Medical practice purchase, practice takeover
Legal and tax information for physicians in Germany
Practice takeover contract, contract doctor's office, group practice and MVZ under german law
The purchase and takeover of a medical practice is of paramount, often existential importance for the buyer from an economic point of view. The physician is prepared in the context of his medical training for the ambulatory medical activity, but not for the purchase of a medical practice. With the takeover of a practice in Germany, however, the physician is not only a physician, but also an entrepreneur. Strictly speaking, the physician must answer entrepreneurial, economic and legal questions before signing the practice takeover contract in order to minimize risks and dangers.
Our lawfirm has attorneys certified specialists for german medical law and corporate law who advise physicians and members of other health care professions on all legal and tax issues related to the purchase of a practice. Our team of attorneys and tax advisors has many years of experience in corporate and practice acquisitions. Our lawyers and tax advisors accompany the takeover of a single practice, the entry into a group practice, the purchase of shares in a practice as well as the purchase of clinics of any size throughout Germany.
For a non-binding inquiry, please contact one of our experts directly by phone or e-mail or use the contact form at the bottom of this page.
Topic overview practice purchase in Germany
In addition to the typical legal and tax framework conditions of a normal company purchase, the purchase of a practice usually has special features due to procedures and regulations of the Association of Statutory Health Insurance Physicians. According to our legal experience, the following aspects are of great relevance in the purchase of a practice in Germany.
- Procedure of practice purchase: practice takeover and practice valuation
- Guide to practice takeover contract
- Special features: Share purchase when joining a group practice
- Admission to the KV in the case of practice purchase/contractual doctor's seat
- Due Diligence - legal and economic examination of the medical practice
- Taxes and depreciation when taking over a practice
- Data protection when buying a practice/medical confidentiality
The purchase of a medical practice and the takeover of a medical practice are associated with great complexity from a legal point of view, because the purchaser of the medical practice and his advising lawyer have to master a large cross-sectional subject matter:
1. procedure of practice purchase: practice takeover and practice valuation under german law
The buyer will become aware, through lawyers or even professional practice brokers, that a practice is for sale in relation to his specialty.
Perceptions of the purchase price: For the takeover of the contract physician's seat that regularly accompanies a practice purchase in Germany, certain criteria are important that are examined by the licensing committee. Of particular relevance to the purchaser is the purchase price for the practice. For him, the question of the valuation of the medical practice arises (for general information on this topic, see Business Valuation and Valuation Methods). The purchase price can be determined by an expert. In addition to the seller's interest in establishing as high a market value for the practice as possible, the aspect of the will to continue is important for the licensing committee. As a buyer, you should therefore think about your future, including your family, and make sure that the purchase of the practice in this location will fit into your life planning in the long term.
Position improvement in the selection decision: If the purchaser has taken on salaried work after completing specialist training and registration in the medical register, a change to the seller's practice could be considered to improve the position when making the selection. Here, there is then the possibility of employment or participation under german company law within the framework of a so-called job-sharing model. At the latest after 5 years of joint professional practice, a privileged position in the selection decision would be the consequence. However, such an activity also allows deeper insights into the daily practice and the practice structure. Other possibilities of a position improvement in the selection decision are, if necessary, a so-called relief assistance, but also regular vacation or sickness replacements of the salesperson. Also conceivable are activities in the context of a training or continuing education assistance, in order to obtain special medical emphases, which are related to the practice structure to be taken over.
Economic and legal review of the practice under german law: In addition to these actual impressions, knowledge and further information, a review of the practice is recommended. In the german due diligence process, the most important aspects of the practice structure are evaluated by attorneys and professional advisors. (See below for more detail on due diligence). In the case of larger practice acquisitions, it may be necessary to conclude a so-called letter of intent in Germany. This documents the prospective buyer's intention to participate in the practice acquisition and commits to confidentiality of disclosed information.
Negotiation of the details of the practice takeover in Germany: After the respective valuations and in particular purchase price negotiations, the drafting of the contract follows. Both sides are regularly represented by lawyers in this phase. The negotiations are regularly accompanied by lawyers and should be linked to clear economic as well as content-related ideas and goals on the part of the buyer. We highlight these goals and try to integrate them into the practice purchase agreement during the negotiations. Negotiations on the purchase of a practice can be conducted in writing or in person. The individual clauses of the contract will then be brought step by step to a final version of the contract and discussed with you as the buyer for this purpose.
Security through a business plan in Germany: Parallel to the negotiation - and ideally before the seller publishes the invitation to tender for the replacement - an economic feasibility check is required. This requires a frequently professional business plan, which the financing banks regularly expect for the examination of their credit commitment. In Germany, business start-up loans can also be used for this purpose. However, communicating about this with your bank also has other advantages. This is because banks specializing in practice purchases usually have in-depth knowledge of customary market prices and valuations. As a buyer, this gives you another opportunity to check the plausibility and seriousness of the purchase price.
At the latest in this phase of the practice purchase, tax advice is necessary in Germany. Our team of lawyers and tax advisors will, of course, also assist you with the tax aspects of your practice acquisition.
We make the one-stop-shop possible: We stand by your side with our experts throughout the entire process and enforce your wishes and interests, starting with your idea to buy and take over a practice, during the practice evaluation, on the occasion of the practice purchase agreement as well as the procedure before the licensing committee of the responsible german Association of Statutory Health Insurance Physicians.
Conviction of the german licensing committee: If there is an agreement on the purchase price and the individual aspects of the practice purchase contract to be regulated, this is concluded under the condition of a final licensing decision in favor of the purchaser. Prior to this, or at the latest at this point in time, the seller will apply to the german Association of Statutory Health Insurance Physicians for the reoccupation to be put out to tender. The purchaser will then submit an application, which we will of course also prepare and submit. If there are several applications, we will examine the quality of the relevant competitors by inspecting the files and, if necessary, make additional presentations to the admissions committee.
In german practice, a meeting of the admissions committee will then be held, to which all applicants will be invited. If you wish, we will also attend this meeting with you. At the end of the meeting, the decision on the replacement will be announced. Depending on the outcome, an application for an order of immediate enforceability may be filed in Germany. Alternatively, in the event that another candidate was deemed more suitable, an objection would have to be filed. This objection can be filed even if the decision has not yet been submitted in writing. In these cases, the challenged decision reaches the german Appeals Committee of the Association of Statutory Health Insurance Physicians. If necessary, this is followed by german social court proceedings. In these stages, too, our experts are at your side with their know-how and many years of experience to assert your rights and interests to the maximum.
Evaluation from our expert!
In our team, tax advisor Martin Stürmer takes care of the company valuation for the determination of the purchase price. As a specialized expert, he works together with our lawyers in german corporate law. You can also engage him independently of a legal mandate.
Ask for a quote for a business valuation or a cost-effective indicative business valuation:
2. Guidebook for a german practice acquisition contract
The purchase of a medical practice corresponds in many respects to a company purchase in other german industries. The purchase of a medical practice is complicated by the requirements of the KV license. As a buyer, you will regularly receive a draft contract from the seller. On the basis of the practice inspected, together with all the equipment and all the existing legal relationships and contractual risks, it is necessary to check exactly which contractual relationships you really want or need to take over - and which you do not. This delimitation is very important, as you as the buyer could assume unnecessary contractual risks.
The following contractual provisions are usually included in every practice purchase agreement in Germany (checklist practice purchase agreement):
- The contract covers all assets belonging to the practice and important contracts with third parties that are to be transferred to the buyer. Often, leasing contracts, loan agreements and maintenance contracts exist for practice equipment. The buyer must also have a thorough understanding of current insurance contracts.
- Inventory and fixtures are usually summarized in an inventory list and taken as an attachment to the practice purchase agreement.
- However, not only the positive assets are relevant, but also the debts of the medical practice. The german practice purchase agreement must contain a clear agreement as to which liabilities and debts will be transferred to the practice transferee and which will be retained by the seller. If there is a legal assumption of debt in a practice acquisition, release agreements must be made internally in favor of the buyer.
- The german practice purchase agreement must cover the patient file and ensure that the high requirements for data protection and medical confidentiality are met.
- For the buyer, the regulation of the purchase price is of great importance, as in Germany the purchase price also involves financing, tax and depreciation issues. Tangible and intangible assets play an important role in the purchase price. By intangible assets is meant the so-called goodwill. Goodwill reflects future profit expectations, the patient base and the familiarity of the practice.
- If the practice is operated in rented or leased premises, the regulations must ensure that the lease is taken over. As a rule, the lease can only be transferred to the purchaser if the owner/landlord agrees to the transfer of the contract.
- From a legal perspective, a practice purchase represents a so-called transfer of operations in Germany. This means that all employment relationships are transferred to the purchaser. The legally correct handling of employees is very important in german practice, since the buyer bears high legal and economic risks with the uncontrolled takeover of employment contracts.
- In Germany, the prudent buyer, who has to finance a high purchase price, will also demand a customer or patient protection clause. In this way, he ensures that the dearly paid takeover of patients is not devalued by the seller by way of competitive activity.
From a german legal point of view, notarization of the practice purchase agreement may be required. If this formal requirement is disregarded, this can lead to the invalidity of the purchase of the medical practice in Germany. This can have disastrous consequences, especially for the buyer.
3. Special features: Share purchase when entering into joint practice in Germany
If the selling physician operates a medical practice jointly with other physicians in Germany (joint practice usually in the form of a GbR), it is not a part of the medical practice that is sold to the transferee, but rather a partnership share in the joint practice. Therefore, from a legal point of view, there is no sale of individual assets (e.g. inventory and patient base). The purchaser acquires membership of the partnership with the partnership share. This means that individual contracts and legal relationships do not have to be transferred to the purchaser. They remain in the german joint practice. The entry of the new partner in the joint practice does not change the external legal relationships of the joint practice with third parties.
The transfer of shares in Germany requires that the co-partners in the group practice agree to the sale of shares and the entry of the buyer. In the run-up to the sale of shares, the physician colleagues in the group practice must be involved in the contract negotiations at an early stage. Without the consent of the co-shareholders, the buyer cannot enter (so-called transfer restriction).
The purchaser joins the group practice under the existing conditions. This means that the purchaser basically also assumes old liabilities of the joint practice. Only in the internal relationship can special arrangements be made between the buyer and seller regarding the old debts of the group practice. The purchaser of the shares can secure himself by means of special indemnity agreements on the part of the seller of the shares.
The buyer will require certain representations and warranties as part of the acquisition agreement. Entering into a joint practice requires a detailed analysis of the corporate relationships in Germany. A review of the partnership agreement and any participation agreements is mandatory before the acquirer enters. Misconceptions on the part of the purchaser can lead to far-reaching financial and existential damage.
4. KV registration when purchasing a medical practice/physician's office in Germany
If you establish yourself as a physician in Germany, you can either operate a purely private practice or participate in the contract medical care. To do this, you need a license, which is issued by the licensing committee of the regionally responsible german Association of Statutory Health Insurance Physicians (KV). If you meet the personal and professional requirements, you will be admitted as a panel doctor at the location of your practice.
From a german legal point of view, the contract doctor's office must be distinguished from the doctor's practice itself. The medical practice involves the organizational structures (e.g. medical equipment, employment relationships, rental and leasing contracts), which can be sold by means of a sales contract. The contract doctor's office, on the other hand, represents the german public-law permit. With this license, the physician can participate in the german SHI system. In Germany, the contract doctor's seat is legally linked to the doctor's practice to the extent that the contract doctor's seat presupposes the existence of the locally based doctor's practice.
In the case of a german practice purchase, the seat of the contract physician of the practice seller is advertised by the admissions committee at the latter's request. As the purchaser of the practice, you can apply for this advertised seat. The admissions committee reviews the applications received and selects the most suitable successor.
The necessary practice purchase agreement is negotiated in parallel with the invitation to tender and the application and is regularly concluded subject to the condition of a final admission by the german Admissions Committee of the Association of Statutory Health Insurance Physicians. It is also possible to obtain not a full, but a reduced supply contract.
Special features apply to the application of a german medical care center (MVZ). This can also apply for a contract physician's seat that has been advertised for reoccupation within the framework of a so-called concept application. However, such an approach requires the naming of a specifically suitable physician who is to work in the contract physician seat to be filled. Another special feature of german medical care centers is that the contract physician's seat is not taken over on a physician-related basis; instead, the intended physician works within the framework of a so-called employment permit in Germany. The medical care center is the holder of the contract physician's seat.
If the approval is then granted by the german approval committee as part of a selection decision, competitors have the option of appealing against this and thus preventing the decision from being enforced. This circumstance must be taken into account when negotiating and drafting the practice purchase agreement in Germany.
Another regularly significant circumstance is the possibility of immediate enforceability of the decision (which must be applied for). For both the successor and the losing competitor, the question of immediate commencement of the practice of contract physicians is of great, possibly even existential importance.
5. Due diligence, legal and economic examination of the medical practice under german law
For the buyer of a german medical practice, it is important to obtain the most comprehensive knowledge of the medical practice and its material contracts. The buyer must invest time in order to find out the most important relationships. Not only the purchase price, but also the future profit expectations depend on these circumstances. The most important circumstances that the buyer and his lawyer have to find out are:
- the condition of the practice
- the equipment of the practice
- the patient structure
- the annual turnover
- the proportion of private patients
In german practice, these results are regularly included in the contract as an agreement on quality. From the buyer's point of view, we believe it is important to clarify these concrete characteristics comprehensively in advance and to make them part of the contract as so-called target characteristics. At the end of the takeover process, the practice purchase agreement will guarantee the buyer that the conditions are as the seller has presented them. If the seller has misrepresented something to the buyer and thus received a purchase price that is too high, the buyer can later make a claim against the seller and thus reduce the purchase price.
These findings are based on a systematic analysis of the medical practice performed by our experts for the buyer. The valuation of the medical practice is complex, but it serves the buyer's own security and is often requested by the german bank for the calculation of the financing required for the purchase price.
The information relevant for this requires the seller's willingness to cooperate. A professional german due diligence inspection offers the buyer a very reliable opportunity to identify the condition of the medical practice and any defects and to draw appropriate conclusions about the purchase price demanded by the seller. Experience shows that sellers do not always agree to such a review by inspecting the accounting records, profit and loss statements, contractual relationships, etc. Ultimately, however, this leads to the buyer not being able to form a clear picture of the actual state of the practice in factual and also legal terms. This can be of importance for the contract negotiations in the case of a practice purchase, not only with regard to the purchase price, but also with regard to the rights and obligations associated with this purchase - and above all, therefore, also with regard to risks.
6. Taxes and depreciation when acquiring a practice in Germany
For the buyer of a practice, two tax issues are of utmost importance in german practice:
- How will my practice profit be taxed after the purchase? What financial burden will the tax office impose?
- Can I reduce my future tax burden by writing off the purchase price paid? How will the write-off affect my future taxes?
In Germany, the taxation of the practice profit after purchasing a medical practice depends largely on the legal form of the acquired practice. The tax situation and depreciation in the case of practice purchase differs quite considerably whether the purchase is of an individual practice or a share in a group practice or a share in a practice in the legal form of a GmbH (limited liability company).
This distinction has a significant effect on the taxation in Germany and thus the free liquidity for the repayment of a loan taken out for the purchase of the practice.
Of particular importance for taxation after a practice purchase is the question of depreciation (Afa) of the purchase price to be paid. The buyer can reduce future profits and taxes by claiming depreciation. The buyer must have an interest in generating high depreciation.
When purchasing an individual practice and a share in a group practice, the purchase price is allocated to the inventory and the practice value, and then depreciated in the inventory according to the remaining useful life.
The purchase price in excess of the value of the inventory can be depreciated as the practice valuewithin 3 to 10 years, depending on the circumstances, according to the case law of the German Federal Fiscal Court.
However, the practice value is not depreciable in all constellations of the practice purchase in Germany. On the one hand, this is always the case when a GmbH share is acquired. However, there are other constellations in which the practice value is not depreciable. For this reason, it is absolutely advisable to have the purchase of a practice accompanied by tax advice.
The following example is intended to show the significance of the depreciation of the practice value on the taxation and thus the free liquidity of the physician in Germany:
A buys a share in a well-performing practice in Hamburg. The purchase price is 1 million EUR, of which 100,000 EUR is allocated to the inventory and the remainder to the practice value.
Insofar as the purchase price is attributable to the inventory, this is to be depreciated over the remaining useful life of the inventory (computers, practice furniture, etc.). The practice value is to be depreciated over 10 years. The physician takes out a loan of 1 million EUR to finance the purchase of the practice.
To simplify the presentation, we assume - somewhat unrealistically - that the inventory is also depreciated over 10 years.
The pro-rata practice profit before depreciation is 300,000 EUR. The depreciation of the inventory and the practice value reduces the taxable practice profit by 100,000 EUR. This means that 100,000 EUR can be used without tax deduction to repay the loan taken out to acquire the practice.
If the practice value cannot be depreciated, the profit remains at 300,000 EUR - without taking into account depreciation on inventory - and the loan can only be repaid after deducting the income tax burden of around 45%.
Differences in the purchase of a practice should also be noted with regard to the tax deductibility of the interest on the loan to purchase the practice.
As a final tip, it is generally the case that special attention should be paid to tax liquidity planning from the outset, particularly when transferring from a position as an employed physician in Germany. After submitting the first income tax return, there is a risk of additional tax payments, combined with the assessment of subsequent advance payments and further quarterly advance payments.
7. Data protection in the case of practice purchase/medical confidentiality in german practice
Questions relating to german data protection law arise with every company purchase. In the case of a practice purchase, however, the issue of data protection plays an even greater role, particularly when it comes to the transfer of patient files. After all, the patient data "sold along with the purchase" is very sensitive and therefore particularly worthy of protection. In view of the applicable medical confidentiality obligation, the threat of fines under german data protection law and considerable sanctions, data protection and medical confidentiality is one of the decisive factors in the purchase of a practice.
At all stages of the purchase of a practice in Germany, particular emphasis must be placed on compliance with german data protection law, both during due diligence and during the implementation of the contractual provisions of the practice purchase agreement.
The obligations of the German Data Protection Regulation (DSGVO) affect both the buyer and the seller. A successful purchase of a practice stands and falls with the effective transfer of patient data, as this represents a decisive asset in order to actually be able to continue the practice after the purchase. In addition, the seller is subject to retention and documentation obligations for treatments, which are transferred to the buyer when a practice is purchased.
Under german law, health data are specially protected as special categories of personal data under Art. 9 DSGVO, so that such data may generally only be used with the express consent of the person concerned. For the retention obligations stipulated by german professional law, this means that disclosure may only take place if either the individual patient has given his or her express consent or if it is ensured that patient data cannot be accessed by the purchaser until the patient has given his or her consent.
To resolve this conflict, the so-called "two-closet model" had become established under the old german data protection law. Under this model, the buyer and seller concluded a safekeeping agreement and the buyer received a locked file that was only opened on a case-by-case basis with the patient's express consent and the respective file was transferred to the buyer's new database.
This principle can also be continued under the application of the German General Data Protection Regulation (DSGVO), although this also requires the conclusion of a contract processing agreement (Art. 28 DSGVO). This contract regulates the rights and obligations of the seller and buyer under german data protection law. Regulations must be made in particular regarding the technical and organizational measures for the security of data processing (Art. 32 DSGVO) as well as regarding the duty of confidentiality and the possibility for the buyer to commission service providers with the management of the data inventory. Particularly in the case of digital file management, which is common today, the provisions of the order processing agreement have a decisive role.
Our attorneys experienced in german data protection law will be happy to advise you on these issues at all stages of the purchase of a practice and are at your disposal for the drafting of a contract for the processing of orders that is in line with your interests.