Purchasing a healthcare practice is one of the biggest financial decisions you'll ever make. Whether you're acquiring a dental office, medical clinic, or specialty practice, skipping due diligence can turn your dream investment into a costly nightmare. Before you sign anything, here's what you need to review — carefully.
Start with the Financials
The numbers tell the real story. Request at least three years of tax returns, profit and loss statements, accounts receivable aging reports, and insurance reimbursement records. Compare what the seller claims the practice earns against what the documents actually show. Discrepancies here are red flags that deserve a hard conversation.
Pay close attention to payer mix. A practice heavily dependent on one insurance carrier or government program carries more risk than one with a diversified revenue stream. Also verify how accounts receivable are collected and what percentage gets written off each year.
Evaluate the Patient Base
A practice is only as valuable as its active patient relationships. Ask for data on the number of active patients (typically defined as those seen within the last 18 to 24 months), patient retention rates, and new patient volume trends. A shrinking patient base needs a clear explanation.
Review appointment schedules from the past two years. Are the books consistently full, or do you see large gaps? Understanding patient volume patterns will help you project realistic future revenue rather than relying on optimistic estimates from the seller.
Review All Contracts and Agreements
Dig into every contract the practice holds. This includes payer contracts with insurance companies, vendor agreements, equipment leases, real estate leases, and any employment agreements with staff or associate providers. Find out which contracts are assignable to you as the new owner and which ones require renegotiation.
Don't overlook non-compete clauses. If the selling physician plans to open a competing practice nearby shortly after the sale, that can significantly impact patient retention and practice value.
Inspect Licenses, Credentials, and Compliance
Confirm that the practice and all its providers hold current, unrestricted licenses in the state. Run a check through the relevant medical or dental board and verify DEA registrations if applicable. Look into whether any providers have been subject to disciplinary action, malpractice claims, or license investigations.
Compliance is where many buyers underestimate risk. Healthcare operates under a dense web of regulations — HIPAA, OSHA, Medicare and Medicaid billing rules, and state-specific requirements. Review documentation showing how the practice handles patient privacy, billing procedures, and workplace safety. If compliance records are thin or disorganized, take that seriously.
This is also the stage where consulting with health care fraud defense lawyers makes sense, even if you don't expect problems. These attorneys can review billing histories and flag any patterns that might indicate past fraudulent billing, upcoding, or improper claims — issues you absolutely do not want to inherit. A practice that has submitted questionable Medicare or Medicaid claims may already be under scrutiny, and the last thing a new owner needs is to walk into a federal investigation.
Examine Malpractice History and Pending Litigation
Request a full malpractice claims history, including open and closed cases. Understand whether the practice carries claims-made or occurrence-based malpractice insurance, and clarify who is responsible for tail coverage after the sale.
Also ask directly whether there are any pending lawsuits, regulatory investigations, or government audits. Sellers are generally required to disclose these, but it never hurts to ask explicitly and get the answer in writing.
Assess Staff and Operations
The team running the practice can make or break your transition. Review employment records, salary structures, benefits, and any existing HR issues. Talk to key staff members if the seller allows it. High staff turnover is a warning sign worth investigating.
Understand who handles billing and coding. In-house billing teams should be using current coding standards. If the practice outsources billing, review the vendor contract and performance metrics.
Equipment and Technology Review
Conduct a physical inspection of all major equipment. Understand what is owned outright versus leased or financed. Check maintenance records and identify anything that will need replacement soon after closing — these costs should factor into your offer price.
Review the electronic health record (EHR) system and practice management software in use. Transitioning to a new system is expensive and disruptive, so knowing what you're inheriting helps you plan.
Understand the Real Estate Situation
Is the practice in a leased space or a building the seller owns? If it's a lease, review the terms carefully — length remaining, renewal options, rent escalation clauses, and whether the landlord must approve an assignment to you as the new tenant. Location stability matters greatly in healthcare.
Put Together the Right Team
You shouldn't navigate this process alone. Work with a healthcare attorney, a CPA who understands medical practice financials, and a broker or advisor experienced in healthcare transactions. The combined expertise will catch issues you'd otherwise miss.
Due diligence is not the exciting part of buying a practice — but it's the most important part. Take your time, ask tough questions, and verify everything. A thorough review before closing protects you from inheriting someone else's problems and gives you the confidence to move forward on solid ground.