Letter of Intent Template for Acquiring an Orthopedic Clinic

Identification of Parties and Practice Entity

Identify the buyer entity, the selling physician or physician group, and the specific legal entity being acquired — whether a professional corporation, PLLC, or partnership. Note whether the transaction involves a management company layer (MSO) and name all related entities. In orthopedic deals this is critical because the clinical entity and the management entity may be separately structured to satisfy corporate practice of medicine laws in states like California, Texas, or New York.

💡 Confirm state-specific corporate practice of medicine rules before drafting this section. In CPOM-restrictive states, the LOI must reflect a compliant MSO structure from the outset — attempting to restructure post-LOI is costly and signals inexperience to the seller. Sellers should ensure the LOI names the correct legal entity to avoid title and credentialing complications at closing.

Transaction Structure — Asset vs. Stock Purchase and MSO Overlay

Define whether the deal is structured as an asset purchase, stock purchase, or a hybrid with an MSO overlay. Most orthopedic clinic acquisitions in the lower middle market are structured as asset purchases to avoid inheriting undisclosed liabilities. However, payer contracts are often tied to the legal entity, which can complicate an asset purchase and favor a stock deal or novation agreement with each payer.

💡 Buyers should not assume payer contracts are assignable — many Medicare Advantage, Blue Cross, and workers' compensation contracts require re-credentialing or explicit consent from the payer. Build a 60–90 day payer review window into due diligence. Sellers should push back if the LOI makes closing entirely contingent on all payer contracts transferring, as some non-critical payers can be re-contracted post-close without material revenue impact.

Purchase Price and Valuation Basis

State the proposed purchase price, the valuation methodology used (typically a multiple of trailing twelve-month or normalized EBITDA), and the breakdown between cash at close, seller note, and any earnout. Orthopedic clinic multiples typically range from 4x to 7x EBITDA depending on physician depth, ancillary revenue, payer mix, and geographic market. Practices with in-house imaging, physical therapy, or ASC ownership stakes command the higher end of this range.

💡 Sellers consistently overestimate practice value by anchoring to gross revenue rather than EBITDA. Buyers should present a clear add-back schedule showing how they arrived at normalized EBITDA, including physician compensation normalization, personal expenses, and one-time items. Sellers should negotiate for a shorter earnout period (12 months is preferable to 24) and ensure earnout metrics are based on gross collections — which they can influence — rather than EBITDA, which is subject to buyer cost allocation decisions post-close.

Earnout Structure Tied to Physician Retention and Revenue

Define the earnout mechanics, milestones, and measurement periods. In orthopedic acquisitions, earnouts are most commonly tied to physician retention and revenue targets because the departure of a key surgeon can materially reduce practice value. The LOI should specify which physicians are covered, what retention means (active clinical practice with minimum hours or RVUs), and who bears the risk if a physician departs for reasons outside Seller's control.

💡 Sellers should insist on earnout protections that account for buyer-controlled variables — if Buyer changes payer contracts, reduces marketing spend, or alters scheduling protocols that suppress volume, the earnout becomes inequitable. Include a material adverse change carve-out that pauses or adjusts earnout targets if CMS reimbursement rates decline by more than 10% across key CPT codes. Buyers should avoid setting earnout thresholds so high that they are effectively a deferred price reduction — this damages physician motivation and post-close culture.

Physician Employment Terms and Non-Compete Covenants

Outline the post-closing employment structure for selling physicians, including compensation model (salary plus RVU-based incentive), term, call obligations, and non-compete scope. Non-compete enforceability in physician employment contracts varies significantly by state — California effectively prohibits them, while states like Florida and Texas are more enforcement-friendly. The LOI should flag this issue and reference state law.

💡 Buyers must have healthcare employment counsel review non-compete language state by state — a non-compete that is unenforceable due to overbreadth is worth nothing and can create a false sense of security in the deal model. Sellers should negotiate for non-compete scope to be limited to the specific sub-specialty (e.g., joint replacement) rather than all orthopedic care, and should ensure that severance terms are clearly defined if Buyer terminates the employment without cause.

Due Diligence Scope and Exclusivity Period

Define the due diligence period, the specific workstreams Buyer will conduct, and the exclusivity period during which Seller agrees not to solicit or accept competing offers. For orthopedic clinics, due diligence should explicitly reference payer contract review, Stark Law and anti-kickback compliance audit, OIG exclusion checks on all physicians and staff, and physician compensation structure analysis.

💡 Sellers should resist exclusivity periods longer than 60 days — 90-day exclusivity locks up the practice for a quarter with no guarantee of closing. Push for a 45-day initial period with a 15-day extension available only upon demonstrated progress. Buyers should submit a detailed due diligence request list within the first 5 business days of exclusivity to set a productive pace and signal seriousness to the seller and their advisor.

Payer Contract Transferability Condition

Establish payer contract review and transferability as a specific closing condition. This section is unique to healthcare acquisitions and should list the key payer relationships by name, define what constitutes a material payer, and specify the minimum acceptable percentage of revenue from transferable contracts needed to proceed to closing.

💡 This is one of the most frequently under-negotiated sections in orthopedic LOIs. Buyers who skip this language often discover at closing that one or two critical payer contracts — particularly Medicare Advantage plans — require full re-credentialing that takes 90–180 days, materially disrupting post-close cash flow. Sellers should provide payer contract summaries and assignment provisions in the data room within the first two weeks of exclusivity to prevent this from becoming a deal killer late in the process.

Real Estate and Facility Terms

Address the clinic's physical facility — whether it is leased or owned by the selling physician, and how it will be treated post-close. Many orthopedic surgeons own their clinic real estate personally or through a related LLC. The LOI must specify whether the property will be sold, subject to a sale-leaseback, or leased under a new triple-net lease. Ambiguity here creates significant valuation and financing complications.

💡 SBA lenders will scrutinize real estate arrangements carefully — if the selling physician retains ownership of the building and leases it to the buyer, the SBA may require a long-term lease with specific terms as a loan condition. Sellers who own the real estate often prefer to retain it as a passive income asset; this is generally acceptable but must be structured carefully to avoid Stark Law self-referral issues if the physician remains on staff post-closing. Obtain healthcare real estate counsel review of any sale-leaseback or lease arrangement involving a retained physician.

Representations, Warranties, and Indemnification Framework

Establish the key representations the Seller will make regarding the practice, the survival period for those representations, and the indemnification framework for breaches. In orthopedic acquisitions, the most critical representations relate to billing compliance, absence of OIG investigations or False Claims Act exposure, physician licensing in good standing, and accuracy of payer contract terms.

💡 Healthcare-specific representations around billing compliance and regulatory history carry higher stakes than in most industries because undiscovered False Claims Act exposure can result in treble damages. Buyers acquiring practices with in-house billing should consider requiring a pre-close billing audit by an independent healthcare compliance firm as a condition of closing. Sellers should negotiate for a minimum claim threshold (basket) of $[25,000–$50,000] before indemnification obligations are triggered, and a cap at 20% of purchase price for non-fraud claims.

Confidentiality and No-Shop Obligations

Define the confidentiality obligations of both parties during and after the LOI period, and the Seller's obligation not to solicit or entertain competing offers during the exclusivity window. In physician practice transactions, confidentiality is especially important because premature disclosure of a pending sale can trigger staff departures, patient attrition, and payer notification requirements that complicate the deal.

💡 Confidentiality is more operationally sensitive in orthopedic practices than in most industries — if key referring physicians (e.g., emergency room doctors, primary care physicians, or sports medicine coaches) learn the practice is for sale before a deal is signed, they may begin redirecting referrals to competitors. Sellers should implement a strict internal communication plan limiting deal awareness to the minimum necessary personnel. Buyers should agree to notify Seller before contacting any employee, referral source, or payer during due diligence.