In general, the hospital or health system will directly employ each physician as an employee via employment agreement or retain the collective services of the physicians via a professional services agreement. If a professional services agreement is utilized, the physicians are not employed by the hospital or health system, but rather are employed by a third-party entity, which itself contracts with the hospital or health system to provide the professional services. In this scenario, the physicians will likely have an employment agreement with the third-party entity. Many physicians prefer the professional services agreement model because it allows the physicians to collectively negotiate for beneficial contract terms. Additionally, professional service agreements are typically for a longer period of time. The professional services agreement often provides the physicians with a voice in hospital or health system decisions. The agreement should also outline specific rights and powers the physicians have with regard to postacquisition decisions. For example, if the hospital wishes to hire a new physician for the acquired practice group, the professional services agreement may provide the current physicians veto power over the hire.
Exit Strategy
If things are not working out as planned with the hospital or health system, do the contracts provide for an exit strategy? This inquiry should not go unanswered, but rather should be included in the purchase contract and post-purchase agreements (e.g., professional services agreement, employment agreement). The parties to the contract may negotiate a “mutual reverse” right whereby the parties can reverse the transaction to the prepurchase status quo, if the parties no longer find the arrangement desirable or fail to meet certain milestones.
Post-Sale Relationship
Selling your practice to a hospital or health system can be advantageous for all parties involved. However, this type of sale is different because you are not necessarily parting ways on the closing date. The contract terms governing the relationship post-sale are often of equal or greater importance than the terms governing the sale of the practice. If you are considering embarking on this journey, be sure that it suits your current and future career goals.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins LLC. You may contact him via e-mail at [email protected].
