Merging Two Medical Practices in Texas: Deal Structure, Due Diligence and Regulatory Checks
A Texas medical practice merger usually takes one of three forms: an asset purchase, an equity purchase, or a statutory merger of the two entities. Whichever you choose, the combined practice must stay physician-owned, every payer and Medicare enrollment must be updated, and physician pay after closing must be fair market value.
Merger, Acquisition or Affiliation: Choosing the Structure
The first decision a Texas medical practice merger lawyer walks owners through is structure. Physicians use the word merger loosely. Legally, there are several ways to combine two practices, and each moves liabilities, contracts and enrollments differently.
| Structure | How it works | Main trade-off |
|---|---|---|
| Asset purchase | One practice buys selected assets of the other: equipment, records custody, goodwill, leases it chooses to assume | Leaves most old liabilities behind, but contracts and enrollments often must be re-papered |
| Equity purchase | One practice or its owners buy the ownership interests of the other entity | Contracts and enrollments may stay in place, but every historical liability comes along |
| Statutory merger | The two entities combine under the Texas Business Organizations Code and one survives | Clean single entity, but the survivor inherits both histories |
| Affiliation through a shared MSO | Each practice keeps its entity and signs with one management services organization | Shared operations without full integration, with corporate practice of medicine limits on control |
The right answer depends on the liabilities you are willing to inherit, how many payer contracts allow assignment, and whether the physicians want one governance structure or two.
Texas Corporate Practice of Medicine and Entity Rules That Shape the Deal
Texas follows the corporate practice of medicine doctrine. The surviving clinical entity must be owned by Texas-licensed physicians, usually through a professional limited liability company or professional association, or it must be a nonprofit health organization certified by the Texas Medical Board. Non-physician investors cannot hold equity in the merged practice directly.
Where investors or a management company are part of the deal, they sit in a separate MSO under a management services agreement. Our explainers on the friendly-PC and MSO model and on LLC vs PLLC structures cover how those pieces fit together.
Due Diligence Checklist for a Healthcare Acquisition
Healthcare acquisition due diligence goes well beyond financial statements. Before signing, each side should review:
- Licenses, DEA registrations and any Texas Medical Board history for every physician and mid-level provider
- Medicare, Medicaid and commercial payer enrollments, including whether each contract can be assigned
- A coding and billing sample, ideally reviewed under privilege, to find overpayment exposure
- Every financial relationship with referral sources: leases, medical director agreements, marketing and management contracts
- Employment agreements, physician compensation formulas and non-competes
- Malpractice coverage, open claims and tail coverage obligations
- HIPAA compliance, business associate agreements and any past breaches
- Real estate leases, equipment leases and vendor contracts with change-of-control clauses
- Pending litigation, audits or government inquiries
A healthcare transactional attorney usually runs the regulatory side of this review while accountants handle the financial side. Our articles on compliance risks in a healthcare acquisition and red flags in a practice acquisition go deeper on what to look for.
Stark, Anti-Kickback and Fair Market Value in Physician Buyouts
Referral laws apply to the purchase price and to physician pay after closing. The Stark Law has an exception for isolated transactions, such as the one-time sale of a practice, but the price must be fair market value and cannot reflect the value of referrals the seller will make. Installment payments need care, because ongoing payments can look like a continuing financial relationship.
After closing, compensation for physicians who join the merged practice should be set at fair market value and should not rise or fall with the volume of designated health services they refer. An independent valuation, covered in our article on valuation strategies, is the usual way to document both numbers.
Payer Contracts, Credentialing and Medicare Enrollment After Closing
Cash flow problems after a merger usually come from enrollment, not from the deal itself.
- Medicare: changes of ownership and new reassignments must be reported to CMS, generally within 30 days. A new tax ID usually means new enrollments.
- Texas Medicaid: update enrollment through TMHP before billing under the new structure.
- Commercial payers: many contracts prohibit assignment without consent, and re-credentialing can take two to four months.
- Plan a bridge: keep billing under the old numbers where allowed until the new ones are active.
Moving Staff, Patients and Records
Patients must be told when their physician’s practice changes, and the Texas Medical Board expects continuity of care and access to records. Decide which entity is the records custodian, how long records are kept, and how patients can request copies. Staff transfers need offer letters, benefits transitions and, for clinicians, updated delegation and supervision documents. Our guide to patient and staff transition has a fuller checklist.
Non-competes deserve separate attention. Texas limits physician non-competes, including buyout and patient-access requirements, so covenants in the merger documents should be drafted to current Texas rules. Our article on restrictive covenants explains the basics.
Timeline From Letter of Intent to Closing
- Letter of intent: two to four weeks to agree on structure, price range and exclusivity
- Due diligence: 30 to 90 days, depending on size and how clean the records are
- Valuation and definitive agreements: drafted in parallel with diligence
- Regulatory filings: entity filings, and for larger deals, possible federal antitrust notice
- Closing, once your Texas medical practice merger attorney confirms every condition and approval is in place
- Post-closing: 60 to 120 days of enrollment, credentialing and integration work
Quick Reference
- Pick the structure first: asset, equity, merger or MSO affiliation.
- Keep the clinical entity physician-owned.
- Diligence the billing, not only the books.
- Price the deal at fair market value with no value for referrals.
- Start payer re-credentialing before closing.
- Plan patient notice and records custody in writing.
Frequently Asked Questions
Do I need a Texas medical practice merger lawyer, or can our accountants handle it?
Accountants are essential for valuation and tax, but the corporate practice of medicine, Stark, Anti-Kickback and enrollment issues are legal questions. A Texas medical practice merger lawyer works alongside your accountants on those points.
Is an asset purchase or a stock purchase better for a medical practice?
An asset purchase usually limits inherited liabilities, while an equity purchase can keep contracts and enrollments in place. The better choice depends on the target’s billing history and how many payer contracts allow assignment.
Can a non-physician investor take part in a Texas practice merger?
Yes, but not as an owner of the clinical entity. Investors can own a management services organization that contracts with the merged practice, while physicians keep ownership and clinical control.
How long does a medical practice merger take?
Most mergers close within three to six months of the letter of intent. Credentialing and integration often continue for several months after closing.
What does a healthcare transactions attorney review that a general business lawyer might miss?
Healthcare-specific risks: referral law compliance, fair market value support, billing and overpayment exposure, licensure and payer enrollment. These are the issues that most often unwind or devalue a practice deal.
This article is general information about Texas healthcare law and is not legal advice. Reading it does not create an attorney-client relationship with Dike Law Group PLLC.
