Selling a Medical, Dental, or Accounting Practice in MN

What makes selling a professional practice different from selling another business?

A professional practice sale differs from other business sales in three places: the buyer must be someone Minnesota allows to own the practice, the records belong in part to patients or clients, and the seller’s license and billing numbers do not transfer by signing a purchase agreement, and whether a payor contract can be assigned depends on its terms. Everything else (price, allocation, the asset list, the closing) works as it does in any sale, with one Minnesota notice rule for larger physician-group deals. Under Minn. Stat. § 145D.01, a “health care provider group practice” is a health care entity. A transaction, by “a single action, or a series of actions within a five-year period,” includes, among others, “a merger or exchange of a health care entity with another entity,” “the sale, lease, or transfer of 40 percent or more of the assets of a health care entity to another entity,” “the transfer of 40 percent or more of the shares or other ownership of a health care entity to another entity,” and “any other transfer of control of a health care entity to, or acquisition of control of a health care entity by, another entity.” Subdivision 1(k) excludes, among other things, a transfer between entities already under common control immediately before it. When the entity involved or the resulting entity meets the average-revenue test in subdivision 2(a) (“average revenue of at least $80,000,000 per year”), subdivision 2(b) provides that notice to the attorney general and the commissioner of health “must be provided at least 60 days before the proposed completion date of the transaction, subject to waiver of all or any part of this waiting period under paragraph (f),” and paragraph (e) lets the attorney general extend that period.

When a Minnesota dentist asked me how a practice sale differs from other sales, my answer was that what is specific to dentistry is the patient records, the license, and the provider contracts, and the rest is a business sale. The same holds for a medical or accounting practice, with client files in place of patient records.

The first decision is structure. Whether the buyer takes the practice’s assets or the seller’s ownership interest changes who may buy, which liabilities follow the practice, and how the price is taxed; see stock sale versus asset sale in Minnesota for the general comparison. I suggest settling the structure before signing a letter of intent or term sheet, because those documents often fix the structure and the price allocation even when they say they are not binding. For a smaller health practice sale walked from valuation to closing, see selling an acupuncture clinic.

What limits who can buy a medical or dental practice in Minnesota?

A Minnesota dental practice may not be owned and operated by an ordinary corporation, and the Minnesota Supreme Court has recognized that, “with limited exceptions, the corporate practice of medicine doctrine exists in Minnesota,” pointing to chapter 62D nonprofit HMOs and chapter 319B professional firms. The court’s survey also noted that “Other common exceptions to the corporate practice of medicine doctrine include hospitals and nonprofit corporations,” citing decisions from other states and a 1955 Minnesota Attorney General opinion, which are persuasive sources rather than a Minnesota holding. In both professions, the buyer is usually a licensed individual or an entity owned by licensees, such as a professional firm under chapter 319B.

For dentistry, the rule is statutory. Under Minn. Stat. § 150A.11, subd. 1, “No corporation shall practice dentistry or engage in it, or hold itself out as being entitled to practice dentistry, or furnish dental services or dentists.” The same subdivision states that it “Does not prohibit dentists from incorporating their practice of dentistry for business purposes under the special provisions of a corporate practice act for dentistry.” Chapter 319B lists “dentistry and dental hygiene under sections 150A.01 to 150A.12” among the professions a professional firm may provide (Minn. Stat. § 319B.02, subd. 19). For more on the dental rules, see Minnesota dental practice ownership rules.

For medicine, the rule comes from the courts. In Isles Wellness, Inc. v. Progressive Northern Insurance Co., 703 N.W.2d 513 (Minn. 2005), the Minnesota Supreme Court stated that “with limited exceptions, the corporate practice of medicine doctrine exists in Minnesota” and held “that the corporate employment of chiropractors is prohibited except as expressly permitted by statute,” naming chapter 319B as one such statute. That case involved chiropractors, and the court held the doctrine does not reach physical therapy or massage therapy. The Court of Appeals then held that because the medical director of an accredited MRI facility, who is “responsible for clinical MRI services and for selecting, approving, and supervising the work of medical staff members,” is engaged in the practice of healing, the facility is subject to the doctrine and “lay ownership of such a facility is prohibited” (Allstate Indemnity Co. v. Twin Cities Diagnostic Center, L.L.C., No. A21-1116 (Minn. App. May 23, 2022)).

Chapter 319B is how a licensed-owner entity fits within these limits. Under Minn. Stat. § 319B.03, subd. 1, a Minnesota firm may furnish professional services without electing professional-firm status “only if” no statute, rule, “or tenet of Minnesota common law requires the Minnesota firm to make that election in order to furnish professional services within Minnesota.” Once a firm elects, Minn. Stat. § 319B.07, subd. 1, limits its owners, chiefly to “professionals who, with respect to at least one category of the pertinent professional services, are licensed and not disqualified.” The same question arises for other licensed health professions; see psychology clinic ownership.

How does an asset sale differ from an equity sale of a licensed practice?

In an equity sale, the buyer acquires the seller’s shares or membership interest; if the practice is a professional firm under chapter 319B, every buyer must be a person chapter 319B allows to own the firm, and a transfer to anyone else is void. A CPA firm follows its own ownership rule, covered below. In an asset sale, the buyer’s own entity provides the services after closing, so that entity must meet the same ownership rules, and the seller’s entity keeps the liabilities the purchase agreement does not move.

For an equity sale of a professional firm, Minn. Stat. § 319B.07, subd. 2, states: “No owner may transfer an ownership interest except to persons who meet the requirements of subdivision 1.” Subdivision 4 sets the consequence: “A sale, grant, gift, allocation, issuance, undertaking, creation, pledge, or other transfer in violation of this section is void.” What this means for a seller of a professional firm: under subdivision 1, “Ownership interests in a professional firm may not be owned or held, either directly or indirectly, except by” the persons it lists, so an investor outside that list cannot take an ownership interest in the firm, and a closing that tries to do so leaves the seller holding a sale the statute treats as void. A CPA firm is different: Minn. Stat. § 326A.05, subd. 3(b), applies “Notwithstanding chapter 319B or any other provision of law” and states that “Although firms may include nonlicensee owners, the firm and its ownership must comply with rules adopted by the board.”

An asset sale avoids transferring the seller’s entity. The buyer receives equipment, the patient or client list, the phone number, and goodwill, and the seller’s entity keeps its own history: past tax filings, malpractice claims tied to past care, and debts the agreement does not assign. Minnesota’s rules on when a buyer inherits a seller’s liabilities anyway are covered in successor liability in an asset sale.

What happens to patient records when a medical or dental practice is sold?

Federal privacy law defines health care operations to include a practice’s sale to another covered entity, or to an entity that will become a covered entity after the sale, and the due diligence for it, but Minnesota’s Health Records Act separately bars a provider from releasing a patient’s records to a person without the patient’s signed consent or specific authorization in Minnesota law, and the Act has no exception that names the sale of a practice. A seller should plan the records transfer as a consent question, not a paperwork step.

Under HIPAA, the definition of health care operations in 45 C.F.R. § 164.501 includes “The sale, transfer, merger, or consolidation of all or part of the covered entity with another covered entity, or an entity that following such activity will become a covered entity and due diligence related to such activity.” Minnesota’s rule is narrower. Under Minn. Stat. § 144.293, subd. 2, “A provider, or a person who receives health records from a provider, may not release a patient’s health records to a person without” either “a signed and dated consent from the patient or the patient’s legally authorized representative authorizing the release” or “specific authorization in Minnesota law,” or a provider’s representation that it holds that consent. I read the full Act, sections 144.291 to 144.298, and none of its provisions addresses a practice sale. For more on how the Act works in practice, see the Health Records Act and patient reviews.

Dentists have an added rule. Minn. R. 3100.9600, subp. 12(A), provides that “For an adult patient with an inactive file, the dentist must maintain the patient’s dental records for at least seven years beyond the patient’s last date of treatment by the dentist.” Subpart 13 provides that dental records “must be transferred according to Minnesota Statutes, sections 144.291 to 144.298, irrespective of the status of the patient’s account.” Because the retention duty runs to “the dentist,” the purchase agreement should say who keeps inactive records after closing, how the seller can reach them, and what the buyer may use them for.

What rules apply to selling a CPA firm in Minnesota?

A firm that performs attest work or uses the title “CPA” in Minnesota needs a permit from the Minnesota Board of Accountancy, and a simple majority of its ownership must belong to licensed CPAs; chapter 319B does not change that. A buyer who is not a CPA can buy into a CPA firm only as a minority owner who is active in the firm.

Under Minn. Stat. § 326A.05, subd. 1, a permit is required for “any firm with an office in this state performing attest services as defined in section 326A.01, subdivision 2,” and for any firm with a Minnesota office that uses the title CPA or CPA firm. Subdivision 3(b) states: “Notwithstanding chapter 319B or any other provision of law, a simple majority of the ownership of the firm, in terms of financial interests and voting rights of all partners, officers, shareholders, members, or managers, must belong to holders of certificates who are licensed in some state.” Under subdivision 3(c)(2), non-CPA owners must be “persons of good moral character” and “active individual participants in the CPA firm or affiliated entities.”

A sale changes the owners, so the firm must report it. Minn. Stat. § 326A.05, subd. 6, requires a permit holder to “notify the board in writing, within 30 days after its occurrence, of any change in the identities of partners, officers, shareholders, members, or managers whose principal place of business is in this state”; check the current text before relying on that period. Subdivision 7 of § 326A.05 requires a firm that falls out of compliance “due to changes in firm ownership or personnel” to “take corrective action to bring the firm back into compliance as quickly as possible.”

Under Minn. Stat. § 326A.10, paragraph (d), a firm may not perform attest services or call itself a CPA firm “unless (1) the firm has complied with section 326A.05, and (2) ownership of the firm is in accordance with this chapter and rules adopted by the board.” A practice that only prepares tax returns, gives management advisory services, or prepares financial statements without issuing reports on them is different: paragraph (a) does not restrict “the preparation of tax returns, management advisory services, and the preparation of financial statements without the issuance of reports on them” to licensees. If that practice uses the CPA title, though, Minn. Stat. § 326A.05, subd. 1(a)(3), still requires a permit for any firm with a Minnesota office that uses the title CPA or CPA firm, and paragraph (d)’s ownership rule applies.

How do client files and confidences move in an accounting practice sale?

A CPA may not sell or transfer working papers to an outside buyer without each client’s consent, unless the buyer is a new owner of the licensee’s firm, a combined or merged firm, or a successor in interest to the licensee. A CPA also may not disclose what a client told the CPA without the client’s permission, which limits what a buyer can see before closing.

The rule on working papers is in Minn. Stat. § 326A.13, paragraph (a): “No statement, record, schedule, working paper, or memorandum may be sold, transferred, or bequeathed, without the consent of the client or the client’s personal representative or assignee, to anyone other than one or more surviving partners, stockholders, members or new partners, new stockholders, new members of the licensee, or any combined or merged firm or successor in interest to the licensee.” Chapter 326A’s definitions section does not define “successor in interest,” so a buyer taking only assets should plan on client consent unless the deal clearly makes it the successor. Records that belong to the client are a separate category: paragraph (b)(2) requires a licensee to furnish, on request and reasonable notice, “any accounting or other records belonging to, or obtained from or on behalf of, the client that the licensee removed from the client’s premises or received for the client’s account.”

Confidences limit due diligence. Under Minn. Stat. § 326A.12, paragraph (a), “Except by permission of the client for whom a licensee performs services or the heirs, successors, or personal representatives of the client, a licensee shall not voluntarily disclose information communicated to the licensee by the client relating to and in connection with services rendered to the client by the licensee.” In practice, a buyer should evaluate the firm from billing totals, client counts, and retention figures until clients consent. Both sections also reach beyond CPAs: § 326A.12, paragraph (b), and § 326A.13, paragraph (d), each provide that the section “also applies to persons registered under section 326A.06, paragraph (b), and to persons granted a practice privilege under section 326A.14,” so a bookkeeping practice run by a registered accounting practitioner is inside these rules. For other bookkeeping practices, see selling a bookkeeping business.

What stays with the seller: billing numbers, payor contracts, and licenses?

A professional license stays with the person who holds it, a Medicare billing number cannot be sold, and a commercial insurer contract usually requires the insurer’s consent or new credentialing for the buyer. These items often set the timeline of a health practice sale.

Under 42 C.F.R. § 424.550(a), “A provider or supplier is prohibited from selling its Medicare billing number or privileges to any individual or entity, or allowing another individual or entity to use its Medicare billing number.” Under 42 C.F.R. § 424.516(d), “Physicians, nonphysician practitioners, and physician and nonphysician practitioner organizations must report the following reportable events to their Medicare contractor within the specified timeframes,” and the first listed event is “A change of ownership.” The buyer’s own enrollment has to be in place before the buyer can bill Medicare for its own services.

Commercial insurer contracts are contracts like any other: whether one can be assigned depends on its terms, so the assignment clause of each payor agreement should be read before the purchase agreement is signed. For the general rules, see assigning contracts in an asset sale. The same dentist also asked me about timing, and I pointed out that a new owner has to be credentialed with the insurance plans in the new owner’s own name, and that this timing often drives the closing date. I suggest starting the buyer’s credentialing as soon as the purchase agreement is signed, and drafting the closing date to follow it.

How does Minnesota’s noncompete ban apply when a practice is sold?

Minnesota voids noncompete agreements entered into on or after July 1, 2023, but a covenant agreed upon during the sale of a business remains enforceable if it is temporary and limited to a reasonable area and length of time. The protection comes from the sale, so the covenant belongs in the purchase agreement, not only in the seller’s post-closing employment agreement.

Under Minn. Stat. § 181.988, subd. 2(a), “Any covenant not to compete contained in a contract or agreement is void and unenforceable.” The session law that enacted the ban (2023 Minn. Laws ch. 53, art. 6, sec. 1) states: “This section is effective July 1, 2023, and applies to contracts and agreements entered into on or after that date.” Subdivision 2(b)(1) makes an exception where “the covenant not to compete is agreed upon during the sale of a business,” allowing the seller, its “partners, members, or shareholders, and the buyer” to agree on “a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time.” The statute’s definition of employee covers “any individual who performs services for an employer, including independent contractors” (subd. 1(c)), so a seller who stays on as an employee or contractor after closing is an employee for the ban. A nonsolicitation agreement and a confidentiality agreement are not noncompetes under subdivision 1(a), so both remain available in the seller’s post-closing agreement; see Minnesota’s noncompete rules.

The transition period needs its own terms. When a seller plans to sell to an associate, I advise that the associate period and the sale are one arrangement, and that three things should be settled before the associate starts: what fixes the price, whether the associate must buy or only may buy, and what happens if the associate leaves partway through. If part of the price depends on how the practice performs after closing, see earnouts in Minnesota business sales.

Selling a Minnesota practice comes down to matching the buyer to the ownership rules, planning the records transfer around consent, starting the buyer’s billing enrollment early, and tying any noncompete to the sale itself. If you are planning a sale and would like a second set of eyes on the structure, the letter of intent, or the purchase agreement, email [email protected] with a short description of the practice and the proposed buyer. More on how I handle sales is on my business acquisitions and sales page.