Large physician group buys assets of three physician medical clinics. Health care insurer could not require the buyer to accept the seller’s lower reimbursement rate.
M&A Stories
January 25, 2023
Introduction
In this blog post, we discuss a case where a large physician group purchased the assets of three medical clinics. The buyer was not obligated to accept the lower reimbursement rate of the seller’s health care insurer.
The Deal
The buyer, a dominant health care provider in Snohomish County, operated multiple clinics in Washington. With 550 clinicians serving 320,000 patients across 30 locations, they had a contract with a health care insurer at a favorable reimbursement rate. This was due to their market power in the county.
The buyer acquired the assets of a clinic owned by three physicians in Belleview, Washington. The seller’s previous contract with the health care insurer had a significantly lower reimbursement rate. It’s important to note that the buyer did not assume the seller’s health care insurer contract.
The Lawsuit
As a result, the buyer requested that the health care insurer pay the buyer’s rates at the Belleview clinic. However, the insurer refused, leading to a legal dispute. The insurer argued that the buyer was subject to the seller’s contract and its lower reimbursement rates under two successor liability theories: “de facto merger” or “mere continuation.”
Court Ruling: The court rejected the insurer’s arguments because none of the three physicians who owned the seller practice had any ownership interest in the buyer or the Belleview practice after the transaction. Therefore, the buyer was not bound by the seller’s contract.
See Everett Clinic, PLLC v. Premera., No. 82687-5-I., Court of Appeals of Washington, Division One, (Filed January 3, 2023).
Conclusion
In general, it is challenging to hold an asset buyer responsible for a contract that was not assumed unless a seller owner retains an interest in the business post-transaction.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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