Restrictive covenants are often treated as standard employment-agreement language, something legal counsel reviews late in the process, after the purchase price is already agreed. That approach misses what these provisions actually do in a healthcare practice transaction.

A non-compete or non-solicitation clause is not a compliance formality. It is one of the mechanisms that determines whether the goodwill a buyer is paying for actually survives closing.

What the Buyer Is Actually Paying For

In most practice acquisitions, a meaningful share of the purchase price reflects goodwill: the expectation that existing patients will continue to be seen, by the same providers, at the same location, after the transaction closes. That expectation holds only if the people responsible for those patient relationships are either staying, or are restricted from immediately competing if they leave.

If a selling doctor or a key associate is free to open a competing practice nearby the day after closing, the goodwill component of the purchase price erodes quickly. The buyer is not just losing a provider. The buyer is losing the patients that the provider takes with them.

That is why restrictive covenants belong in the same conversation as price and structure, not in a separate legal review that happens after the number is set.

Seller Covenants and Associate Covenants Are Different Questions

A covenant given in connection with the sale of a practice and its goodwill is generally viewed more favorably than a standard employment non-compete, but favorable treatment is not the same as automatic enforceability. The restriction still has to be reasonably tailored, in scope, duration, and geography, to the interest it is protecting, and some jurisdictions apply distinct rules to licensed healthcare professionals specifically.

An associate’s non-compete raises a separate question entirely. Associate-level enforceability varies significantly by jurisdiction, and in some states a court will decline to enforce it regardless of how the agreement is drafted. A buyer who assumes an associate’s non-compete will hold simply because it exists on paper is pricing the deal on an assumption that may not survive contact with the law in that jurisdiction.

Why This Matters More in Larger, Multi-Doctor Practices

The stakes here scale with practice structure.

In a smaller, doctor-to-doctor transaction, goodwill is typically concentrated in the selling doctor, and a properly tailored seller covenant addresses most of the risk. In a larger, multi-doctor practice, a meaningful share of production may sit with associates rather than the owner. In that structure, which clinicians are staying, what restricts them if they leave, and whether that restriction actually holds in the relevant jurisdiction, become material to the purchase price itself, not a secondary diligence item.

Before finalizing price on a multi-doctor practice, diligence should identify which providers are expected to remain, the production and patient concentration tied to each, and the status and enforceability of any covenant that applies to them.

Where Covenants Fall Short, Other Protections Carry More Weight

In jurisdictions where a non-compete is unavailable or too narrow to provide real protection, the deal does not simply carry unpriced risk by default. Confidentiality obligations, non-solicitation provisions, and transition planning that reduces the practical opportunity for patient attrition all become more important, to the extent each is enforceable locally.

The point is not that a weak non-compete jurisdiction kills a deal. It is that the buyer needs to know, before agreeing to price, what protection actually exists and structure the deal around the gap rather than assume it isn’t there.

Documentation Needs to Be in Place Before Diligence, Not During It

A recurring issue in practice transactions is discovering, mid-diligence, that a selling doctor’s or associate’s agreement is outdated, unsigned, missing entirely, or inconsistent with the deal being negotiated. That is not a minor administrative gap. It means the covenant the buyer is relying on to protect goodwill may not exist in an enforceable form.

Selling-doctor and associate agreements should be current, executed, and organized before a transaction reaches diligence. Gaps discovered once diligence is underway compress the time available to fix them and shift leverage in a way that rarely favors the seller.

The Takeaway

Restrictive covenants are not a document to check off during legal review. They are one of the mechanisms that determines whether the goodwill a buyer is paying for actually survives closing. Buyers should understand what is enforceable, where, and against whom, before they agree to price. Sellers should have those documents in order well before a transaction begins.

Contact Morgan Advisory Group

Morgan Advisory Group represents physicians, dentists, veterinarians, and healthcare investors in practice transactions across the country. If you are preparing to buy or sell a healthcare practice, understanding how restrictive covenants affect your specific transaction is worth addressing early. Contact the firm to schedule a confidential consultation.