Compounding Controversies to Non-Compete & Practice Exit Challenges

Watch or listen in as host David Mandell welcomes back to the Podcast healthcare attorneys Michael Byrd and Brad Adatto, both of whom joined David back in Season 1. Brad and Michael begin the discussion laying out the legal issues around the weight loss drugs that have become so popular today and what physicians prescribing such drugs need to be aware of – from patient consent issues, to compounding challenges and state-specific dispensing regulations, to marketing rules and more.

The conversation then shifts to mergers and acquisitions concerning medical practices. Michael and Brad relate the shift they have seen in the last year from “wall street” deals to “main street” deals and what this shift means for physicians who may consider exiting their practice.

David then asks the attorneys about the proposed rules out of the federal government regarding non-competes, where those rules stand and what physicians need to know about non-competes in the medical context.

The podcast concludes with Brad and Michael leading a discussion around how physicians can best work with healthcare attorneys and the value of legal subscription models.

TAKEAWAYS:

Takeaway 1: Dealing with the Legalities of Weight Loss Drugs in a Medical Practice

The discussion on weight loss drugs such as semaglutide and tirzepatide highlights the legal complexities medical practices face when incorporating such treatments. While these drugs can offer significant benefits and revenue generation, they require careful navigation of regulatory constraints and potential changes in the status of these drugs.

Michael Byrd explains, “There is Ozempic, Wegovy…they were on the shortage list for the FDA a few years ago… It allowed for compounded versions of these to be used, which is a fraction of the cost.” However, Brad Adatto adds, “The big issue that our clients weren’t realizing is because it was compounding, they can’t say on their website, we’re using Wegovy or we’re using this semaglutide drug. You have to say you’re using a weight loss drug or a peptide or you have to be very general.”

Furthermore, Byrd emphasizes the importance of having clear and explicit patient consents when using compounded drugs, indicating that this was an off-label use and not FDA approved.

Takeaway 2: The Shift from Wall Street to Main Street Deals in Medical Practice Sales

The conversation sheds light on the changing landscape of medical practice sales, with a shift being observed from Wall Street deals (private equity buyouts) towards Main Street deals (selling to younger doctors or local groups). Experts suggest that this trend may be influenced by changing perceptions and regulations, as well as the need for a more personal and sustainable approach to practice transition.

Michael Byrd notes, “What we’ve been noticing really in ’24 is that private equity, call it election year, call it the interest rates, call it whatever, has shied away particularly from smaller physician practices, single owner physicians, particularly if it’s surgical.” Brad Adatto adds, “The shift that happened this year is I’ll say that some of our doctors, just because private equity’s been so aggressive the last few years, they’re like, I had a conversation over Thanksgiving. Private equity is the devil. It’s horrible. It’s ruining medicine.”

Adatto also points out the importance of understanding the differences between Wall Street and Main Street deals, noting that the valuations offered by private equity firms might not be achievable when selling to a younger doctor.

Takeaway 3: The Importance of Finding the Right Healthcare Attorney

The discussion emphasizes the importance for physicians and medical practices of having a good relationship with a healthcare attorney. This relationship should ensure ongoing compliance with a constantly changing regulatory landscape and prevent small issues from escalating into major legal problems.

Michael Byrd states, “In a medical practice, it really can cause problems if your mindset is “I’m going to diagnose my own legal problem and say, I need to go and get these A, B and C boxes checked and do it, and then once I diagnose my next problem, I’ll reach out.” Instead, Byrd suggests that physicians should aim for an ongoing, long-term focus with their attorney to stay ahead of potential issues.

Brad Adatto also highlights the importance of selecting an attorney who specializes in healthcare law, observing that, “Every single state is different on this particular issue.” Byrd further emphasizes the value of maintaining a regular dialogue with a healthcare attorney, recommending a subscription model that allows for ongoing consultation without the fear of being billed for every interaction.

INSIGHTS

Michael Byrd and Brad Adatto’s Backgrounds:

• Both are seasoned healthcare attorneys with extensive experience in compliance, regulation, and business transactions within the medical industry.
• They emphasize practical, entrepreneurial approaches to legal challenges, branding themselves as “lawyerpreneurs.”

Healthcare Law Expertise:

• The legal landscape for healthcare is highly regulated, and compliance is an ongoing process requiring proactive engagement with legal counsel.

Weight Loss Drugs in Medical Practices:

• Medications like semaglutide (Ozempic, Wegovy) have grown in popularity due to their effectiveness and affordability through compounded versions.
• Legal risks include compliance with FDA rules, proper patient consent, and adherence to state-specific dispensing regulations.

Compounding Issues and Compliance:

• Compounded drugs must be marketed differently, avoiding brand names and misleading imagery, to align with FTC and medical board regulations.

Patient Consent and Risk Mitigation:

• Physicians must disclose the off-label use of compounded drugs and potential risks to patients to prevent legal disputes or investigations.

Business and Revenue Risks with Weight Loss Drugs:

• Practices incorporating these drugs should understand the regulatory uncertainties and potential business disruptions if compounded drugs become restricted.

Mergers and Acquisitions Trends:

• Private equity interest in smaller or solo practices has decreased due to higher interest rates and increased market scrutiny.
• Physicians are increasingly opting for traditional transitions, like mentoring younger doctors for succession, rather than selling to private equity.

Valuation Challenges in Practice Sales:

• Private equity deals offer higher valuations (e.g., 8x EBITDA) than smaller, local physician-to-physician sales, which typically offer 2–4x EBITDA.

Non-Compete Clauses:

• Non-competes remain enforceable in many states, though federal efforts to ban them have stalled.
• States are introducing more restrictive laws for healthcare providers, such as limiting non-compete durations and introducing garden leave rules.

Importance of Healthcare-Specific Legal Counsel:

• Working with specialized healthcare attorneys ensures compliance with industry-specific regulations and avoids costly legal missteps.

Compliance as a Dynamic Process:

• Practices must routinely reassess compliance to prevent “drift” caused by operational or regulatory changes.

Legal Subscription Models:

• The Access+ program offers physicians predictable monthly fees for legal services, fostering ongoing collaboration and preventing surprise bills.

Proactive Legal Strategies:

• Engaging attorneys early in decision-making can prevent small issues from escalating into significant legal and financial problems.

Broader Regulatory Trends:

• Physicians must stay informed about changing state and federal regulations, particularly regarding non-competes, private equity, and drug compounding.

Entrepreneurial Approach to Law:

• Byrd and Adatto emphasize innovative legal service delivery, positioning themselves as partners in business growth rather than just legal problem-solvers.

LINKS & BIOS:

• Guest, Michael Byrd, JD | Bio
• Guest, Brad Adatto, JD | Bio
• Legal 123s Podcast | Listen Now
• Host, David B. Mandell | Bio