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Legally speaking

01-17-2017 13:26

Protecting yourself during the sale of a radiology practice

BY JIM JORLING; BEN TESDAHL  WINTER 2017

Imagine waking up one day to find that your entire practice has been sold to another practice group, to a hospital or possibly even to a managed care plan. Such a sale could force you to work for a new owner you don’t know. Worse, you could find yourself without employment if the new owner decides to keep only certain staff or if you refuse to work for the new owner.

In either case, you could lose all the physician and patient relationships you’d built over many years in the practice. What can you do to protect yourself from such adverse consequences?

The answer depends on the precise wording of your contract with your practice, as well as any practice governance documents if you are also an owner of the business.

It is important to remember that a contract between a radiology practice and an individual is an asset of the practice that, in most cases, can be sold or transferred to a buyer of the practice just like the equipment or any other practice asset.

Most contracts, whether employment or independent contractor contracts, will have an “assignment clause” that states whether and under what circumstances either party to the contract may assign its rights under the contract to a third party. An assignment clause might read as follows:

“Radiology practice X may assign this employment contract to any purchaser of the radiology practice.”

This clause would give you no say in the matter, and you would be forced to work for the new buyer for the remaining term of the contract. Indeed, the buyer of the practice would very much want the contracts with the individual IRs to be part of the sale because of the great value they carry and because they ensure the continuity of the practice. Further, in many states, if a contract does not contain a provision prohibiting assignment, the contract may be assigned without the need to obtain the physician’s approval.

To prevent such an assignment, a better assignment clause (at least from the individual physician’s point of view) would be the following: “Neither party may assign its rights under this agreement to any third party without the prior written consent of the other party.” This clause would allow an IR to flatly refuse to have his or her contract transferred to a buyer of the practice, although such refusal would not block the sale of the practice itself and the refusing radiologist may well find himself or herself unemployed when the practice is sold.

There may be other permutations of assignment clauses beyond the examples above. The key is to carefully read the exact wording of the contract you have with your radiology practice to see what it says the practice can or cannot do with your contract if the practice is sold or otherwise transferred to a third party. If you discover that your current contract has unfavorable contract language, one strategy would be to ask to have that language amended the next time the contract comes up for renewal. But keep in mind that the radiology practice generally will want the flexibility to assign its employees’ contracts to a buyer of the practice and the buyer of a practice will also want the flexibility to accept or reject any employee or independent contractor contracts that it may not find to its benefit. It may, therefore, be difficult for any IR to obtain perfect job security through contract language.

If an IR’s contract with a radiology practice has a noncompetition clause preventing him or her from working in the area if his employment terminates, that clause can have dire consequences if the buyer of the radiology practice decides not to accept the transfer of that person’s employment contract or the IR refuses to work for the new buyer, since the radiologist in question may be forced to leave the area to find new employment.

You may be able to avoid that situation with a noncompetition clause that states its terms do not apply if the radiologist’s employment terminates because of a sale of the practice. However, the practice may be reluctant to permit that exception since it may reduce the value of the practice to a potential buyer. Further, many radiology practices have an exclusive arrangement with a local hospital; any IR not part of that practice may not be able to get hospital privileges and may not be able to find meaningful employment in the area.

Another place to look for language on what happens when a radiology practice is sold would be the governance documents for the practice, although this is only helpful to radiologists who are owners of the business and therefore have rights under those governance documents. These governance documents may include bylaws and shareholder agreements (if the practice is a corporation) or an LLC operating agreement and membership agreement (if the practice is a limited liability company). Buried in these governance documents may be clauses explaining what rights each owner has to approve or disapprove the sale of the practice, along with any buy-out consequences if a radiologist does not agree to the sale.

Needless to say, the time to review the foregoing documents is before you join a practice, rather than doing so afterwards when amendments to the foregoing documents may be nearly impossible to make.

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