HealtH Care SyStem aCquiSitionS of mediCal PraCtiCeS

Acquisitions of medical practices by health care systems, particularly tax-exempt health care systems, appear to be on the rise currently. This is because health care systems throughout the country are continuing their strategic efforts to position themselves to be more competitive in the markets that they serve. Motivations for such acquisitive transactions vary from circumstance to circumstance. Generally, however, health care systems are driven by the need to develop diverse service delivery capacity at a reasonable and supportable level of economic investment. In addition to economic considerations, physicians often are equally motivated (1) by the desire to relieve administrative and capital investment burdens associated with private practice and (2) by the opportunity to affiliate with large health care systems. Such large systems provide potential for increased collegiality as well as access to advanced technology and related practice support. Regulatory guidelines currently in place mandate the use of generally accepted valuation approaches and methods in order to insure that medical practice transactions occur at a fair market price. Such guidelines, and related generally accepted valuation practices, affect key premises and/or assumptions that can impact the practice transaction pricing and structuring process. Such medical practice transaction pricing and structuring issues include: (1) whether the transaction will be structured as an acquisition of assets or equity, (2) reasonable provider compensation and the related impact on practice value, and (3) post-acquisition physician employment and noncompetition agreements.