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Buy-Sell Agreements: Key to Any Physician's Succession Plan

Posted 6:37 PM by

Buy-in/buy-out agreements are key to any physician practice’s succession plan.  Without a buy-sell agreement, practices are destined to sudden death. 

The buy-sell agreement is the instruction manual for bringing new physician partners to the practice group or assisting with the departure of physician partners. The specific details regarding the structure, conditions and formulas for a buy-in or buy-out are contained in the agreement.  It is important that the agreement be unbiased, straightforward and affordable.  Buy-sell agreements should be created with the assistance and advice of your certified public accountant and legal counsel. The agreements should be reviewed periodically for necessary updates, as objectives do change over time.

A well-structured buy-in/buy-out agreement will contain details regarding the initial cash out-lay and/or promissory note options. Options should include the use of compensation formulas to assist with purchasing an interest in the practice. It is common practice to have life insurance on each partner to ensure cash flow in unfortunate times. The agreement must also address both voluntary and involuntary ownership transfers.

A buy-in/buy-out may in some cases be based on the fair market value of the practice. This methodology will take additional time to finalize as an independent party is contacted to assist with determining fair market value. It is common to include language in the agreement requesting ninety (90) days written notice be provided to the practice regarding intent to leave the practice. These and many more options must be considered and included in a well drafted buy-in/buy-out agreement.

About Us
Katz, Sapper & Miller’s Healthcare Resources Group serves healthcare providers, including physicians, hospitals and health systems, surgery centers, and long-term care facilities. Our team of healthcare professionals has the scope and depth to meet client needs. Learn more.

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