Private equity firms have recently been deploying capital to purchase medical and dental practices.
The typical transaction would involve the purchase of multiple practices and the establishment of a management company. The physicians would be paid a multiple of earnings and receive some rollover equity in the management company. Although many states have had a prohibition on the corporate practice of medicine for years, recent cases in multiple jurisdictions have made the structuring of these transactions more complex and subject to challenge.
In the recent case of Allstate Insurance Company vs. Northfield Medical Center, P.C., the New Jersey Supreme Court found that the control over the medical practice owned by a chiropractor violated the corporate practice of medicine doctrine, resulting in a verdict in favor of Allstate of almost $4 million. Previously, the District Court for the Eastern District of Louisiana, interpreting Pennsylvania law, found that the ability of the management company to participate in the profits of a dental practice, was akin to a partnership interest, one that would be precluded by the Pennsylvania corporate practice of medicine doctrine. Warren J. Appallon, D.M.D., P.C. vs. OCA, Inc., 592 F. Supp. 2d 906, and the similar case, OCA, Inc. v. Kellyn W. Hodges, D.M.D., M.S., 615 F. Supp. 2d 477.
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