The recent case of Lopez v. Dr. M. Douris Dentistry Professional Corporation, [2015] ONSC 3675 exemplifies why dentists looking to purchase a dental practice need to be extra careful when doing their due diligence and negotiating what goes into the agreement of purchase and sale.
In a previous blog, I discussed some of the implications dealing with patient records – namely, that you need to do a chart audit when buying a practice to verify the number of active patients at the practice. In this blog, I’m going to discuss some other issues that routinely come up in the purchase and sale transaction which a buyer needs to be aware of.
By way of background, Dr. Michael Douris bought Dr. Clive Estey’s dental practice. After the deal was completed, Dr. Douris sued Dr. Estey, claiming that the staff were not fully trained and not HARP certified. Dr. Douris also alleged that Dr. Estey had been illegally discounting invoices, contrary to the purchase and sale agreement and the RCDSO regulations.
The Ontario Superior Court of Justice rejected both arguments.
First, the Court found that Dr. Douris was simply mistaken: the staff were HARP certified and Dr. Esty had all approvals necessary for use of the radiology equipment. Worth mentioning is that the agreeent of purchase and sale did not require Dr. Esty to promise that his dental staff were fully trained and HARP certified. As such, the claim by Dr. Douris was rejected.
Second, the Court found that, although Dr. Esty wrote off some accounts as uncollectable after the portion paid by the insurance company was received, Dr. Esty had made reasonable efforts to collect the balance from the patient (as required by the Dentistry Act regulations. Ultimately, per the Court, Dr. Douris failed to provide satisfactory evidence concerning the dental practice’s attempts or inability to collect amounts not covered by insurance, loss of patients due to an alleged unwillingness to pay amounts not covered by insurance, or that he had suffered damages as a result of the alleged misrepresentation.
Bottom Line
Prospective purchasers of a dental practice should be weary of what they can later complain about. First, if something is not addressed in the share purchase agreement, the purchaser may be out of luck. Second, investigations must be made into whether the seller has been collecting or writing off (appropriately or inappropriately so) the co-pay owed by the patient. Third, if the purchaser has concerns with the status of staff training, patient records, or financials of the practice, most of these can hopefully be determined through vigorous due diligence and solid legal representation.
