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PHYSICIAN
RETIREMENT

erning the management company often show that the investment can
be deflated upon separation, e.g., death, cessation of practice. More-
over, the investment is subject to exclusive control of the company’s
management as well as the management of the PE fund backing the
management company. In sum, the date when your reinvested pur-
chase price will become money in your pocket cannot be predicted
with any certainty.

Post-Sale Retention
Buyers are aware of your motivation to retire from active practice.
However, they want your patients to stick with the purchased practice
to sustain its ongoing value. They secure patient linkage by requiring
the selling physician to remain with the practice, typically up to three
years but sometimes as short as one year. The terms of your retention
are negotiable. Your post-sale involvement can be at a reduced level
compared to before the sale. You can also negotiate a requirement that
the buyer immediately look for your replacement.
Concurrent with the sale, you will enter into a new employment
agreement with the buyer or its affiliated entity that may legally em-
ploy physicians. The terms of this employment agreement will be rig-
orous, which is to say one-sided in favor of the employer. Your
compensation under the new employment agreement will influence of the entity and not the ownership interests, e.g., stock or PLLC in-
the purchase price and vise versa. In other words, if your compensation terests. The purchase price will be allocated to the assets purchased in
is less, then the net EBITDA will be higher and justify a higher pur- a descending order of priority prescribed by IRS rules. Under these
chase price. You may also ask for incentive compensation for achieving rules, the accounts receivable and hard assets are allocated an amount
productivity thresholds. of the purchase price equal to their fair market value. The remaining
purchase price will be allocated to goodwill and the non-compete. If
Non-Compete the selling entity is a C corporation, it will pay corporate tax on the
You can expect a rigorous non-compete covenant. Both your selling gain recognized from the sale and the remaining amount distributed
entity and you individually will agree not to compete with the practice to you will be a taxable dividend. The impact of this “double taxation”
after its sale to the buyer for five years. In addition, your personal non- can be minimized by selling personal goodwill associated with you.
compete will continue an additional two years after the end of your serv-
ices. In other words, if you continue working for the buyer for five years Conclusion
and then quit, you will still have two years you cannot compete, for a total Plan not for just the date you retire but for the sale of your practice.
of seven years. The duration and restricted territory of non-competes It takes a team of advisors to assist you and an execution plan with de-
must be reasonable to be enforceable. The reasonable duration associated fined objectives that includes prospective buyer identification and pric-
with the sale of a practice is generally five years and the restricted territory ing guidance.
is a radius of fifteen to thirty miles from the practice’s location or loca-
tions. If you truly plan to retire, the terms of the non-compete become Mike Kreager is a San Antonio business attorney at Kreager
less of a concern. However, you should ask for “carveouts” to permit you Mitchell. He has represented physicians and physician practices
to act as a locum tenens or a part-time faculty or VA clinician. for over forty years and has advised on practice sales to all types
of buyers. His last book “What’s My Practice Worth? A Comprehensive
Taxation Guide to Practice Valuations and Sales” was published by the Texas Med-
Your CPA will be able to estimate the amount of taxes that must be ical Association in 2016. Kreager Mitchell is a Gold Sponsor of the
paid on the proceeds of the sale of the practice. These taxes can vary BCMS Circle of Friends Program.
widely if you own the practice in an entity. The buyer will buy the assets

14 SAN ANTONIO MEDICINE • April 2021