Resale of medical equipment should be done carefully

A physician recently asked me to draft an equipment contract for the sale of a laser to another physician practice group. My client purchased the laser several years ago, and he wants to sell his current laser before he expends additional capital for new medical equipment.

This transaction involved the customary contract issues that are related to the negotiation of purchase price and transition of ownership. But both the seller and purchaser had to consider additional issues regarding indemnity, disclaimers, ownership transfer and HIPAA before signing the contract.

It is important that a written agreement or detailed bill of sale be signed in connection with the resale of medical equipment. This column will explore key issues that physicians should address when reviewing a proposed medical equipment contract.

Indemnity. The seller is most likely to be interested in the indemnity provision of a medical equipment contract, because this is a key contract provision to limit his liability and any future exposure.

The following is an example of an indemnity provision that a physician selling equipment might consider inserting into a contract:

"Purchaser agrees to indemnify and hold harmless seller and seller's officers, directors, shareholders, agents and employees against any and all liabilities, obligations, claims, demands, costs and expenses of every kind and nature, including attorneys' fees and litigation expenses, arising from or related to the equipment, including, without limitation, the manufacture, selection, purchase, delivery, possession, use, operation or return of the equipment or from any breach or default on the part of seller in the performance of any agreement of seller to be performed pursuant to the terms of this Agreement."

Disclaimer of warranties. If you are selling medical equipment, it is important to include a disclaimer of warranties in your contract stating that you are not making any representation regarding the condition of the equipment, or transferring any warranty from the medical equipment's manufacturer or supplier.

You do not want to expose yourself or your practice to liability after the contract is signed and the equipment is transferred to the purchaser if there is future equipment malfunction or error. The equipment should be sold "as is."

The following is a suggested contract provision (the capital letters are intentional):

"SELLER, BEING NEITHER THE MANUFACTURER, NOR A SUPPLIER, NOR A DEALER IN THE EQUIPMENT, MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANYONE, AS TO THE FITNESS, MERCHANTABILITY, DESIGN, CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER ASPECT OF THE EQUIPMENT OR ITS MATERIAL OR WORKMANSHIP. Seller further disclaims any liability for loss, damage, or injury to purchaser, purchaser's patients, purchaser's employees and independent contractors, or third parties as a result of any defects, latent or otherwise, in the equipment. Seller sells the equipment 'as is.' Purchaser shall have the obligation to install, maintain, erect, test, adjust, and service the equipment."

Ownership transfer. If you are the one who is buying the equipment, make sure that the selling physician is providing you with a "clear title" to the equipment. Make sure that there are no outstanding liens or security interests that would jeopardize your ability to own the equipment free and clear of any encumbrances.

To establish ownership of the equipment, the seller should be able to produce the original purchase agreement. If the physician is leasing the equipment with the right to purchase such equipment contingent upon the expiration of the lease agreement or payment of a lump sum, the seller must provide the lease terms and purchase agreement.

Make sure that the seller owns the medical equipment outright and is able to transfer ownership to you.

You might consider including the following provision in your contract:

"Seller conveys the equipment to the purchaser free and clear of all levies, liens, and security interests and shall give purchaser immediate notice of any attachment or other judicial process affecting any item of equipment. Seller shall pay all charges and taxes which may now or hereafter be imposed upon the ownership, leasing, rental, sale, purchase, possession or use of the equipment, excluding, however, all taxes on or measured by purchaser's net income. In the event seller fails to preserve and maintain the equipment, discharge all existing liens or charges, and/or pay all costs and expenses to procure and maintain insurance as provided pursuant to the terms of this agreement, purchaser may do so at his option and all such advances paid by purchaser shall be offset against the purchase price of the equipment."

HIPAA considerations. Make sure any medical equipment you sell or buy does not contain any protected health information pursuant to the Health Insurance Portability and Accountability Act of 1996.

The laser purchased by the physician practice group that contacted me did not have any protected health information, including patient identification data or diagnostic results, embedded into the actual laser or affiliated computer system.

Disclosing such protected health information without authorization from a patient and for purposes other than treatment, payment or health care operations would expose your practice to monetary penalties and civil and criminal liability under HIPAA, as well as exclusion from the Medicare program.

As the selling physician and covered entity pursuant to the HIPAA regulations, you should carefully review how the equipment has been utilized in your practice to determine whether patient data have been stored or embedded within the equipment prior to transferring ownership.

In the end, the sale and purchase of medical equipment should be structured to be a beneficial transaction for all physicians involved.