Dental practice owners may decide that combining their practices can achieve benefits that allow the combined company to achieve greater success than either practice could alone. However, mergers of dental practices can involve complicated processes and legal issues. An experienced lawyer can help you navigate the merger process and protect your legal and financial interests. Contact Mahan Law for an initial evaluation with a dental lawyer to learn more about the process of dental practice mergers.
Key Legal Considerations in a Dental Practice Merger
Dentists should familiarize themselves with the primary issues that can arise in the merger of dental practices, including:
- Regulatory Compliance – Combining dental practices may require practice owners to comply with various dental board regulations, licensing requirements, and other healthcare laws, such as HIPAA.
- Business Structures – A merger may allow dental practice owners to consider an appropriate legal structure for the new business (e.g., partnership, corporation, or limited liability company).
- Equity and Management – When owners consider merging their practices, they must determine how to share ownership, profits, and management authority.
- Competition Laws – Parties should consider whether a proposed merger may violate state competition laws or regulations by excessively consolidating the market for dental care.
- Due Diligence – The merger process should involve an in-depth due diligence process for each party to gain a clear understanding of the other’s operations and finances, and to evaluate the suitability of the proposed merger.
The Due Diligence Process
Before parties close a merger of dental practices, they should conduct thorough due diligence, which involves exchanging documents and information about the respective businesses to allow each party to evaluate the desirability of pursuing the merger, including whether the combined company will thrive and grow.
The due diligence process in a dental practice merger will involve various aspects, such as:
- Financial Review – A financial review will involve evaluating each practice’s assets, liabilities, and revenue streams.
- Operational Review – During the operational review, the parties will assess each other’s workforce, technology, and patient management systems to determine whether the two practices can combine and how to merge each practice’s operations smoothly.
- Legal Review – Due diligence will also involve reviewing each practice’s existing contractual agreements, including commercial leases, mortgages, supplier contracts, employment agreements, and insurance network agreements.
- Compliance Checks – Parties must ensure that the professional licenses and certifications of the practices and their practitioners remain in good standing and can transfer to the merged practice.
- Risk Assessments – Due diligence should also involve identifying potential liabilities or legal challenges that may affect the merger, such as debts or judgments owed by one practice that could cause the merged entity to fail, or potential legal action alleging violation of competition laws.
Negotiations and Drafting the Merger Agreement
After due diligence confirms that the parties wish to proceed with the merger, they must negotiate and draft the definitive merger transaction documents. Some of the critical terms of a merger agreement include:
- Asset Versus Equity Mergers – A merger agreement should address the structure of the transaction – namely, whether the practices will merge their assets in a new legal entity or whether the two existing entities will combine through an equity transaction.
- Ownership and Management – Owners must address the new equity structure and management roles in the combined practice.
- Compensation – Practice owners should determine whether any compensation will exchange hands for the merger and how they will allocate profits and losses in the combined entity.
- Employee and Associate Contracts – The merger documents should address the transfer of employment contracts, including determining which employees will have roles in the new organization and the compensation and benefits they will receive.
- Transition Planning – The merger agreement can include timelines for the combination of the two practices, including the transfer of patient records, rebranding, and the adoption of new operational systems.
- Buyout Clauses – Should the owners’ new partnership fail to work out, including buyout clauses in the merger agreement and the new entity’s governing documents can facilitate an easy split by letting one party buy out the other.
- Dispute Resolution Procedures – Parties may agree to submit legal disputes arising from the merger transaction to a dispute resolution process, such as mediation or arbitration. Dispute resolution provisions can also include choice of law or forum clauses that require litigation in a specific jurisdiction or under a particular jurisdiction’s laws.
Regulatory and Licensing Considerations
A merger of dental practices will also raise various licensing and regulatory considerations. First, the practices may have to notify the state dental board of their merger or obtain the board’s approval for the transaction. The newly combined practice must update its licensing and registration with the state agency responsible for overseeing the handling and dispensing of controlled substances, as well as with the DEA. The merged entity must also secure validation or re-enrollment with private insurers and Medicare/Medicaid. Finally, the transfer of patient records from the individual practices to the combined entity must comply with privacy rules under HIPAA.
Post-Merger Integration and Risk Management
Even after the merger deal closes, the process does not end, as the two practices must integrate their operations, including combining staff, computer systems, and office procedures. Owners must pay particular attention to building cohesion among the staff of the respective practices, as employees adjust to unfamiliar office spaces, procedures, and culture.
Risk management during the integration period should focus on reviewing and updating contracts and licenses, addressing patient attrition, and resolving disputes between the new partners.
How a Dental Law Attorney Can Help
A dental lawyer from Mahan Law can help you merge your dental practice with another by:
- Providing legal counsel during deal negotiations
- Requesting and responding to due diligence demands, and reviewing documents and information produced by the other party
- Advising on deal structures and tax implications
- Drafting and reviewing merger agreements
- Ensuring compliance with licensing, employment, and healthcare laws and regulations
- Offering ongoing counsel and support during the post-merger integration period
Contact Our Firm Today to Protect Your Hard Work
When dentists decide to merge their practices, the merger process can involve numerous complex legal matters. Contact Mahan Law today for an initial consultation with our firm to discuss your circumstances and learn how our firm can help you protect your rights and interests during a merger.
