAA”) expanded patients’ right to access, audit and amend their protected health information (“PHI”) pursuant to the HIPAA Privacy Standards. As custodian, the practitioner is responsible for providing their patient with informed written consent regarding their role as well as how the patient may access and transfer its contents at will to desired third-party practitioners. Practitioners, in this dual role as custodian and owner, must take special care regarding the destruction, retention, or transfer of medical records when their practice is sold or closed.
Practitioners who are selling or closing their practice should ensure that the control, ownership and patient’s right to access their medical records is specifically addressed prior to transferring or storing any medical records in order to be in compliance with the applicable state law.