The sale of medical practices to private equity (PE) and related investors continues to be the trend in 2022. The primary reason private practices are so interested in selling to PE is that they typically will offer a much higher purchase price compared with either hospitals or other physician buyers.
However, the sale to any buyer comes at a cost to the physician-sellers as well, and this is something with which many physicians continue to struggle.
A PE's standard investment strategy is to acquire a practice with an existing footprint and reputation, and then grow the practice through the acquisition of additional smaller practices or by hiring more physicians. Typically, the structure of the transaction is such that the nonclinical assets of the practice are sold to a business entity owned by the PE (or a related entity) and the clinical assets are transferred into a professional entity owned by a physician, which may or may not be the physician-sellers.
The reason for this structure is that many states have a "corporate practice of medicine" doctrine, which prevents unlicensed people from owning professional entities or employing licensed providers. The PE controls the ownership and conduct of the physician-owned professional entity through written agreements, instead of directly, in order to comply with the law.
