As the ‘Baby Boomers” look towards retirement, the legal issues involved in winding down from medical practice loom large.
There will be the usual financial planning arrangements, as medical practitioners prepare for retirement, including superannuation, future insurance requirements (“tail cover” for claims arising from previous practice), the transfer of medical records and referral arrangements. Some medical practitioners may be thinking to sell or transfer their practice, hoping for some windfall amount or value. Many may be surprised as to what little they have to offer by way of sale and of value to others, when the point of retirement is reached. For some it may be too late to maximise the value of their practice.
What do you have to sell?
In essence, the value of a medical practice is the goodwill, reputation and client base which may or may not be difficult to transfer.
A typical medical practitioner may have premises (either owned or leased). The practice will have a patients’ roll, establishing goodwill. However, transfer of patients and their medical records does require some formality under privacy legislation. There may be some medical and office equipment. All in all, as a practitioner is ready to retire, it may be too late to extract the real value of the practice.
Accordingly, a better method of extracting value from a practice may be to enter into partnerships or associateships well ahead of the scheduled retirement date. A cost sharing arrangement with a junior colleague who may ultimately pay to take over the practice (and pay a goodwill amount upon entering the practice) may be the best method of extracting value. This permits a transition to retirement over time as the junior practitioner increases productivity and patient involvement, and the senior practitioner can wind down.
What should you consider?
Tax issues need to be considered. Capital gains tax on the sale of assets, including goodwill, may be relevant to practices commenced or created after September 1985. If CGT applies, there will need to be a determination of the cost base, and therefore any tax that may be payable. There may be stamp duty on a sale of business in some States (not Victoria), and certainly stamp duty on the transfer of any property or premises.
Upon retirement the practitioner should arrange “tail cover” insurance, which insures the practitioner into the future for any claims arising in connection with the previous practice. This provides some added safety and security in retirement.
Where a business is closed, there are professional obligations to make appropriate arrangements to transfer patients by way of referral, as well as specific arrangements under health records and privacy legislation for the transfer of medical records. Any medical records retained still need to be maintained securely, and only destroyed in accordance with appropriate legislative requirements. It may also be necessary to maintain medical records for insurance purposes, in the event of a potential future claim.
For those approaching or contemplating retirement there are a number of things to consider:
- Think about it now and plan for retirement well in advance;
- Review your existing corporate structures, to ensure that they allow for flexibility for future sale or involvement of a partner or associate;
- Consider what you can sell, and to whom it may be sold;
- Seek appropriate tax, accounting and legal advice as part of preparation; and
- Consider your intentions in relation to patients and their records as part of a future plan to retirement.