Diligence is not an assessment of whether your structure is well designed. A buyer’s counsel assumes the structure is defensible on paper, because you paid someone to make it so. What they test is whether the business behaved the way the documents say it does.
That is a different question, and for most operators it has a worse answer. The structure is usually fine. The evidence that it was operated is usually thin.
Here is what recurs, in roughly the order it gets found.
1. Commingled banking
The professional entity and the management company share an account, or money moves between them without matching invoices, or the clinic’s card processor deposits into the management company’s account because that is who opened it.
This is the first finding because it is the easiest to check and the hardest to explain. The whole premise of a PC-MSO structure is that two entities exist and do different things. Shared money says they are one entity wearing two names, which is the argument a plaintiff or a regulator would make. See friendly PC and MSO structure.
It is also entirely preventable and cannot be fixed retroactively.
2. The fee that does not match the agreement
The management services agreement states a fee. The invoices say something else, or the fee moved and no amendment exists, or the number was computed a different way than the document describes.
A buyer reads this as evidence that the agreement is decorative. It also raises the harder question, which is whether the fee was ever supportable on the basis stated. See fixed fee vs percentage.
Where the arrangement has drifted, amend the document to the reality rather than hoping nobody reconciles it. Somebody always reconciles it.
3. Clinical governance with no dates
Protocols exist. Nobody can say which version was in force in March of a given year, who approved it, or when it was last reviewed. Delegation documents name roles rather than people. Standing orders and protocols are the same file doing both jobs badly.
A buyer is pricing the risk that a past treatment produces a future claim, and undated governance means that risk cannot be bounded. See standing orders, protocols and delegation.
4. A medical director who cannot evidence the role
The agreement says oversight. The record shows a signature on an agreement and nothing else: no chart reviews, no protocol approvals, no response-time record, no documented availability.
This finding hurts twice. It devalues the business, and it is the same exposure the director carries personally, which is set out at your personal license is the collateral.
5. Vendor paper with holes
Missing business associate agreements, agreements with vendors that no longer exist, no flow-down to subcontractors, and no register of who holds patient data. Under 45 CFR § 164.504(e)(1)(ii) the obligation continues after signature, so a file of unexamined agreements is not compliance. See business associate agreements.
Buyers care about this disproportionately, because data exposure follows the acquisition and is hard to quantify.
6. Share transfer terms that do not survive their own states
The stock transfer restriction agreement is built on a template carrying a proxy or voting arrangement in favor of the management company. Several states void exactly that: New Jersey and Kansas say so in terms, and others reach the same result.
A buyer’s counsel reads the template against the states where the entities actually sit. Where the control mechanism is void, the buyer is not acquiring what the deck described. See the stock transfer restriction agreement.
7. A footprint nobody mapped
Which states are you operating in, which entity is registered where, which licenses are current, which locations hold controlled substances and under whose registration. Operators frequently cannot answer this in a week.
The answer becomes a schedule to the purchase agreement, and every gap in it becomes either a price adjustment or an indemnity you carry after closing.
The pattern behind all seven
Every one of these is a documentation failure rather than a structural one. The structures we see are mostly sound. What is missing is the record that the structure was operated: dates, signatures, reconciliations, registers, and a map.
That record is cheap to keep contemporaneously and effectively impossible to reconstruct. A buyer knows this, which is why the diligence list is built around artifacts that can only exist if they were made at the time.
What this means for you
Start the register now, whether or not you intend to sell, because it is the same artifact for diligence, for a board inquiry and for your own operations. Separate the bank accounts today if they are not already, since that is the one finding with no remedy after the fact. Reconcile your management fee against what the agreement says and amend the document to reality where they diverge. Put version dates and approver names on every clinical protocol. And once a year, spend an afternoon assembling the list a buyer would ask for, because the year you cannot assemble it is the year you find out what it costs.
Related reading
Frequently asked questions
What do buyers look at first in a PC-MSO structure?
Banking. Whether the professional entity and the management company maintained genuinely separate accounts, and whether money moved between them against matching invoices. It is the easiest thing to check and the hardest to explain away, because commingling undercuts the premise that two entities exist.
Does a well-drafted MSA protect the deal value?
Only if the business was operated the way the agreement describes. Buyers assume the drafting is competent and test whether invoices, fee computations and amendments match it. An agreement that does not match the invoicing reads as decorative.
Why do undated protocols matter to a buyer?
Because the buyer is pricing the risk that past treatments produce future claims. If nobody can establish which protocol was in force at a given time, who approved it and when it was reviewed, that risk cannot be bounded, so it is priced conservatively or indemnified.
What happens if our share transfer agreement uses a proxy?
Several states, including New Jersey and Kansas, void a proxy or voting arrangement giving a non-shareholder control of a professional entity’s votes. A buyer’s counsel reads the template against the states where the entities actually sit, and where the mechanism is void the buyer is not acquiring the control the structure implied.
How long does it take to fix these findings?
Most are documentation and can be corrected going forward, but they cannot be backdated. Separate banking, contemporaneous version dates and a current vendor register only prove anything if they were maintained at the time, which is why the useful moment to start is well before a transaction.
This is general information, not legal advice. Rules vary by state and change. Confirm your own facts with counsel.