Who Can Own an MSO in Texas: Physician vs. Non-Physician Ownership

What Is a Stock Purchase Agreement in a Healthcare Context?

You buy the ownership shares, which means you buy the company itself, including everything it owns and owes. An asset purchase agreement instead lets the buyer select assets and leave liabilities behind.

Stock deals are common when the target holds licenses or payer contracts that are slow to transfer. Our complete breakdown of a healthcare stock purchase agreement covers the full document.

Stock Purchase vs. Asset Purchase: A Quick Comparison

For more, see asset vs. stock purchase in healthcare.

What Are the Core Clauses in a Stock Purchase Agreement?

1. The Purchase Price and Payment Terms Clause

This sets consideration, timing, and closing adjustments, often tied to working capital or open audits. An earn-out defers part of the price against future performance, protecting the buyer from overpaying while preserving the seller’s upside.

2. The Representations and Warranties Clause

Statements of fact made at signing. If one is false, the other side has remedies. Seller representations typically cover:

• Financial statements and billing records
• HIPAA, Stark, and Anti-Kickback compliance
• Current licenses and certifications
• No pending investigations or material litigation
• Employment and provider contracts

Qualifiers like “to the seller’s knowledge” sharply reduce your protection. This clause protects the buyer from being misled about regulatory standing.

“In healthcare transactions, representations and warranties are not boilerplate. They are the legal record of what the seller told you.”

3. The Indemnification Clause

This turns a false warranty into money. It names who bears the loss, what is covered, the basket, the cap, and the duration. Healthcare deals often list False Claims Act liability, overpayment demands, and HIPAA penalties. It protects the buyer from misrepresentation and the seller from open-ended exposure.

4. The Conditions to Closing Clause

Nobody closes until representations remain accurate, approvals arrive, key providers sign, and consents land. The material adverse change (MAC) provision lets a buyer walk if the business deteriorates first. It protects both sides from a deal that no longer reflects reality.

5. The Covenants Clause

Promises about conduct. Pre-closing covenants govern how the seller runs the business; post-closing covenants cover non-competes and transition help. Texas has rules on physician non-compete enforceability. Covenants protect the buyer’s investment.

6. The Disclosure Schedules

Attachments listing the seller’s exceptions to their own representations: known compliance issues, disclosed litigation, change-of-control contracts. Anything disclosed is carved out of the warranty, which protects the seller and tells the buyer what to price.

7. The Survival Clause

How long claims stay alive. General representations often run 12 to 24 months and fundamental ones may be indefinite, but compliance representations should run longer because audits surface late.

8. The Confidentiality Clause

Diligence exposes financials, payer terms, and compensation data. Health data adds a layer, because handling it must comply with HIPAA regulations. It protects both parties’ information.

9. The Termination Clause

It defines when either side may walk: missed deadlines, material breach, or regulatory denial. It also sets any break-up fee. Licensing problems are a common healthcare trigger.

10. The Governing Law and Dispute Resolution Clause

This names the governing law and the forum. Texas deals usually choose Texas law, and many prefer arbitration because it is faster and private. It replaces a jurisdictional fight with a set process.

What Healthcare-Specific Provisions Should a Stock Purchase Agreement Include?

Healthcare Licensing Representations

The seller must represent that professional licenses, facility licenses, DEA registration, provider enrollment, and accreditation are current. See licensing requirements for Texas providers.

Government Program Compliance Representations

Require representations on the Stark Law and Anti-Kickback Statute, the False Claims Act, HIPAA, and Medicaid rules. The DOJ actively pursues False Claims Act violations, and that liability follows the entity.

Payer Contract Assignment Provisions

The SPA should name which contracts need consent, what happens without it, and who carries the risk if a payer terminates.

Provider Credentialing Representations

The seller should represent that every provider is credentialed with each payer billed. Gaps produce denials and repayment demands after closing.

Corporate Practice of Medicine Compliance

Texas CPOM rules restrict non-physician ownership. If the target runs on an MSO structure, confirm it complies.

What Mistakes Do Buyers Most Commonly Make in a Stock Purchase Agreement?

Accepting Broad Knowledge Qualifiers Without Pushback

A billing error sitting in the records but never reviewed may not be “known,” yet you inherit it.

Skipping Thorough Due Diligence on Compliance History

The SPA only protects you against risks you identified. See due diligence before buying a healthcare business.

Agreeing to Short Survival Periods for Healthcare Representations

Twelve months is rarely enough, because Medicare audits begin years later.

Ignoring the Disclosure Schedules

Everything on a schedule is excluded from indemnification. Read every line.

How Does Indemnification Work in Practice for Healthcare Acquisitions?

Say a buyer receives a Medicare overpayment demand six months after closing for billing that predates the deal. Recovery depends on whether the representations covered billing accuracy, whether indemnification reaches government program liability, whether the survival period has run, and whether the issue was disclosed.

Every clause is interconnected. A short survival period or a low cap quietly undoes protection elsewhere.

What Is the Role of an Attorney in Negotiating a Stock Purchase Agreement?

A healthcare M&A attorney will:

• Find one-sided or missing provisions
• Negotiate representations that reflect regulation
• Extend indemnification to healthcare liabilities
• Tie diligence findings to the schedules
• Advise on CPOM, Stark, and Anti-Kickback exposure

See buying a medical practice in Texas and evaluating compliance risks.

When Is a Stock Purchase Agreement the Right Structure for a Healthcare Deal?

It fits when the entity holds provider numbers that take months to replace, or when payer contracts cannot be reassigned. An asset purchase fits better when diligence reveals billing irregularities. See ten healthcare businesses to consider buying.

What Should You Know Before Signing a Stock Purchase Agreement?

• Diligence is complete
• Representations are specific, not buried under knowledge qualifiers
• Indemnification reaches healthcare regulatory liability
• Survival periods are long enough to matter
• Disclosure schedules have been read line by line
• Covenants protect licensure, staffing, and payer relationships
• A healthcare attorney reviewed it

Also review seven essential steps before buying a practice.

Frequently Asked Questions

What is a stock purchase agreement in simple terms?

It is a contract to buy a company’s shares rather than its assets. You take the entire entity, liabilities and regulatory history included. See our stock purchase agreements page.

What is the difference between a stock purchase and an asset purchase in healthcare?

A stock buyer acquires the company and its liabilities. An asset buyer selects assets and avoids most unknown liabilities. See our asset vs. stock purchase comparison.

Why are representations and warranties so important in a healthcare SPA?

They are the seller’s formal statements about HIPAA, Stark Law, and Anti-Kickback compliance. If one is false, the buyer has remedies under indemnification.

What happens if a representation in the SPA turns out to be false after closing?

The buyer can claim indemnification if the survival period is open and the loss clears the basket. Recovery is then capped.

How long should the survival period be for healthcare representations?

General representations run 12 to 24 months. Billing representations should run longer, since False Claims Act limits can extend under 31 U.S.C. § 3731.

Do I need a healthcare-specific attorney to review a stock purchase agreement?

Yes. A general attorney may draft sound language but miss regulatory issues that create post-closing liability. A healthcare M&A attorney covers both.

What is an earn-out provision and when is it used in healthcare acquisitions?

An earn-out defers part of the price until the business hits agreed milestones. It suits uncertain revenue, but the metrics must be precise.

Can a buyer walk away from a deal after signing a stock purchase agreement?

Only on the grounds in the termination clause. Otherwise a break-up fee may apply. See navigating the purchase of a healthcare business.

What is a material adverse change clause in a healthcare SPA?

It lets the buyer terminate if something significant goes wrong before closing, such as a major payer termination. Its definition is heavily negotiated.

How does HIPAA affect the stock purchase due diligence process?

Even de-identified data must be handled under HIPAA Privacy Rule requirements. Parties usually sign business associate agreements first.

Disclaimer: This article is intended for general educational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a qualified healthcare attorney.