The Role of Due Diligence in Medical Practice Transactions
When you’re selling or buying into a medical practice, due diligence is more than just a procedural formality. It’s a safeguard for both parties. Buyers need confidence in the numbers, compliance, and practice sustainability. Meanwhile, sellers must reveal a transparent and credible picture to avoid delays and deal breakdowns.
In this article, we break down the role of healthcare due diligence across medical practice transactions. We’ll cover areas to review, common risks, and how a structured approach can lead to smoother and more secure results.
What Is Due Diligence in Healthcare Transactions?
Generally, due diligence in business focuses on finances, assets, and legal standings. But in healthcare, the process is much more nuanced. Clinics and practices operate in tightly regulated environments with professional licensing, patient confidentiality, Medicare compliance, and employment law all under scrutiny.
Both buyers and sellers must address not just the business fundamentals, but also the clinical governance and healthcare-specific risks. These added layers make healthcare due diligence a vital checkpoint before signing on the dotted line on a contract agreement.
Why Due Diligence Matters When Buying Into a Medical Practice
Buying into a medical practice often brings with it time pressure and emotional investment. But the risks of rushing ahead without thorough checks can mean missing:
- Undisclosed debt or inflated revenue claims
- Non-compliant billing or past audit issues
- License irregularities for staff or owners
- Poorly structured employment or service agreements
- Inflexible or risky lease terms
If you’re a buyer, you typically want to verify gross billings, net profit, patient volumes, software systems, staff entitlements, and legal status of all practitioners. Essentially, it’s not just about financial performance. It’s about long-term viability.
Key Areas to Examine During Healthcare Due Diligence
A winning transaction relies on comprehensive healthcare due diligence across:
- Financials and billing: This includes profit and loss statements for at least three years, Medicare and billing audits or records, plus BAS statements and accounts receivable.
- Licenses and accreditations: Look for AHPRA registrations for all clinicians, along with their current accreditations (e.g. RACGP, QIP). You’ll also want to see if they have professional indemnity and public liability insurance.
- Employment contracts: Uncover the terms for both employees and independent contractors in addition to leave balances, restraint clauses, and contract expiries. It’s also important to know Superannuation and Fair Work compliance requirements.
- Property or lease agreements: Find out the lease duration and renewal options. It’s also important to take note of outgoings, make-good clauses, and restrictions on assignment or subletting.
- Regulatory compliance: Gather privacy policies, data handling procedures, infection control protocols, clinical governance, risk management procedures, and complaints procedures.
Failing to examine each of these areas properly can result in costly consequences post-sale. Overlooked liabilities, non-compliant billing practices, or hidden contractual obligations can quickly unravel a deal or leave you, as a new owner, exposed. Thorough review processes can help avoid these mistakes and support long-term business success.
The Importance of a Healthcare Compliance Due Diligence Checklist
You can easily structure a healthcare compliance due diligence checklist to bring order to a complex process. With so many moving parts, it’s easy to overlook critical details that could impact valuation or delay settlement.
A fully thought-out checklist can help cover legal, financial, and operational elements like:
- Documentation of all patient record systems and backups
- Confirmation of health fund and Medicare provider numbers
- Evidence of up-to-date staff training and certifications
- Insurance cover across business, professional, and cyber risks
- Records of clinical audits or adverse findings
Utilising a healthcare compliance due diligence checklist will keep things on track. More importantly, it’s a key step in managing legal exposure and demonstrating maturity to potential buyers.
Due Diligence for Sellers: Preparing for Scrutiny
If you’re a seller, transparency is key. Buyers will want access to comprehensive and well-organised documentation on your business. The more prepared you are, the more confident they’ll feel, and the more likely you are to secure the sale price of your dreams.
Prepping for due diligence in healthcare business sales means ensuring financial records are up to date and easy to interpret. Staff credentials and practitioner registrations should be current with no gaps in the documentation. You’ll need to have copies of all service agreements, leases and supplier contracts, along with clear patient records and appointment trends.
Proactive preparation can mean the difference between a dream price and a below-par sale offer.
How Medical Business Brokers Supports Due Diligence
From initial appraisal to buyer engagement, we provide the tools and support you need to navigate selling or buying into a medical practice. Our team draws on decades of experience selling businesses that range from $300,000 to $10 million, with a clear understanding of the commercial, legal, and clinical factors that can impact a transaction.
We support both sellers and buyers with tailored checklists, clear documentation, and coordinated communication between stakeholders. Our goal is to make the process as straightforward and stress-free as possible with practical support and trusted advice at every stage.
Final Thoughts on Due Diligence in Medical Practice Sales
Due diligence in healthcare business sales provides essential clarity for both buyers and sellers. For buyers, it’s a chance to uncover potential risks before signing on the dotted line. For sellers, it’s an opportunity to showcase a well-documented, transparent practice, bringing stronger offers and smoother negotiations.
Our team at Medical Business Brokers is proud to support healthcare professionals across Australia with trusted advice, structured guidance, and deep industry knowledge. If you’re ready to get the most out of the sale of your practice or are looking to make a secure investment, get in touch with our expert team today.