How to Buy and Sell a Dental Practice

If you’re thinking about retiring, you’re probably considering selling your dental practice either to an existing associate or to a third-party. If you have the entrepreneurial bug, you’re probably considering starting your own dental practice or buying an existing dental practice. But the problem is, where do you start?

Unlike buying a house, there is not a publically available listing of dental practices for sale. While that can skew the economics of buying and selling a dental practice, the majority of Sellers do not want to broadcast that they are selling their practice for fear of losing patients and, therefore, revenue.

In the current market, the most common ways that Buyers and Sellers find each other are through (i) dental practice brokers; (ii) an associate buying-out their employer; (iii) a referral from a friend; or (iv) a cold call. When my wife and I bought her practice, I literally made an excel sheet of every dentist, broken down by specialty, that was in her target market—there were over 200!

Regardless of how the practice is found, the first step in the process is agreeing to a non-binding Letter of Intent, or LOI. The LOI should be non-binding on both parties so that neither the buyer nor the seller is obligated to pursue the transaction if the parties cannot agree on purchase documents. The most common terms in the LOI are (i) the sales price; (ii) the parties involved; (iii) the type of transaction; (iv) the sales price allocation; (v) inclusions and exceptions to the sale; (vi) future employment; and (vii) what real estate is included in the sale.

Whether buying or selling a practice, you should consult with your CPA and your attorney regarding the LOI before you sign it. Even though the LOI should be non-binding, the LOI serves as an outline of key terms that will be used in the actual purchase agreement. Accordingly, while each party is free to change LOI terms in the actual purchase documents, doing so sets a negative precedent in the negotiation of the purchase documents when a party backs-up on their previously agreed-to LOI terms.

Once the non-binding LOI is agreed to, the purchase documents vary depending on the type of transaction. In a 100% asset purchase, there will generally be (i) an asset purchase agreement; (ii) a loan from a bank or from the seller; (iii) a bill of sale; (iv) an employment agreement; (v) a non-competition agreement; and (vi) a lease or contract to purchase the real estate.

Because the purchase documents, once signed, will legally bind all of the parties to the agreement, it is imperative that your attorney and CPA review these documents before you sign them. But the most important person to read the documents is you. While you might need further explanation of concepts from your CPA or your attorney, once you've read the documents, you'll be able to tell your advisers what you like and don't like about the documents.

If a bank is lending money for the transaction, assuming that all parties involved are moving quickly, the average dental practice sale takes around 1-2 months. Once the transaction closes, there is still more work to be done in transitioning the office to the new dentist-owner. I will discuss that transition in my next article.

Employment Discrimination Claims: Practical Steps to Take Before Saying “You’re Fired!”

  Photo Credit:   http://www.california-labor-law-attorney.com/californias-discrimination-laws/

Photo Credit: http://www.california-labor-law-attorney.com/californias-discrimination-laws/

    Texas is an at-will employment state, meaning, without a contract, anyone can be fired at any time for any reason.  Well, not quite “any reason.”

    An Employee can be fired “with cause” or “without cause.”  Being fired “with cause” is when the Employer has a reason that is generally based on the Employee’s actions, such as employee theft.  Being fired “without cause” is generally due to something outside of the Employee’s control, such as layoffs.

    But whether an Employee is fired with or without cause, it is illegal to fire an employee for any discriminatory reason.  Most discrimination cases are very fact intensive, and ask the primary question, “Can the Employee prove that the Employer’s stated reason for termination was a false pretext for that termination?” 

    From an Employer’s perspective, what should you do?  Because discrimination cases are fact intensive, there is no one, silver bullet.  Rather, a discrimination case will look at all of the facts.  Thus, it is unlikely that just one of the items below can protect you, but they all can help defend you.

1) Documentation is very important.  You need to not only document a history of issues with the Employee, you need to do so accurately, succinctly, and truthfully.  For example, if the Employee’s job performance is at issue, then you need to document multiple attempts in meeting privately with the Employee to discuss the issue, outline the solutions discussed, and, if after an initial meeting, consider having the Employee sign your meeting minutes, acknowledging the meeting and the action-items from the meeting. 

    But always write so that you would not be embarrassed to have your notes posted to the front page of Google.  You just want the facts.  Do not write any derogatory comments, comments about the Employee’s appearance, or anything other than the basic facts of your conversation.

2) If you wouldn’t say it to your grandmother, don’t say it to your employee.  You wouldn’t tell your grandmother that she is old, she is worthless, or she needs to act like a man.  So don’t tell your Employee any of those things either.  While comments alone might not constitute discrimination, comments that show a discriminatory intent made by someone with power over the Employee’s continued employment are ripe for a discrimination claim. 

3) Remember your Employee handbook.  If your office has an Employee Handbook, or a Policies and Procedures Manual, that book doesn’t just bind the Employee—you need to follow it, too.  For example, if the Employee Handbook states that an Employee shall be fired after missing 10 business days and you fire an Employee for missing 11 business days but did not fire another Employee for missing 14 business days, then you leave yourself open for a more fact-intensive investigation.  Was the 11 day Employee old, while the 14 day Employee was young? Was the 11 day Employee an over-performer, while the 14 day Employee an under-performer?  Craft an Employee handbook that you and your Employees can live with.

    These are only a few of the factors considered in discrimination claims.  The Texas Workforce Commission’s website is very helpful as a quick reference guide to discrimination: http://www.twc.state.tx.us/partners/civil-rights-discrimination.

PHI: It’s Not Just Greek (Φ)—Ask ESPN

 Photo credit: http://gcobb.com/2015/07/06/nfc-east-giants-pull-offer-to-jason-pierre-paul/

Photo credit: http://gcobb.com/2015/07/06/nfc-east-giants-pull-offer-to-jason-pierre-paul/

Jason Pierre-Paul is a 6’5”, 278 pound defensive end who plays football for the New York Giants.  He can run a 4.78 second 40 yard dash.  For non-football fans, just know that the guy is huge, fast, and dominant at his position.

About a year ago, on the Fourth of July, a fireworks accident caused severe damage to his hand.  Being a defensive end, his hands are critical to grabbing and pulling opposing players.  A few days after the accident, ESPN’s Adam Schefter tweeted a picture of Jason Pierre-Paul’s medical charts showing that he had his right index finger amputated after the fireworks injury. That tweet has been re-tweeted over 7,600 times.

Jason Pierre-Paul has since filed an invasion of privacy lawsuit against ESPN and Adam Schefter (http://www.si.com/nfl/2016/08/25/jason-pierre-paul-hand-photo-suing-espn-adam-schefter). 

Michael McCann’s Sports Illustrated article correctly points out that Jason Pierre-Paul’s lawsuit is not based on HIPAA (The Health Insurance Portability and Accountability Act of 1996).  The article says, “…while Schefter could not have violated HIPAA, the person or persons who shared Pierre-Paul’s chart were presumably healthcare providers and thus would have violated HIPAA.”

 

Defining HIPAA

Generally speaking, HIPAA applies to a “covered entity” or “business associate” that uses or discloses Protected Health Information (“PHI”). 

A “covered entity” is a healthcare provider—including dentists; a health plan (e.g. health insurance); or a healthcare clearinghouse (as defined in 45 C.F.R. Section 160.103). 

A “business associate” is one that assists a covered entity in carrying out their healthcare functions. 

And PHI is “any information, including genetic information, whether oral or recorded in any form or medium that: (1) is created or received by a healthcare provider, health plan, public health authority, employer, life insurer, school or university, or healthcare clearinghouse; and (2) [r]elates to the past, present, or future physical or mental health or condition of an individual; the provision of healthcare to an individual; or the past, present, or future payment for the provision of healthcare to an individual.”

 

What should you do in your office?

Once you have PHI, you have an obligation to protect it.  Obtaining PHI is as simple as a patient telling you about an issue, whether that conversation is written down or not.  Because PHI is so easy to get, how do you protect it?  The following are a few Do’s and Don’ts for PHI:

          1) Don’t tweet a picture of any patient’s chart.  If you are not invading their privacy, as a dentist, you are at least violating HIPAA with each tweet.

          2) Do obtain a Patient Authorization or Court Order before releasing PHI.  Patient Authorization forms have certain requirements—including an expiration date and a specific list of people who can receive that patient’s PHI—that your attorney should be able to help you with.  But if the person asking for a patient’s PHI is not listed on that patient’s Patient Authorization form, either have the patient directly give the requesting party the PHI or wait until the requesting party obtains a court order requiring you to release the information.  And, beware, Patient Authorization forms for minors are only valid if signed by a parent or legal guardian. 

          3) Do enter into business associate agreements (“BAA”) with your business associates.  A BAA is a contract in which any entity that assists you in carrying out your healthcare functions agrees to abide by HIPAA in carrying out their own duties in handling your PHI.  Who needs a BAA, however, is not as clear.  While your technology management company certainly needs a BAA, what about your patient scheduling company?  Your accountant?  Your cleaning crew? 

          4) Do encrypt your data.  This includes not only emails containing PHI, but also your computers, servers, data backups, and any other item that contains PHI.

          5) Do train your office on HIPAA compliance and document that training.  While simply training your staff on HIPAA will not shield you from liability under HIPAA, that training will help your case if you’re accused of violating HIPAA.

Depending on the HIPAA violation, each violation could carry a $50,000.00 penalty, up to $1,500,000.00 per year.  That's 1,500,000 reasons to protect PHI.

 

 

          

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Employment Contracts: Know What You're Signing

Whether you have a job, you’re seeking a job, or you're selling your practice, an Employment Contract, or Independent Contractor Agreement, will likely be involved.  While an employee and an independent contractor are legally different, for purposes of this post I will treat them the same.

Employment contracts can vary in length from a single paragraph to over fifty pages.  A lawsuit seeking to enforce an employment contract could easily cost you over $100,000.00 in attorney’s fees, and could take over two years.  Compare that cost to paying for a few hours of an attorney’s time to review the contract so that you have a better idea of what you’re getting into.  After representing many dentists, here are a few tips. 

1) Have an attorney review your contract. 

You should seek out an attorney that is familiar with business transactions, employment contracts, and, preferably, one who has worked with dentists.  While paying an attorney may not fit in your budget, force it into your budget because your future employment and future financial position could be dramatically altered by an unfavorable contract.

And do not be swayed by an attorney who says they specialize in "dental law” or that they are a "dental lawyer." Texas does not recognize a specialty in “dental law” (www.tbls.org). 

2) Review your contract before both parties sign the contract.

Both parties should understand that all of the transaction documents are important and take time to review.  After all, if the documents are not important, then why do they exist at all?  So take the time to review your contract before you sign and return it; don't sign the contract the same day it is presented to you.  Asking me to review a contract that has already been signed is like a patient asking you if they needed a root canal after its already been done.  

3) Know what to look for in the contract.

While what you're being paid is important, the compensation section of the contract likely has the least ability to affect your future.  The entire contract is important, but three sections that should command your attention are the i) non-competition; ii) records and diagnosing; and iii) termination sections.   

i) Non-Competition: In Texas, properly drafted non-competition provisions can be enforceable after your job is over.  I’ve seen geographic areas for non-competes ranging from a 3 mile radius to a 50 mile radius. I’ve also seen non-competes that are tied to multiple practice locations.  For example, if ABC Dental has 15 offices around Texas and you work in one of those 15 offices, ABC Dental’s contract may say that you can’t work within 5 miles of any of ABC’s 15 locations.  It is critical to understand your after-employment rights in case this job does not work out.

ii) Records and Diagnosing: Many contracts say that the practice owns the patient files.  While this could be true if the proper procedures are followed, the default rule in Texas is that the diagnosing dentist owns the patient files.  You want to ensure that if you’re fired, or the office closes, that you can still access patient files to avoid patient abandonment claims.  Finally, make sure you’re in charge of diagnosing.  As a licensed dentist, you’re the only person who has legal authority to prescribe dental procedures.  Do not let a “treatment coordinator” or “patient facilitator” create your treatment plan.

iii) Termination: Most employment contracts require you to take, or refrain from taking, certain actions before you can quit.  Your contract might require you to provide the other party with written notice 30 days before quitting.  The contract also might prevent you from telling patients before you leave.  I have seen various obligations imposed on both parties, so make sure you know what your contract requires.  And remember, once you do quit, the non-competition section is going to guide where you can work next.

The contract has a lot of moving parts that do a lot more than simply pay you.  But, remember, the contract is business and, in business, all things are negotiable.