What is the transition period?

Transition period refers to the length of time that the selling dentist or physician agrees to stay onboard and be employed by the buyer after the Closing. Depending on the type of practice this may be a very important part of the negotiations and contract including the length of transition period and the compensation paid for it. The importance of the transition period stems from the fact that the buyer does not want to meet the patients of the seller without any introduction by the seller that normally comforts the patients and is a conduit for the patient to return to the office after a nice introduction.

Many patients may not have the incentive to return to the same office once a new dentist or doctor has taken over and having the selling dentist or doctor that is well familiar with the patients and is willing to give a nice introduction to the buying dentist or doctor goes a long way to increase the chances of the patients returning to the same office in the future. For the same reason, the transition period plays a big factor in determining the purchase price. A selling dentist or a doctor that has no intention of returning to the office immediately or shortly after the Closing could lose a great deal of leverage in setting the purchase price.

As previously mentioned, a factor in determining the purchase price is the predictability that the buying dentist or physician will have the benefits of certain amount of revenues and/or profits which could be substantially affected if the selling party is not willing to return to the office for a specified amount of time, the transition period. The parties must also negotiate the compensation for the selling party throughout the transition period that may trigger Stark and/or Antikickback statutes.

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