Selling Your Medical Practice to a Hospital or Health System

Why hospitals price practices differently

When a hospital buys a practice, the physicians usually become hospital employees who refer patients to the hospital. Federal law, mainly the Stark Law and the Anti-Kickback Statute, requires the purchase price and the physicians' later pay to be fair market value and not tied to the volume or value of referrals. VMG Health, a healthcare valuation firm, notes the price cannot include referral value or the hospital's own expected synergies.

The practical result: hospitals are often reluctant to pay much for goodwill. Many purchases are priced mostly on hard assets such as equipment, with the value to the physician delivered through employment instead.

Price and pay trade off

VMG Health also points out that purchase price and post-sale compensation interact. A hospital that pays more for the practice may offer less in salary, and the reverse. Compare offers on total value over the employment term, not just the check at closing.

What to look at in the employment agreement

• Base salary and productivity pay, usually tied to work RVUs, and how targets are set.
• Term and renewal. What happens when the first contract ends.
• Non-compete scope, distance and length, and what happens if the hospital ends the contract. Rules vary by state.
• Call, schedule and support staff commitments.
• Who controls scheduling, staffing and referrals after the sale.
• Malpractice coverage, including who pays for tail coverage on your old policy.

When a hospital is the right buyer

• You want to keep practicing with less administrative work.
• Your specialty depends on hospital facilities or referrals.
• You value a stable salary and benefits over a larger upfront payment.

When another buyer may be better

If your practice has strong earnings and transferable goodwill, a private equity platform, a larger physician group or another physician may pay more for the practice itself. Pediatric practice advisors, for example, describe hospitals as less active and less willing to pay substantial amounts than they once were. We compare all of them side by side before you commit.

Before you talk to a hospital

1. Get an independent valuation so you know what the practice is worth to other buyers.
2. Have a healthcare attorney review any offer and employment agreement.
3. Ask how the hospital supports its fair market value conclusion.
4. Model your total income over the full term under each offer.

Common questions

Related reading

• How selling a medical practice works
• Sell your primary care practice
• Planning your exit and retirement
• Get a free practice valuation