HOSPITAL ACQUISITION OF PHYSICIAN PRACTICES

Transcription

1 HOSPITAL ACQUISITION OF PHYSICIAN PRACTICES Anthea R. Daniels National Health Lawyers Association OVERVIEW This outline is an overview of some of the key legal and business issues which arise when a hospital decides to acquire a physician's practice. The main reason that hospitals have been acquiring physician's practices is in furtherance of creating integrated delivery systems. Hospitals are establishing a network of primarily primary care providers (family practice, internal medicine and gynecology) who affiliated with the hospital in order to compete effectively in a managed care era. The 1995 Exempt Organization Continuing Professional Education Technical Instruction Program Textbook (for FY 1996) states that hospitals are acquiring practices to position themselves for receiving referrals for outpatient services and a desire to position themselves for referrals of inpatients. Other rationales for practice acquisitions include transitionalizing retiring physician's practices to new physicians, establishing new practices, and/or specialties in the community, creating a base of primary care physicians to refer to specialists, and placement of physicians in undeserved areas, call coverage, etc. Physicians are selling their practices because of competition in the managed care environment, benefitting from hospital marketing and capital, access to health care plans, and eliminating administrative and business concerns. Notwithstanding whether the hospital is a for-profit or tax-exempt entity, whether it is a stock or asset deal, whether the physicians are specialists or primary care or whether it is one physician or a group practice, various of the same issues arise in all of these types of acquisitions. This outline will address hospital acquisitions of physician practices, from the hospital's perspective, in the following three separate sections: 1) the organization and various steps of the deal, 2) the legal issues which impact on the negotiations of a hospital practice acquisition and the resulting stock or asset purchase agreement, and 3) a draft asset purchase agreement with commentary. I. Organization and the Various Steps of the Deal. A. Stock or Asset Deal. The first step for the hospital to determine is whether it will purchase the stock of the medical practice or simply some or all of the assets. Most hospital acquisitions today are asset rather than stock deals primarily for liability exposure reasons. 1. Stock Acquisition : Determine which hospital entity is going to purchase the stock or assets of the physician's practice. Will it be the hospital, a professional corporation, or a hospital related or affiliated entity etc. Pros: purchase of entire operation, agreements - may not be any assignment issue - depending on assignment clauses in practice's agreement, leases etc. This is usually preferable to the Seller from the liability and a tax planning standpoint. Cons: assume all of Seller's liabilities - general and professional. Inherit

2 employees, benefit plans etc. Issue of purchase of Medicare and Medicaid receivables and whether this is permissible under Medicare regulations. 2. Asset Acquisition : Hospital or a related/affiliated entity purchases all or some of practice's assets. Pros: Select valuable or necessary assets and certain contracts, leases etc. Ability for hospital to purchase what it wants ability to acquire certain contracts no assumption or liability - general or professional for acts which occurred prior to the transfer of assets no issue if acquisition of medicare and medicaid accounts receivable. Cons: Due to assignment clauses in leases and agreements, this contract may not be assignable. Hospital may not be able to purchase all of the assets it wants. B. Asset Deal. 1. Determination by hospital as to whether it will be acquiring all or some of practice's assets. 2. Selecting tangible assets. 3. Recognition of intangible assets. 4. Accounts receivable (see Legal section for discussion on limitations on purchase of Medicare and Medicaid accounts receivable. 5. Will physician become an employee of the hospital or a related entity (e.g. professional corporation - with a captive trust arrangement. (See the corporate practice of medicine section on Page 19 of this outline for further discussion) This arrangement has been utilized in order to comply with state corporate practice of medicare laws). C. Valuation of the Practice Assets. 1. Hospital should obtain an independent valuation of the assets being acquired from a qualified independent appraiser which reflects fair market value ( f.m.v. ) and arms length negotiations between the parties. (For a further discussion of practice valuations, see Article II, Section D on Page 17 of this Outline which addresses the tax implications) 2. Acquisition of tangible assets and/or intangible assets. (a) Examples of Intangible Assets. goodwill covenant not-to-compete value of ongoing business concern exclusive dealing agreements 3. OIG and IRS Commentary on Practice Valuations. (a) OIG Commentary on Practice Valuations. The OIG's concern with hospital's acquiring physician practices is that the purchase price exceeds the value of the acquired stock or assets in order to encourage physician to refer patients to the hospital post-acquisition. The OIG is concerned with the amount of remuneration paid to a physician to acquire his/her practice where the physician will continue to provide medical services in the hospital's community especially when it [the purchase price] could serve to interfere with the physician's subsequent judgment of what is the most

3 appropriate care for a patient. (Letter to IRS from HHS GC Official Regarding Hospital Acquisitions of Physician Practices, Dec. 22, 1992). As part of this undertaking, it is necessary to consider the amounts paid for the practice or as compensation for professional services in order to determine whether the amounts reasonably reflect the fair market value of the practice or the services rendered, in order to determine whether such items in reality constitute remuneration for referrals. (Letter to IRS from HHS, December 22, 1992). What the market will bear is not f.m.v. Merely because another buyer may be willing to pay a particular price is not sufficient to render the price paid to be fair market value. The fact that a buyer in a position to benefit from referrals is willing to pay a particular price may only be a reflection of the value of the referral stream that is likely to result from the purchase. (Letter to IDS from HHS, December 22, 1992). (b) IRS Commentary on Practice Valuations (i) F.M.V. A hospital may acquire an asset that helps further its charitable mission so long as the deal is at arm's length and represents f.m.v. (ii) Valuation Methodologies Income, market and cost approaches 1995 CPE Manual (For FY 1996) references, 2 income methodologies capitalization of excess earnings and discounted cash flow (Continuing Professional Education, Exempt Organizations - Technical Instruction Program for FY 1995 (1994) P. 162). D. Letter of Intent or Informal Proposal. 1. Background. Depending on the parties involved, the hospital and/or physician may want to have a formal Letter of Intent, which is executed by both of the parties and sets forth various specifics of the proposed hospital's acquisition of the physician's practice. Some hospital do not want to waste time and be concerned with negotiating and drafting Letters of Intent and instead chose to commence drafting the asset purchase agreement after a few terms have been informally agreed upon by the parties. Alternatively, neither of the parties may request a Letter of Intent, however, the hospital may still want to create an informal proposal which delineates some specifics of the deal so that certain terms are fixed and perhaps, non-negotiable. 2. Contents of the Letter of Intent. The Letter of Intent can contain as many or as few terms as the parties decide. a. Potential Specific Terms of a Letter of Intent. exclusivity - no shop provision[*]. termination date of Letter of Intent. Date acquisition is to be completed. timetable for due diligence, delivery to physician of draft purchase agreement, etc. specific assets being acquired. purchase price of stock or assets[*]. confidentiality clauses[*].

4 E. Due Diligence. 1. Confidentiality Agreement. If the parties have not executed a Letter of Intent, they may want to have a Confidentiality Agreement with regard to the negotiations and the review of documents. This Agreement protects the parties whether the deal is completed or not. 2. Asset Deal. - financings, purchase agreements. - review contracts of practice - service agreements, will any agreements have to be assigned. - examine equipment and supplies especially, if as is and no representations and warranties from selling physician. - insurance policies and coverage - tail issue. - review medical records for completeness. - managed care contracts - assignable or terminable? - issues re OIG, state medical licensure, medicare & medicaid compliance. - leases for equipment or service contracts - assignable or terminable? - financial status, tax returns of practice and/or selling physician(s). - patents, trademarks and copyrights. - real estate related documents and issues. 3. Stock Deal. Review all of the above items and the following: - Employment/Labor Issues (discrimination - EEOC, Worker's Compensation). - Tax issues of practice (employee withholding taxes). - ERISA and health care and other benefit compliance laws and regulations. - Review 401(k) issues. - Review of potential, alleged or filed litigation brought against the practice or any of its physicians and/or employees. - Billing and collection activity (how old are accounts receivable - appropriate billing and coding - liability exposure for purchasing practice?). - Continued compliance with terms in managed care agreements. - Any other commitments of the practice (debt, guarantees). F. Employment or Contracting With Selling Physician(s) After Closing 1. Employment and/or Agency Agreement make sure terms in agreement do no contradict terms in asset purchase agreement (i.e. covenant not-to-compete, etc.) agreement should comply with Stark and Antikickback statute, as discussed later in this outline Compensation - bonus term management and administrative duties termination provision (without cause - immediate - change in laws)

5 full-time or part-time Agreement - specific requirements covenant not to compete, non-interference G. Approval of deal. 1. Hospital should get its board's approval prior to the acquisition. 2. May need approval of physician practice if it is a professional corporation with more than one physician shareholder. II. Legal Issues affecting Hospital Acquisition of Physician Practices. Depending on the specifics of each acquisition, various of the legal issues, discussed below should be reviewed to determine whether they impact upon the deal and thus, the acquisition has to be structured in such a way as to ensure compliance with such laws. Below are brief overviews of such laws and in the event it is determined that one or several of these laws impact upon the transaction, the parties involved should conduct a more thorough analysis of the law as it applies to the specifics of the practice acquisition. A. Antitrust 1. Review specific state and federal antitrust laws. 2. Potential Antitrust Issue - if physician practice being acquired provides same specific services as hospital and - if acquisition results in hospital having a large market share in service area, then potentially, federal antitrust enforcement agencies, state agencies or competitors may argue that the practice acquisition hinders competition in the market place and violates the federal and/or state antitrust laws. 3. Hart-Scott-Rodino Filing: required to file a premerger notice if the total value of the assets for one party is $100 million and for other party $10 million. B. Antikickback Issues 1. Federal Antikickback Statute. a) The Antikickback law makes it illegal to offer or receive remuneration, overtly or covertly in cash or in kind in return for referring an individual to a person, for the furnishing or arranging for the furnishing of any item or service for which payment may be made, in whole or in part, under a social security health benefits program (i.e., Medicare or Medicaid) (Fraud & Abuse) (42 U.S.C. 1320a-7b Social Security Act 1128B(b) enacted in 1972.) b) Penalties: Felony Criminal Conviction. Fines not to exceed $25,000. exclusion form Medicare/Medicaid programs. Civil Money Penalties may be sought. 2. Safe Harbors. a) To date, there is no safe harbor regulation which addresses a hospital's acquisition of a physician's practice. b) Existing Safe Harbor addresses a Physician to Physician Sale of Practice. On July 29, 1991, one of the 11 final safe harbors published in the Federal

6 Register addressed the sale of a physician's practice to another physician. The specifics of that safe harbor are set forth below at (d) (56 Fed. Reg ). c) Background of Safe Harbor: to protect the sale of a physician's practice to another practitioner (excluding hospitals), when the selling physician is retiring or moving out of the service area where the practice is located. d) Specific Requirements of the Physician Practice Acquisition Safe Harbor. payments are from a practitioner to another practitioner the sale is completed within one year (i.e. from the date of the first agreement) and the selling practitioner will not be in a professional position to make referrals to, or otherwise generate business for the purchaser one year from the date the purchase agreement is executed. e) Application of Safe Harbor to Hospital Acquisition. Hospital does not satisfy the title of this safe harbor and therefore it is not applicable to a hospital-physician transaction. However, hospital could satisfy the second requirement of the safe harbor (i.e. sale is completed within one year) and might be able to satisfy third requirement if selling physician is retiring, relocating out of the hospital's service area, or ceases to be in a position to make referrals to the hospital or its entities. 3. OIG Letter sent by D. McCarty Thornton, Associate General Counsel, Inspector General Division to T.J. Sullivan, Technical Assistant, Internal Revenue Service dated December 22, response by OIG to inquiry by IRS. general response - not in reference to any specific facts. Frequently, hospitals seek to purchase physician's practices as a means to retain existing referrals or to attract new referrals of patients to the hospital. Such purchases implicate the anti-kickback statute because the remuneration paid for the practice can constitute illegal remuneration to induce the referral of business reimbursed by the Medicare or Medicaid programs. Payments for the following items were noted as being questionable. goodwill value of ongoing business unit covenants not to compete exclusive dealing agreements patient lists, or patient records. We believe that many of these arrangements [purchase acquisitions] are merely sophisticated disguises to share the profits of business at a hospital with referring physicians, in order to induce the physicians to steer referrals to the hospital. 4. Review specific state Fraud & Abuse legislation. a) For example, Ohio's Antikickback statutes prohibit: the same activity in the federal statute, except this Ohio law applies to goods and services which are reimbursed in part or entirely by the Medicaid program.

7 ( (E)(2) of the Ohio Revised Code.) Penalty for violation of (E)(2) are criminal sanctions (felony) and possible civil sanctions. ( (C) & (G) of the Ohio Revised Code) (C) of the Ohio Revised Code makes it illegal to offer or receive remuneration in exchange for referring an individual to a person for the furnishing of health care goods or services for which whole or partial reimbursement is or may be made by a health care insurer. penalty for violating (C) is criminal sanctions (felony) ( (B) of the Ohio Revised Code). C. Anti-referral Legislation - Stark I & II. 1. The Stark I Bill ( 6402 of The Omnibus Budget Reconciliation Act of 1989). a) Prohibits as of January 1, 1992, a physician, in most instances from referring a Medicare patient to a clinical laboratory in which the physician or a family member of the physician has a financial interest. 2. Stark II ( of the Omnibus Budget Reconciliation Act of 1993) with certain amendments made in October 31, ( 42 U.S.C. 1395nn). a) prohibits, as of January 1, 1995, a physician who has a financial relationship with an entity from referring to that entity any Medicare or Medicaid patient for the rendering of a designated health service. The Stark Law also prohibits the entity from billing Medicare and Medicaid for such prohibited referral. b) The following 11 services are Designated Health Services Under Stark II: clinical laboratory services. physical therapy services. occupational therapy services. radiology services including magnetic resonance imaging, computerized axial tomography (CAT) scans and ultrasound services. radiation therapy services and supplies. durable medical equipment and supplies. parenteral and enteral nutrients, equipment and supplies. prosthetics, orthotics and prosthetic devices and supplies. home health services. outpatient prescription drugs. inpatient and outpatient hospital services. c) Financial Relationship includes compensation arrangements and investment or ownership interests. d) Recent Release of Stark I Final Regulations. These regulations only apply to clinical lab services. (However, the definitions and comments in which all or part of the regulations can be used as some guidance with regard to HHS' view as to Stark II and the additional 10 designated health services). published in the Federal Register - August 14, effective date of regulations - September 13, (What does this mean? - Stark I legislation was effective January 1, If change in legislation due to

8 regulations, no enforcement until after September 13, 1995?) 60 day comment period closed on October 13, e) Application of Stark I and II to a Hospital Acquisition of a Physician's Practice. (i) The asset or stock purchase agreement constitutes a compensation arrangement between the hospital and the physician, thus, if the physician refers Medicare and/or Medicaid patient to the Hospital or to any of its related entities for a designated hospital service (e.g. inpatient or outpatient hospital services, clinical laboratory services,) then the purchase agreement (compensation arrangement) must satisfy a Stark II exception in order for the referral not to be prohibited. f) Possible Stark Exceptions for Asset or Stock Purchase Agreement. (i) Stark Compensation Exception = Isolated Transactions (e.g. one time sale of property or a practice) the amount of the purchase price is consistent with fair market value the purchase price is not determined in a manner that takes into account (directly or indirectly) the volume or value of selling physician's referrals and the purchase price is provided pursuant to an agreement which would be commercially reasonable even if there were no referrals made to the purchaser, hospital. Additionally, there can be no additional transaction between the parties for 6 months after the isolated transaction unless that transaction satisfies another Stark exception (e.g. employment arrangement which satisfies the Stark bona fide employment compensation exception). ( 42 CFR (f), Federal Register, August 14, 1995 p ). (ii) Transaction is defined in the Stark I regulations as: an instance or process of two or more persons doing business. ( 42 CFR ). (iii) Isolated Transaction is defined in the Stark I Regulations as: one involving a single payment between two or more persons. A transaction that involves longterm, installment payments, or promissory note is not considered an isolated transaction. ( 42 CFR ).) g) Application of Stark Exception-Isolated Transactions to Physician Practice Acquisition by Hospital. (i) Hospital pays purchase price in whole - no installment or deferred portion of the purchase price. (ii) Purchase price reflects f.m.v. for the acquired stock or assets. (iii) Purchase price doesn't reflect an amount representing past or future referrals by the selling physician or any other physician in the selling physician's practice. (iv) Purchase agreement is commercially reasonable. (v) If selling physician is employed or contracted with post-acquisition. Employment or agency agreement needs to satisfy either 1) Bona Fide Employment Relationships Exception or 2) the Personal Service Arrangements Exception under Stark. (vi) Bona Fide Employment Relationship Stark Exception. An amount paid by an employer to a physician (or immediate family member) if all of the following are satisfied: Employment is for identifiable services Remuneration under the employment agreement is f.m.v. for services rendered

9 (vii) by physician and except for a permissible productivity bonus (productivity bonus may be based on services personally performed by physician), remuneration is not determined in a fashion that takes into account the volume or value of any referrals by the physician to employer or its related entities. Remuneration is provided under an agreement that would be commercially reasonable even if no referrals were made to employer. Note, there is no requirement that the Employment Agreement be in writing. Personal Service Arrangements Stark Exception. An amount paid under an arrangement to a physician (or immediate family member) if all of the following are satisfied. Arrangement is set in writing, executed by the parties and delineates the services to be provided Arrangement covers all of the services to be furnished by physician (or immediate family member) to entity Total services to be provided under the agreement are those which are reasonable and necessary for legitimate business purpose of the arrangement Term of agreement is at least one (1) year and Compensation paid is set in advance, represents f.m.v., (and except for a physician incentive plan) does not take into account the volume or value of any business or referrals generated between the parties. D. Tax Issues. Tax-exempt organizations must be organized and operated exclusively for exempt (charitable) purposes. Therefore, if acquiring hospital is tax-exempt ( 501(c)(3) status), then the purchase price should be determined in such a way as to neither violate the private inurement or private benefit laws, as briefly discussed below. The basic underlying premise in order to not jeopardize the tax-exempt status of the hospital is to make sure that the purchase price, whether it is a stock or asset deal, reflects fair market value for the assets or stock being acquired. Additionally, if the physician, after the closing of the deal is to provide professional services to the Hospital or a related entity, then the compensation paid to the physician must also be deemed to represent reasonable compensation for the services rendered by physician so as not to constitute private inurement or private benefit. 1. Appraisal of stock or assets should reflect fair market value. a) F.M.V. is defined by the IRS as the price upon which a willing purchase and a willing seller agree, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts (Rev. Rul , 1959). b) Three recognized ways to value a physician's practice. income approach market approach and cost approach. c) The IRS views the income approach as the most applicable and appropriate for physician practice acquisitions. (Continuing Professional Education, Exempt Organizations - Technical Instruction Program for FY 1995 (1994) p. 162). 2. Purchasina Intangibles Assets. Rev. Rul , C.B This ruling permits a charitable organization to

10 purchase intangible assets from a taxable entity so long as the intangibles contribute substantially and directly to the purchaser's exempt purposes. not only does the value of intangibles have to be reviewed under the taxexempt laws, but also under the federal and state antikickback laws. 3. Private Inurement/Private Benefit. Private benefit/private inurement issues arise when a tax-exempt hospital pays in excess of fair market value for the physician's practice. a) Private Inurement Prohibition : no part of the net earnings [of the organization shall]... inure to the benefit of any private shareholder or individual. (Treas. Reg (a)-1(c)). any amount of private inurement would result in loss of tax-exempt status. Private Inurement Prohibition has traditionally been applied to insiders, who are persons receiving a benefit because of control or influence over the tax-exempt entity (e.g. trustees, executives, doctors, suppliers). (Treas. Reg (c)(3)- 1(d)(1)(ii), American Campaign Academy v. Commissioner, 92 T.C (1989)). physicians on the hospital's medical staff are deemed to be insiders and would subject arrangements between hospitals and such physicians to private inurement scrutiny. b) Private Benefit Requirement : exempt organization must serve a public rather than a private interest and no private person (other than an intended charitable beneficiary) should benefit from the organization's activities, other than in an incidental manner. the private benefit test involves a balancing of the benefit received by the private individual against any benefit obtained through the transactions by the exempt organization. E. Employee Benefit Issues If Seller Physician is employed post-acquisition - what benefits are offered. 403(b) vs. 401(k) issues. - this will all be dependent or which entity employs physician. Problem with physician being employee of tax-exempt hospital with a 403(b) and nondiscrimination rules re offering physician employee richer benefits that non-physician employees of the hospital. F. Certificate of Need. Certificate of Need (may be dependent on amount of purchase price, what type of entity the buyer is, what type of services the Physician(s) provides and that types of assets are being acquired (MRI, CAT scan etc.). G. State Corporate Practice of Medicine. 1) A few states have corporate practice of medicine statutes. Basically, these state statutes prohibit any entity, other than a professional corporation from directly employing a physician. Certain states have exceptions which permit a non-profit entity (e.g. hospital) to employ directly a physician. (see, e.g of the Ohio Revised Code 2) Employment via a Trust Arrangement. Hospitals in states with strict corporate practice of medicine statutes have, with the approval of attorney general's opinions, have created professional corporations where a physician holds the shares in trust

11 for the hospital. The professional corporation, in turn, employs the physician and either the hospital, a related entity (e.g. a hospital owned and operated management services organization). H. State fee-splitting Statutes As with the state corporate practice of medicine statutes, various states have feesplitting legislation. These state statutes, in general prohibit a physician from sharing his professional revenue or fees with a nonprofessional or any other entity. Therefore, this statute would not prohibit group practices or professional corporations from sharing fees but would prohibit a hospital from sharing in a physician's fees. Hospitals in states, in which there exists a fee splitting prohibition, have substantially ignored the law due to the fact that there has been no recent case law on the issue. (see e.g. Ohio, Statute I. Medicare and Medicaid Billing Issues - Accounts Receivable 1) Prohibition Against Reassignment: Basically, Medicare and Medicaid carries or intermediaries may only pay assigned benefits to the beneficially provider unless one of the exceptions applies. Therefore, it is not possible for a physician to sell as part of the asset deal the Medicare and Medicaid accounts receivable. Some theories have been proposed on how to indirectly purchase accounts receivable (e.g. lock-box accounts etc.). The Medicare and Medicaid prohibition against reassignment is codified at 42 U.S.C. 1395U(b)(6). 2) Exceptions to Prohibition Against Reassignment. The following persons or entities may bill and collect from Medicare for a physician's services: employer of physician facility in which the service was furnished payment to organized health care delivery system purchased diagnostic tests purchased from an independent physician, medical group or other supplier payment to supplier for diagnostic test interpretation payments under reciprocal billing arrangements payment under locum tenens arrangements payment to a governmental agency payment pursuant to a court order and payment to an agent ( 42 U.S.C. 1395U(b) (6)). J. Other Potential Legal Issues. Successor Liability - review specific state law Medical Records - issue of ownership. Some state medical societies believe that the contents of the medical records is the property of the patient, but the physician record is the property of the physician. Issue of how to value records - price of paper - goodwill. Review the following issues: How many patient records are active? How many visits or treatments are rendered each year? III. Sample Asset Purchase Agreement.

12 This sample contract is provided for discussion purposes only and may not be appropriate for a specific asset purchase arrangement or responsive to specific state law prohibitions and limitations. This material should not be regarded as a substitute for legal advice in specific situations. On the following page is an example of an Asset Purchase Agreement between a tax-exempt hospital and an individual physician. The comments, to the Agreement, which are bolded and in boxes are from the hospital's perspective. ASSET PURCHASE AGREEMENT THIS AGREEMENT is entered into this day of, 1995, by and among Hospital ABC, a non-profit corporation ( Buyer ) and Jane Smith, M.D., Inc., an Ohio professional corporation ( Seller ), and Jane Smith, M.D. ( Shareholder ). RECITALS Seller is a professional corporation organized pursuant to Chapter 1785 of the Ohio Revised Code (the O.R.C. ) [Chapter 1785 is the Professional Corporation Statute in Ohio] which is engaged in the practice of medicine and rendering professional medical services through its employees who are licensed to practice medicine in the State of Ohio. Buyer is a non-profit hospital corporation organized pursuant to Chapter 1702 of the O.R.C. which proposes to engage in the practice of medicine. [Note, Section 1702 of the ORC is Ohio's non-profit corporation section.] Buyer has concluded that its acquisition of the assets, business and operations of Seller as a going concern would further Buyer's objectives in connection with providing primary care physicians who provide high quality health care services. Accordingly, Buyer desires to purchase and Seller desires to sell certain assets used in the operation of the business of Seller upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of and in reliance upon the representations, warranties, mutual covenants and obligations hereinafter contained, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Agreement to Sell and Purchase. On the Closing Date (as defined in Section 1.4), and subject to the terms and conditions contained in this Agreement, Seller agrees to sell, assign, convey and deliver to Buyer, and Buyer agrees to purchase, certain assets of Seller, as identified on Schedule 1.1 attached hereto [and the real property located at [property's address] and described on Schedule 1.1a attached hereto] and made a part hereof (the Acquired Assets ). 1.2 No Assumption of Liabilities. Buyer shall not assume and shall not be liable for any obligations, liabilities, debts, bill, tax, expense, claim, demand or action of Seller of any nature whatsoever whether known or unknown, accrued, absolute, contingent or otherwise, whether arising prior to or after the Closing, including, without limitation, any tax or environmental liability, lease or under any other employment or labor contracts, any pension or other employee benefit plan, federal, state or foreign income or franchise taxes or other taxes incurred by Seller, and any professional malpractice or other liability.

13 1.3 Purchase Price. The purchase price for the Acquired Assets shall be Five Hundred Thousand Dollars ($500,000.00) ( Purchase Price ). Buyer shall pay Seller the Purchase Price by bank or certified check at the Closing. 1.3 Deferred Purchase Price Option. Buyer shall pay Seller Two Hundred Fifty Thousand Dollars ($250,000.00) of the purchase price by Bank or certified check at Closing. Buyer shall pay Seller the balance of the Purchase Price pursuant to a promissory note in the form attached hereto as Exhibit A, which Buyer shall execute and deliver to Seller at the Closing. (Note - not an isolated transaction under Stark.) 1.4 Time and Place of Closing. The transfers and deliveries contemplated hereby shall take place contemporaneously with the execution and delivery hereof at the offices of Buyer. The consummation of such transfers and deliveries shall be referred to herein as the Closing and the date thereof as the Closing Date. 1.5 Allocation of Purchase Price. The allocation of the Purchase Price among the Acquired Assets shall be determined in accordance with their respective fair market values and the allocation for purposes of Section 1060 of the Internal Revenue Code of 1986, as amended, shall be agreed upon by the parties prior to the Closing, and set forth on Schedule 1.5. Buyer and Seller each agree to be bound by such determination and allocation, to report the federal, state, and local income and other tax consequences of the purchase and sale contemplated herein in a manner consistent with such allocation, and to not take a position which is inconsistent therewith upon examination of any tax return, in any refund claim, in any litigation, or otherwise. Comments to Real Estate : If the deal includes a real properly acquisition, the following Sections listed below should be included. If the Seller is the lessee of office space that the Buyer intends to use as the practice site then Buyer should have a term in this Agreement which specifically addresses the assignment of the lease to Buyer and that Seller obtain the written consent of the Lessor as a closing document. 1.6 Real Estate. (a) At the Closing, Seller's title to the Real Estate shall be good and marketable, free and clear of all dower rights, liens, encumbrances, restrictions, conditions, easements, and encroachments whatsoever, except (a) applicable zoning and use restrictions (b) legal highways (c) taxes and assessments not then due and payable and (d) all restrictions, conditions, limitations, rights of way, reservations and easements which shall have been approved by the Buyer. (b) Seller shall, at her expense, furnish the Buyer, within ten (10) days after execution of this Agreement, a title insurance commitment (the Title Commitment ) relating to the Real Estate, issued by Chicago Title Insurance Company (the Title Company ), showing good and marketable title to the Real Estate in Seller. The Buyer shall have five (5) days from date of receipt of the Title Commitment to examine and approve the title to the Real Estate. If the Buyer shall notify the Seller of any defects in the title (the Title Defects ) within the time permitted and such Title Defects are not cured or removed by Seller, to the reasonable satisfaction of the Buyer, within thirty (30) days after receipt by the Seller of notice of the Title Defects, then, at the election of the Buyer, with notice thereof to the Seller, (a) this Agreement shall be terminated, or (b) the Closing Date may be postponed for such reasonable period of time as the Buyer may stipulate to enable the Title Defects to

14 be cured or removed to the Buyer's satisfaction, provided, however, the Buyer may waive its right to have the Title Defects cured or removed by Seller and elect to proceed with the transaction contemplated by this Agreement. (c) At the Closing, Seller shall furnish the Buyer with an ALTA owner's insurance policy (the Title Policy ) brought forward from the date of the Title Commitment to the Closing Date to be issued by the Title Company, in the amount of the ($ ), insuring fee simple title to the Real Estate to be in the Buyer, free and clear of all liens and encumbrances whatsoever, except those hereinabove excepted in this Paragraph. The Title Policy shall be issued on ALTA Form 1970 (rev ) free of the Title Company's so-called standard exceptions, including no exception for mechanic's, inchoate or other liens of any nature whatsoever, no exception for encroachments of any nature whatsoever and no exception for uncertified assessments, except for such encroachments which are identified to and accepted in writing by Buyer. (d) Seller shall deliver effective possession of the Real Estate in its present condition, subject to normal wear and tear, to Buyer on the date the Deed is filed for record. (e) Risk of loss to the Real Estate or any part thereof shall remain on Seller until the Closing Date. If the Real Estate or any part thereof are destroyed or damaged by fire or other casualty prior to the Closing Date, Seller shall notify Buyer within five (5) days thereafter and Buyer may elect: (i) In the event the reasonable cost of repair is $ or less, to receive the reasonable cost of repair as a credit against the Purchase Price and thereupon this transaction shall be consummated in accordance with the terms hereof. (ii) In the event the reasonable cost of repair is more than $, Buyer may elect either (1) to terminate this Agreement by notifying Seller and the Escrow Agent, in which event the Escrow Agent shall return all funds and documents deposited with it to the party who so deposited the same and thereupon the parties shall be released from any further obligations hereunder each to the other, except that the expenses of the Escrow Agent and the Title Company shall be borne by Seller or (2) to receive the proceeds of all insurance payable in connection therewith and thereupon this transaction shall be consummated in accordance with the terms hereof without reduction in the Purchase Price except for a reduction by the amount of any deductible amount applicable to such insurance proceeds. Whenever an estimate of the reasonable cost of repairs is required, such estimate shall be promptly obtained by Buyer from a reputable contractor reasonably acceptable to Seller. (f) There shall be prorated between the Seller and the Buyer, as of the Closing Date, and on the basis of thirty (30) -day months, all real estate taxes and assessments, both general and special (the Prorated Real Estate Taxes ) levied or assessed against the Real Estate, for the current year, based on the latest available tax bills, whether for that year or the preceding tax year, all charges for utilities rendered or furnished to the Real Estate and the cost of insurance policies covering the Real Estate. ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER

15 Comments to Seller's Reps & Warranties : Note - the Seller will often want to limit its representations and warranties to the best to its knowledge or limiting the reps and warranties by reasonable and material issues. As an inducement to Buyer to enter into this Agreement and consummate the transactions herein contemplated, Seller and Shareholder, jointly and severally represent and warrant to Buyer as follows: 2.1 Organization and Standing. Seller (i) is a professional corporation duly organized, validly existing and in good standing under the laws of the State of Ohio (ii) has all requisite corporate power and authority to own, lease and operate the Acquired Assets and to carry on its business as such business is presently conducted and (iii) has all requisite corporate power to sell, assign, convey, and deliver the Acquired Assets to Buyer and to enter into and otherwise perform this Agreement and the other transactions and agreements to be entered into and performed by Seller in connection herewith. Comments to 2.1. This Section will vary depending on whether the Seller is a professional corporation or an individual. 2.2 Authorization and Enforceability. The execution and delivery of this Agreement by Seller, and the execution, consummation, and performance of all agreements and transactions herein contemplated to be entered into and performed have been duly approved by all requisite corporate action. Seller has all requisite authority to sell, assign, convey and deliver the Acquired Assets to Buyer and to enter into and otherwise perform this Agreement. This Agreement has been duly and validly executed and delivered by Seller and Shareholder and constitutes the valid and binding obligation of Seller and Shareholder, enforceable against them in accordance with its terms. 2.3 Absence of Conflicts or Consents. The approval, execution and delivery, and performance of this Agreement and the execution, consummation and performance of all agreements and transactions herein contemplated do not and will not: (i) require notice to, any consent of, or any renegotiation or other action or non-action by, any third party, (ii) conflict with, or result in any violation of any judgment, decree, order, statute, rule or regulation applicable to Seller, Shareholder or the Acquired Assets, (iii) conflict with, constitute, or result in any breach, violation, or default of or under any agreement or instrument to which Seller is a party or by which the Acquired Assets are bound, (iv) conflict with or violate the terms of the Articles of Incorporation or Code of Regulations of Seller, or (v) result in the creation of any right, lien, security interest, claim, charge, restriction, or encumbrance of any kind or nature against any of the Acquired Assets. To the best knowledge of Seller, the consummation of the transactions contemplated herein will not disrupt or impair any material business relationship which Seller has with any current patients or contracting parties. Comments to 2.2 and 2.3 : These provisions give comfort to Buyer that Seller has the authority to sell these assets and that no other entity needs to approve this Agreement or any of the other arrangements contemplated under this Agreement (i.e. transfer of property deed). 2.4 Financial Statements. Seller has delivered to Buyer copies of its annual

16 financial statements, including balance sheets and statements of income and cash flow, for the three (3) fiscal years ended December 31, 1992, 1993 and 1994 (the Financial Statements ). The Financial Statements (i) fairly present the financial condition of Seller as at their respective dates and the results of Seller's operations for the respective periods then ended, and (ii) have been prepared from Seller's books and accounts in accordance with generally accepted accounting principles applied consistently throughout the periods covered thereby. 2.5 Books and Accounts. Seller's books and accounts accurately reflect all items of income and expense (including, but not limited to, accruals) and all assets and liabilities of Seller in accordance with normal accrual accounting practices, subject to customary year-end and audit adjustments of a normal, recurring type which would not be material in the aggregate. 2.6 Liabilities. Seller has no liabilities except: (i) to the extent provided for or reserved against on the most recent Financial Statements delivered pursuant to Section 2.4 hereof (ii) current liabilities which have arisen in the ordinary course of business consistent with past practice since the most recent Financial Statements delivered pursuant to Section 2.4, or (iii) as listed on Schedule Employee Benefit Plans/Other Employee Contracts. Except as otherwise set forth on Schedule 2.7, Seller neither maintains nor is required to contribute to any (i) Pension Plan (as such term is defined within Section 3(2) of the Employment Retirement Income Security Act of 1974, as amended), or (ii) employment, noncompetition, management, agency or consulting arrangement, bonus, profit sharing, deferred compensation, incentive, stock option, stock ownership or stock purchase plan, or other similar plan, policy, or arrangement, whether or not in written form. 2.8 Absence of Changes. Since the date of the most recent Financial Statements delivered pursuant to Section 2.4, Seller and its business have been operated only in the ordinary and usual course consistent with Seller's past business practices and there has not been any material adverse change in the condition (financial or other), assets, liabilities, obligations, business, operations, accounting, earnings, customer or supplier relations, or prospects of Seller or its business. 2.9 Compliance with Laws. Seller and its business and operations have been conducted in compliance, in all material respects, with (i) all applicable judgments, orders, injunctions, awards, or decrees and (ii) all applicable federal, state or local laws, ordinances, statutes and regulations applicable to Sellers, Seller's business or the Acquired Assets, including, without limitation, Title 18 and 19 of the Social Security Act, the Federal Occupational Safety and Health Act, applicable federal, state and local zoning, building, all environmental protection and environment related laws, health and safety laws and ordinances Litigation. Except as and to the extent set forth on Schedule 2.10, there is no litigation, action, investigation, proceeding, claim or governmental proceeding existing, pending, or, to the best of Seller's knowledge, threatened (whether or not protected by insurance), or any award, judgment, order, injunction, or decree outstanding, against or relating to Shareholder, the Acquired Assets, Seller, or the business thereof. Seller does not know and does not have reasonable grounds to know of any unasserted claim or any basis for any such litigation, action, proceeding, claim, investigation or injunction Title to Acquired Assets. Seller has good and marketable title and ownership to all of the Acquired Assets free and clear of any liens, claims, charges, restrictions or encumbrances of any nature whatsoever. There exists no condition

17 affecting the title to or use of any part of the Acquired Assets which would prevent Buyer from using, or enforcing its rights in respect of any part of the Acquired Assets to the same full extent that Seller could continue to do so if the transactions contemplated hereby did not take place. Comments to 2.11 : Obtaining this type of representation and warranty eliminates the need of Buyer to check liens, UCC searches etc. or the condition of the assets to be acquired. Hospital still may want to run UCC searches on certain valuable assets Compliance With Agreements Absence of Certain Contracts. Schedule 2.12 contains a complete and accurate list of all contracts to which Seller is a party or by which it is bound. Seller has performed all obligations required to be performed by Seller under, and has complied with the terms of such contracts and no event has occurred which, with notice or lapse of time or both, would constitute a violation or default of any such contract. No special or favorable contracts, agreements, arrangements, or similar understanding exist with any of its patients or third party administrators that are uniquely dependent upon the relationship of Seller with such customer or supplier and that, consequently, would most probably not be available on substantially similar terms to Buyer Taxes. All tax returns, reports and declaration (hereinafter collectively, Tax Returns ) required by any governmental authority to be filed in connection with the Seller's business have been timely filed and such returns are correct and complete. All taxes due in connection with the Seller's business have been paid, other than taxes which are not yet due or which, if due, are not yet delinquent, or being contested in good faith or have not been finally determined, and for which in all cases reserves have been established by Seller which are sufficient to cover the payment of all such taxes Employment Matters. Seller has complied in all material respects with all applicable Federal and state laws and local ordinances, and all rules and regulations promulgated thereunder, relating to the employment of labor, including the provisions thereof relating to wages, hours, working conditions, employee benefit plans, and the payment of withholding and social security taxes, and is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing, and has received no notice to the contrary from any governmental authority. Seller is not subject to any collective bargaining agreement. There are no controversies, grievances, or claims pending or, to the best of Seller's knowledge, information and belief, threatened by any of Seller's employees with respect to their employment Insurance. Schedule 2.15 lists all insurance policies maintained by Seller pertaining to Seller's business or the Acquired Assets and/or the business and operations of Seller and identifies for each such policy the following: underwriter, policy number, coverage type, premium, expiration date, coverage amount and deductible. Such insurance policies protect Seller's properties and business from losses and risks in a manner reasonable for its business and assets and are of the type and in amounts customarily carried by persons conducting similar businesses or operating similar assets for similar purposes in the localities of the businesses and assets of Seller. All such policies are in full force and effect and all premiums have been paid. There is no dispute pending, and no state of facts or event which could reasonably be expected to form the basis for a dispute, with any underwriter

18 of Seller's insurance Condition, Location and Extent of Acquired Assets. Seller has maintained and/or replaced, as appropriate, the Acquired Assets necessary for the conduct of its business, as presently conducted, in accordance with sound business practices, and the Acquired Assets are in good operating condition and repair subject to normal wear and tear and routine maintenance in the ordinary course of business. Except as set forth on Schedule 2.16, the Acquired Assets include all those which have been used to operate Seller's business in the ordinary course as presently conducted. The Acquired Assets include all assets reflected on the most recent Financial Statements delivered pursuant to Section 2.4 and all assets acquired by Seller thereafter, except those assets of Seller which have been disposed of with the prior written consent of Buyer. Since the date of the most recent Financial Statements delivered pursuant to Section 2.4, there has not been any damage to or disposition (except for the sale of inventory in the ordinary course of business consistent with past practice) or loss of (whether or not covered by insurance) any material asset of Seller Accuracy and Completeness. No representation or warranty by Seller or Shareholder in this Agreement and no statement contained in any Schedule to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading. To the knowledge of Seller or Shareholder, there is no event or circumstance which Seller has not disclosed to Buyer in writing which adversely affects or, could reasonably be expected to adversely affect, the business, prospects or condition (financial or other) of Seller or the ability of Seller or Shareholder to perform this Agreement Confidentiality of Records. To the best of Seller's knowledge, it has maintained, and agrees to continue to maintain through the Closing, the confidentiality of all patient records as required by and in conformance with all applicable state and federal laws and regulations. Seller has not transferred, and agrees not to transfer, any patient records to any individual or entity against the request of any patient prohibiting the Seller from transferring his/her patient information or records and shall at Closing transfer patient records in accordance with applicable state and federal laws and regulations Real Estate Representations and Warranties. (a) Seller has good and clear record and marketable title to the Real Estate, free from all easements, rights-of-way, liens, security interests, encumbrances and defects of any kind, except for the Permitted Encumbrances. All real estate taxes, assessments, water and sewer charges and other municipal charges, to the extent due and owing, have been paid in full. Without limiting the foregoing, the Real Estate is in such condition that a recognized engineering or land surveying firm could prepare a survey which would result in the issuance of an owner's title insurance policy without any general or specific exception for matters shown by a survey. (b) The Real Estate is presently zoned to permit the current use thereof said zoning is pursuant to statute or ordinance, not pursuant to any variance or conditional permit granted with respect to the Real Property, and does not require any further approval nor any other action by Seller. (c) The Real Property is not located in any conservation, historic or other special designation district.

19 (d) There is now in full force and effect a duly issued certificate of occupancy permitting the Real Estate to be legally used and occupied as a medical office which certificate of occupancy has not been amended. Seller shall deliver a true and correct copy of such certificate to Buyer prior to the Closing Date. (e) All applicable permits, declarations, and other evidences of compliance from regulatory authorities required to be obtained at the Real Estate, the sale of the Real Estate to Buyer, and the operation and use of the Real Estate, including, without limitation, those regulating the division of real property and environmental matters, have been obtained the improvements have been constructed pursuant to contracts which are in accordance with such permits, declarations and evidences of compliance all warranties (which have not by their terms expired) in favor of Seller from contractors having constructed said improvements are in full force and effect there are no defects in said improvements or the materials or workmanship furnished in the construction thereof said improvements were constructed in substantial conformity with the plans and specifications of said improvements delivered to Buyer. (f) Seller has not received any notice of any increase in either the tax rate or property assessment with respect to the Real Estate at the federal, state or local level. (g) All assessments now a lien are shown on the taxing authority's records, and no improvements (site or area) have been installed, the cost of which is to be assessed against the Real Estate in the future. Seller has not been notified of possible future improvements by any public authority, any part of the cost of which would or might be assessed against the Real Estate, or of any contemplated future assessments of any kind. (h) All of the streets, roads and avenues adjoining and/or adjacent to the Real Estate are publicly owned and maintained without assessment or charge to Seller and the Real Estate has direct access to dedicated roads and/or streets. (i) In the past three years Seller has not experienced any interruption in the delivery of adequate service of any utilities or other public authorities required in the operation of the Real Estate. All utility services necessary for the operation of the Real Estate, including water supply, storm and sanitary sewer facilities, gas, electric and telephone facilities are available at the boundaries of the Real Estate and either reach the Real Estate through adjoining public streets or if they pass through adjoining private land do so in accordance with valid, permanent, nonterminable public or private easements. (j) Seller hereby represents and warrants to Buyer that to Seller's best knowledge (after due inquiry), no Person has ever caused or permitted any Hazardous Substances to be disposed of on, under or at the Real Estate and the Real Property has never been used by Seller after due inquiry, by any other Person) as (i) a disposal site or permanent storage or treatment site for any Hazardous Substances, or (ii) a temporary storage or treatment site for any Hazardous Substances. Seller has been issued and is in compliance with all permits, certificates, licenses, approvals and other authorizations required by all Environmental Laws and as may otherwise be necessary or desirable for its business, and has filed all notifications and reports, relating to chemical substances, air emissions, underground storage tanks, effluent discharges, Hazardous Substances and waste storage, treatment and disposal required in connection with the operation of its business. All Hazardous Substances used or generated by Seller have been generated, accumulated, stored, transported, treated, recycled and disposed of in compliance with all Environmental

20 Laws. (k) To the knowledge of Seller, the buildings constructed on the Real Estate (i) lie within the perimeter of the Real Estate, (ii) were constructed in accordance with any restrictive covenants applicable thereto, and (iii) contain no structural defects. (l) Except as disclosed on Exhibit, the Real Estate is subject to no leases or rights of occupancy. (m) From the date hereof until the Closing Date, Seller will neither do, commit or suffer to be done any act or thing which would adversely affect Seller's present title to the Real Estate. ARTICLE III REPRESENTATION AND WARRANTIES OF BUYER As an inducement to Seller to enter into this Agreement and consummate the transactions herein contemplated, Buyer hereby represents and warrants to Seller as follows: 3.1 Organization and Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. Buyer has all requisite corporate power and authority to enter into and perform under this Agreement and the transactions and agreements herein contemplated to be entered into and performed by Buyer. 3.2 Authorization and Enforceability. The execution and delivery of this Agreement by Buyer has been duly approved. This Agreement has been duly and validly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. 3.3 Absence of Conflicts or Consents. The approval, execution and delivery of this Agreement, and the execution, consummation and performance of the transactions and agreements herein contemplated do not and will not: (i) require notice to, any consent of, or any renegotiation or other action or non-action by any third party, (ii) conflict with or result in any violation of any judgment, decree, order, statute, rule or regulation applicable to Buyer, (iii) conflict with, constitute, or result in any breach, violation, or default of or under any agreement or instrument to which Buyer is a party, or (iv) conflict with or violate the terms of the Articles of Incorporation or Code of Regulations of Buyer. Comments to Section 3: Buyer's representations and warranties are minimal customarily as compared with the Seller's representations and warranties. ARTICLE IV CONDITIONS TO CLOSING 4.1 Conditions to Buyer's Obligation. The obligation of Buyer to perform this Agreement is subject to satisfaction of the following conditions at or before the Closing, it being an explicit condition that all agreements and documents to be delivered to Buyer which are not attached as Schedules or Exhibits (and therefore deemed satisfactory to Buyer) must be in the form and substance satisfactory to Buyer: (a) Agreements Performed. Seller and Shareholder shall have performed all of the