Due Diligence Checklist for Buying a Medical Practice in Texas
Why Does Due Diligence Matter When Buying a Medical Practice?
Diligence verifies what the seller represents. An old billing irregularity, an unresolved audit, or a flawed staffing model can become yours at closing. Texas also limits ownership through the Corporate Practice of Medicine (CPOM) doctrine. A seller who withholds documents is a warning sign.
Who Can Legally Buy a Medical Practice in Texas?
Is the Corporate Practice of Medicine a Factor in Your Purchase?
The CPOM doctrine generally stops non-physician entities from owning a practice that controls clinical decisions. Non-physicians can still invest through a compliant MSO model. Settle these first:
- Are you a physician or a non-physician investor?
- What entity owns the practice today?
- Will the selling physician stay involved?
- Does the deal need an MSO structure?
- Have you checked Board supervision rules?
Involve a Texas healthcare business attorney early.
What Financial Records Should You Review?
Building a Clear Picture of Practice Revenue and Stability
Request three to five years of each item below.
| Document | What to Look For |
|---|---|
| Profit and loss statements | Revenue trends and margins |
| Tax returns | Alignment with statements |
| AR aging reports | Balances and collection rates |
| Bank statements | Cash flow patterns |
| Overhead records | Rent, payroll, premiums |
| Payer mix and rates | Government and commercial shares |
Accounts receivable stay with the seller in an asset purchase but follow the entity in a stock purchase. Reliance on one payer is a risk.
How Is the Practice Valued?
Valuation runs on EBITDA multiples, a share of collections, or asset and goodwill value. Check the key metrics for valuing a Texas medical practice first.
What Legal and Compliance Issues Must You Investigate?
Uncovering Hidden Legal Risks Before They Become Yours
- Litigation: malpractice, contract, employment
- Licensing: active and unrestricted
- Payer enrollment: Medicare and Medicaid status
- Exclusions: check the OIG exclusions list
- Board records: Texas Medical Board discipline
- Corporate documents: filings and ownership records
Confirm the entity is active with the Texas Secretary of State.
What Regulatory Compliance Areas Apply?
- HIPAA: security program and training. See HHS HIPAA guidance.
- Referral rules: see the Stark Law and Anti-Kickback fundamentals.
- OSHA: exposure plans, hazardous materials, training
- Texas Medical Board rules: supervision and delegation
- False Claims Act exposure: audit and upcoding history
Review the compliance risks in a healthcare acquisition.
What Contracts and Agreements Need Review?
Understanding Every Obligation That Transfers With the Practice
- Leases: term, renewals, assignment consent
- Payer contracts: credentialing, rates, termination
- Vendors: EHR, supplies, lab, billing
- Employment: pay and termination rights
- Non-competes: check physician non-compete requirements in Texas
- Medical director agreements: scope and pay
- MSO arrangements: read the management services agreement in full
Assignment clauses matter most: a payer contract that cannot transfer puts revenue at risk. Check every healthcare contract for auto-renewals.
What Should You Know About Billing and Medicare/Medicaid?
Billing Compliance Carries Long Liability Tails
Billing reviews reach years back, and that exposure can follow the practice to you.
- Coding audit reports
- Explanation of Benefits samples
- Medicare and Medicaid remittances
- Government correspondence on audits
- Billing company agreements and protocols
- RAC, MAC, or OIG results
“A retrospective billing audit often determines whether the deal moves forward, and on what terms.” – Healthcare legal advisory perspective
Government payer enrollment does not follow the practice, so plan for a billing gap. Learn how Medicare fraud defense in Texas works.
What Staff and Employment Issues Should You Evaluate?
Your Inherited Team Is Part of the Business You Are Buying
- Roster: full-time, part-time, contractors
- Contracts: pay, non-competes, termination
- Classifications: contractor treatment under IRS rules
- Open HR issues: grievances and pending terminations
- Credentialing: staff enrolled with each payer
- Payroll: consistency with reported expenses
Texas is generally at-will, but contracts and handbooks limit post-closing changes. Review Texas healthcare employment considerations first.
What Physical Assets and Equipment Should You Inspect?
Know What You Are Getting and What It Is Worth
- Asset list with serial numbers and dates
- Appraisal of major equipment
- Title checks for liens or encumbrances
- Maintenance and service records
- Owned versus leased assets
- Biomedical servicing agreements
Learn how to evaluate equipment and facility value, and review the lease separately.
What Is the Difference Between an Asset Purchase and a Stock Purchase?
Choosing the Right Deal Structure Protects You From Inherited Risk
| Feature | Asset Purchase | Stock Purchase |
|---|---|---|
| What you buy | Named assets | The entity itself |
| Liability | Assumed liabilities only | Past liabilities included |
| Tax basis | Step-up in basis | Carryover basis |
| Contracts | Consent needed | Transfer with entity |
| Credentialing | Re-credentialing | May continue |
| Complexity | Heavier | Often simpler |
Most buyers prefer asset purchases, though contract continuity can favor a stock purchase. Compare asset versus stock purchase considerations and how asset purchase and stock purchase agreements are drafted.
What Patient Records and Goodwill Issues Apply?
Patient Relationships Are Valuable But Regulated
- Patient count and retention
- Payer mix
- Whether the EHR transfers, at what cost
- Patient notification terms
- How the seller announces the change
- Pending patient complaints
The HHS guidance on practice sales covers records handling. Goodwill tied to the departing physician may not transfer.
What Are the Key Steps in the Due Diligence Process?
A Step-by-Step Framework for Healthcare Practice Buyers
- Sign a Letter of Intent setting terms and a diligence window.
- Assemble advisers.
- Send a document request.
- Analyze financials and billing data.
- Run a compliance audit: HIPAA, billing, licensing.
- Review every contract.
- Inspect assets and check liens.
- Check EHR transfer costs.
- Renegotiate price, indemnities, or structure.
- Close with final documents.
The seven essential steps before buying a healthcare practice add more.
What Are the Most Common Mistakes Buyers Make?
Avoid These Due Diligence Pitfalls
- Trusting verbal assurances over contracts
- Accepting financials without verification
- Ignoring compliance history
- Underestimating credentialing costs
- Leaving ownership structure until late
- Letting deadline pressure shorten diligence
- Overlooking the seller’s non-compete
See our strategic guide to buying a medical practice.
Do You Need an Attorney for a Medical Practice Purchase?
The Role Legal Counsel Plays in Protecting Your Investment
A healthcare attorney will:
- Draft and review the purchase agreement
- Advise on structure under Texas CPOM rules
- Flag billing and licensing risks
- Negotiate warranties and indemnification
- Keep pre-closing liabilities with the seller
- Map post-closing credentialing work
For multi-location deals, see our Texas healthcare mergers and acquisitions services. For a buy-in, start with a physician contract review.
Frequently Asked Questions About Buying a Medical Practice in Texas
How long does due diligence typically take when buying a medical practice?
Most Texas purchases involve 30 to 90 days of diligence, and larger practices take longer. Compressing that raises the odds of missing something.
Can a non-physician buy a medical practice in Texas?
Yes, with limits. CPOM restricts direct non-physician ownership, so many investors use an MSO, and a Texas healthcare attorney can confirm it.
What happens to Medicare and Medicaid enrollment after a practice purchase?
Enrollment generally does not transfer. You file new applications with CMS, so budget for the gap.
What is included in a medical practice asset purchase?
Typically equipment, furniture, and supplies plus intangibles such as the patient list, name, and goodwill. Liabilities transfer only if the agreement says so.
What is goodwill in a medical practice sale, and how is it valued?
Goodwill is value beyond tangible assets: patient base, reputation, and referrals. It may be personal to the physician or tied to the practice, as our valuation overview explains.
Do I need to renegotiate insurance contracts after buying a medical practice?
In an asset purchase you usually apply for new credentialing. In a stock purchase the entity is unchanged, so payer relationships often continue.
What Texas-specific laws should I know before buying a medical practice?
CPOM, Texas Medical Board supervision rules, the Texas Occupations Code on professional entities, and scope of practice rules. A Texas healthcare compliance attorney can apply them.
How do I find out if a practice has been investigated for Medicare fraud?
Ask the seller to disclose audits and correspondence, then search the OIG exclusions database and CMS records.
Should I hire a healthcare consultant in addition to an attorney?
For larger acquisitions, often yes. A consultant reviews operations and workflow, which sits outside legal and accounting work.
What happens if I discover problems during due diligence?
Findings rarely end a deal. You may renegotiate price, require fixes before closing, add indemnification, or walk away.
Locate Dike Law Group
We serve healthcare buyers across Texas from our Frisco office. Find us on Google Maps or call (972) 290-1031.
Ready to Move Forward With Your Medical Practice Acquisition?
Incomplete diligence is where risk surfaces. Our step-by-step guide to buying a practice in Texas shows how this checklist fits the wider deal.
Dike Law Group works exclusively in healthcare law and guides buyers through acquisitions across Texas.
Contact Dike Law Group PLLC at (972) 290-1031 or visit dklawg.com to schedule a consultation.
Related reading:
- Step-by-Step Guide to Buying a Medical Practice in Texas
- Key Metrics for Valuing a Medical Practice in Texas
- Asset vs Stock Purchase Considerations
- Regulatory and Compliance Considerations in Practice Transactions
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 Texas healthcare attorney.