Acquiring an existing medical practice in Texas involves navigating a complex web of healthcare and business regulations. To protect your investment, buyers must strictly evaluate CPOM compliance, pending litigation, payer contracts, and patient data security during due diligence.
Here are the top 10 legal and regulatory issues you must look out for when acquiring a medical practice in the Lone Star State:
- The Corporate Practice of Medicine (CPOM)
Texas enforces a strict Corporate Practice of Medicine doctrine. This regulation generally prohibits non-physicians and unlicensed business entities from directly owning a medical practice or employing physicians. If you are not a Texas-licensed physician, you will need to utilize a compliant Management Services Organization (MSO) structure to separate clinical and business operations.
- Entity Structuring and Ownership
Texas law mandates that professional medical entities (like Professional Associations or Professional Limited Liability Companies) must be wholly owned by licensed practitioners. If you are structuring the purchase, ensure the new entity satisfies Texas Medical Board and Texas Secretary of State requirements.
- Payer Mix and Credentialing
An acquired practice’s revenue heavily depends on its payer mix—the balance of commercial insurance, Medicare, Medicaid, and self-pay patients. Contractual agreements with insurers do not automatically transfer to a new owner. Buyers must investigate the assignability of existing contracts and plan for necessary re-credentialing to avoid devastating billing interruptions post-close.
- Fraud, Waste, and Abuse (Stark Law & Anti-Kickback)
Healthcare fraud and abuse laws (such as the federal Anti-Kickback Statute and Stark Law) closely govern how medical practices are valued and purchased. Overpaying for assets, inflated valuations of “goodwill,” and poor transition structures can quickly trigger investigations. The purchase price must reflect Fair Market Value (FMV) determined by a qualified healthcare valuator.
- Licensing and Permits
Verify that all current providers hold active, unencumbered licenses with the Texas Medical Board. Additionally, you must verify active DEA registrations, DPS controlled substance registrations, and CLIA certificates, all of which often require formal transfer applications.
- Due Diligence on Medical Billing and Coding
Historic billing practices demand intense scrutiny. Review recent audits, payer requests for information (ADRs), and denial rates. If the selling practice engaged in “upcoding” or improper billing, the purchasing entity could potentially inherit liability for False Claims Act violations or subsequent overpayment demands. This does not automatically kill a transaction but will require careful contract drafting.
- Patient Data and EMR Transition
Patient medical records are highly protected. The acquisition must strictly comply with HIPAA rules regarding the transfer of Protected Health Information (PHI). Ensure the buyer, seller, and Electronic Medical Record (EMR) vendor have a concrete plan to migrate data, assign ownership of the patient portal, and maintain historical record-retention duties.
- Employee & Employment Contracts
Review all existing employment agreements, including those for physicians, mid-levels, and key administrative staff. Check for restrictive covenants, such as non-compete clauses, to verify whether key clinical staff are bound to the practice post-acquisition. Ensure all staff classifications (W-2 vs. 1099) comply with Texas employment laws.
- Malpractice Tail Coverage
Medical malpractice coverage in Texas can be claims-made or occurrence-based. If the acquired practice utilizes a claims-made policy, the buyer must ensure that either the seller purchases “tail coverage” to protect against past incidents, or that the buyer negotiates sufficient indemnities into the asset purchase agreement to cover any “pre-closing” claims.
- Assumed Liabilities and Leases
The acquisition structure (whether an asset purchase or an equity purchase) dramatically affects your risk exposure. An equity purchase means assuming the seller’s historical liabilities, including pending lawsuits, tax liens, or equipment leases. Furthermore, you must secure the landlord’s consent to assign or renew the real estate lease for the clinic location. Generally, an asset purchase is preferred, but sometimes equity purchase is unavoidable and will usually simply the transfer of various agreements.