Here are three takeaways from the article:
1. Tax treatment and status of transactions. Most deals are structured to ensure that the purchase price is not treated as “ordinary income,” the authors write, and is taxed at capital gains rate. This ensures that the receipt of rollover equity is received on a tax-deferred basis. The tax status of the practice and the way the purchase practice is allocated among physician owners can affect the tax consequences of the deal, and owners should get strong legal and business advisors to ensure that the tax consequences of various purchase price reallocations are properly planned for.
2. Execution and deal risk. Physician owners commonly fail to consider the various consents and approvals that are needed to close a physician practice deal, the authors write. State and federal approvals may be more easy to determine, but those needed to seek joint-venture partners can be critical in the procession of physician practice deals. This means that legal counsel should evaluate the approval clauses in deals early on to avoid negative impacts on the deal or future business dealings of the practice.
3. Limiting exposure. “Deal risk usually arises in the form of post-closing indemnification exposure for breaches of representations and warranties,” the authors write. The most common way to manage exposure to these risks is the use of representation and warranty insurance. This type of insurance has become increasingly common in transactions, as it gives buyers a “leg up” on other bidders when offered in negotiations. RWI plans can reduce overall legal costs in negotiation and execution because counsel may be less likely to exercise increased oversight over representations and warranties, according to the article.