Posts

Buying in to medical practices entails special planning

Erica K. Halley

Erica K. Halley represents individuals and businesses in a broad range of transactional matters.

In this article, Oklahoma City Attorney Erica K. Halley answers questions about the basics of investing in a medical practice.

What does it mean to buy in to a medical practice?

Small health care practices are typically owned by one or more of the health care providers at the practice. Such practices are usually organized as professional corporations (PCs) or professional limited liability companies (PLLCs). Although PCs and often PLLCs are considered corporations for legal and tax purposes, where the owners are technically “shareholders,” owners of a medical practice are colloquially referred to as “partners.” For a junior provider in a small practice, the pathway to partnership and the partnership itself can take on many different forms, but the key concerns are generally the same in every case.

Health care providers interested in purchasing ownership in a practice should invest with a comprehensive understanding of the valuation of the business, the compensation structure among partners and the exit strategies available to each of the partners. Retaining advisers who can alleviate this burden, such as an accountant and an attorney having experience in medical practice transactions, will ensure the tax implications are favorable and the exposure to risk is minimized.

How are medical practices valued and how do partners buy in?

Ordinarily, valuations consider the values of the hard assets, the accounts receivables and other intangibles, and the goodwill of the practice. Unlike other types of companies, it is common in health care practices for all partners to share ownership equally. This means a new partner to an existing two-partner practice will own a full 33.33% of the practice either immediately or shortly after the buy-in.

How the new partner pays for his or her share of the business varies. Sometimes, buy-ins are structured over time. For example, if a buy-in were to take place over the course of three years, the new partner would pay one-third of the total purchase price every year, and he or she would slowly purchase their interest in the practice, not becoming an equal partner with full voting power until the third payment in the third year. Alternatively, a practice may grant the new partner his or her full ownership (with full voting power) at the outset, and treat the buy-in like a loan being paid off over time. In either event, the payoff of the purchase price is frequently in the form of income-shifting or plain reductions in salary and/or bonuses.

How are partners paid?

Compensation structures in medical practices also differ across the board. Many times, a partner’s compensation is determined, at least in part, by the partner’s “productivity” in the practice according to how much revenue each provider generates, how many patients each provider sees, how many hours each provider works, or a combination of any of the foregoing. Other variables used in determining partner compensation include the management duties of the partners, seniority, special training and allocations of expenses. Such formulas among the partners ought to be negotiated and agreed upon prior to a buy-in.

How do partners get out of practices?

Before partners buy in, they need to understand how to get out — and how the other partners can get out at their expense. Shareholder agreements in professional corporations and operating agreements in professional limited liability companies usually set forth the procedures for a partner leaving the practice in the event of employment termination, retirement and death, as well as the calculations for valuing the exiting-partner’s ownership. In most cases, the other partners will be ultimately responsible for buying that partner (or his/her estate) out of the business. In addition, practices often bind their partners to noncompetition covenants, which restrict them from competing with the practice after they leave the practice.

 

Erica K. Halley is an attorney with Phillips Murrah.

Phillips Murrah sponsors OU Law’s 2019 Best Brief Award

Best Brief Award Winners

Attorneys Ashley M. Schovanec and Erika K. Halley presented the Best Brief award to winners in the 1L Class.

The University of Oklahoma’s Competitions and Clinic Awards Luncheon offered first-year law students the chance to compete and show how their studies have paid off on April 18.

“We celebrated the hard work our students have put into our competitions and clinic programs,” said Camal Pennington, Director of Annual Giving at OU College of Law.

Attorneys Erica K. Halley and Ashley M. Schovanec presented the $5,000 Best Brief Award sponsored by Phillips Murrah law firm. The Firm also sponsored the award in 2018. 

“The First Place award is granted to one student from each of the four sections in the 1L Class for best written brief,” Pennington said. “$500 is awarded to each of the First Place winners.

“Phillips Murrah also grants a $250 award to the second place brief for each section.”

OU Law competition teams traveled all over the U.S., from New York City and Albuquerque to Dallas and Washington, D.C. to Denver, San Diego, and Chicago, he said.

“Faculty members, alumni and outside attorneys helped coach these teams,” Pennington said. “For two consecutive years, OU Law has been ranked in the Top 5 in the country for our competitions program.

“OU Law competition teams have won four national championships in the last two years including the 2019 Federal Bar Association Moot Court National Championship.”

Halley and Schovanec are OU College of Law alumni. Halley represents individuals and businesses in a broad range of transactional matters, and Schovanec is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

Click here to learn more about the OU College of Law.

Phillips Murrah attorneys support i2E 2015 BrewFest

Attorneys Monica Ybarra, Dawn Rahme, and Erica Halley at Brewfest

Attorneys Monica Ybarra, Dawn Rahme, and Erica Halley at Brewfest.

Hundreds of patrons filled the Chickasaw Bricktown Ballpark on Nov. 5 to support i2E’s (Innovation to Enterprise) annual OKBio BrewFest.

“The intellectual activity surrounding the annual i2E BrewFest channels the exciting physical changes in downtown Oklahoma City, the Oklahoma Health Center, Bricktown, Deep Deuce and the state,” Attorney Mary Holloway Richard said. “Where else can you find entrepreneurs mingling to discuss their business plans and dreams with one another and with support professionals like the Phillips Murrah team that supports technical businesses as they establish themselves and expand?”

“From conversations with a graduate student physiologist focusing on lessening the impact of retinitis pigmentosa to discussions with an OCU Botany professor and a young distiller known for his marketing genius who is expanding into new markets—all this on a beautiful fall evening at the ballpark.  Helping clients achieve their business goals in research, health care, product development is a exciting as it gets.”

Lauren Branch and her husband Phillips Murrah Director Doug Branch.

Lauren Branch and her husband Phillips Murrah Director Doug Branch at Brewfest.

The event featured samples from 23 of Oklahoma’s local craft beer, wine and spirits producers.

“OKBio BrewFest is an annual fall event to shine a spotlight on bio in Oklahoma and provide support for OKBio, which among other things provides BIO International scholarships to Oklahomans every year,” said i2E President Scott Meacham in an article about BrewFest.

Other event sponsors include Crowe & Dunlevy, Foundation HealthCare, Greater Oklahoma City Chamber, Oklahoma Gazette, Hall Estill, Caisson Biotech, Hit Design, VWR International, McAfee & Taft, Dunlap Codding, and Woodland & Associates.

Read more about BrewFest here.