representing physicians: potential perils & pitfalls: life ... · 1/10/2013 · compliance...

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Representing Physicians:Representing Physicians:Potential Perils & Pitfalls:Potential Perils & Pitfalls:Life Cycle of a PhysicianLife Cycle of a Physician--

PracticePracticeA Presentation For:A Presentation For:

American Health Lawyers AssociationAmerican Health Lawyers AssociationFundamentals of Health LawFundamentals of Health Law

ChicagoChicagoNovember 13November 13--15, 201115, 2011

Michael F. Schaff, Esq.Michael F. Schaff, [email protected]@wilentz.com

Elizabeth A. Elizabeth A. KastnerKastner, Esq., [email protected]@taftlaw.com

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OVERVIEWOVERVIEW General ConsiderationsGeneral Considerations

Who is Your Client?Who is Your Client? Who Can Employ a Physician?Who Can Employ a Physician?

Basic Issues in Employment Basic Issues in Employment ContractsContracts

The BuyThe Buy--In: Becoming an In: Becoming an Owner in a Medical PracticeOwner in a Medical Practice

Retirement Issues/SaleRetirement Issues/Sale Post Termination RestrictionsPost Termination Restrictions Dissolving/Closing a Practice Dissolving/Closing a Practice

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The medical practice itself The medical practice itself ((““PracticePractice””))

The physician being The physician being admitted to the Practiceadmitted to the Practice

A younger ownerA younger owner An older ownerAn older owner The President of the The President of the

PracticePractice

WHO IS YOUR CLIENT?WHO IS YOUR CLIENT?

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Advise each owner to have his or her own Advise each owner to have his or her own counsel, accountant and other necessary counsel, accountant and other necessary professional(s)professional(s)

Know who you are dealing with Know who you are dealing with ““Who are the Who are the parties and the professionals?parties and the professionals?”” AccountantAccountant AttorneyAttorney Outside practice management consultantsOutside practice management consultants

What are your clientWhat are your client’’s goals?s goals?

UNDERSTAND YOUR UNDERSTAND YOUR CLIENTCLIENT

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Corporate Practice of Medicine DoctrineCorporate Practice of Medicine Doctrine Prohibits Prohibits unlicensedunlicensed individuals or individuals or

entities from practicing medicine or entities from practicing medicine or employing healthcare professionalsemploying healthcare professionals

Regulates who can employ physicians in Regulates who can employ physicians in some statessome states

WHO CAN EMPLOY A WHO CAN EMPLOY A PHYSICIAN?PHYSICIAN?

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Check Current State LawsCheck Current State Laws Physicians cannot be Physicians cannot be

employed by unlicensed employed by unlicensed entities, general business entities, general business corporations, or general corporations, or general business limited liability business limited liability companies (companies (LLCsLLCs))

Many states allow Many states allow physicians to form a physicians to form a professional corporation or professional corporation or LLCLLC

WHO CAN EMPLOY A WHO CAN EMPLOY A PHYSICIAN?PHYSICIAN?

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BASIC ISSUES IN BASIC ISSUES IN PHYSICIAN PHYSICIAN

EMPLOYMENT EMPLOYMENT CONTRACTSCONTRACTS

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TERMTERM Commencement Date: Commencement Date: When does employment When does employment

start?start? Conditions Precedent vs. Conditions SubsequentConditions Precedent vs. Conditions Subsequent

Examples:Examples:

Receipt of State LicenseReceipt of State License

Receiving Hospital or other privilegesReceiving Hospital or other privileges

““The EmployeeThe Employee’’s first day of employment is contingent on the Employees first day of employment is contingent on the Employee’’s s receipt of his/her [State] medical license and obtaining [provisreceipt of his/her [State] medical license and obtaining [provisional or ional or attending] staff status at _________ hospital(s), however, the aattending] staff status at _________ hospital(s), however, the actual first ctual first day of the Employeeday of the Employee’’s employment shall be the s employment shall be the ““Commencement Date.Commencement Date.”” If If the Commencement Date has not occurred by _________ ___, 200_, tthe Commencement Date has not occurred by _________ ___, 200_, the he Employer may terminate this Agreement.Employer may terminate this Agreement.””

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TERMINATION DATETERMINATION DATERenewal Terms: Automatic Renewal (Evergreen Clause)

“ The Employee's employment under this Agreement shall commence as of ____________ , 201_ (the “Commencement Date”) and shall continue thereafter until _______________ __, 201_. Thereafter, this Agreement shall automatically renew itself for successive ______ (__) year terms unless either party gives the other party at least ___ days notice of its intent not to renew. This Agreement may be terminated prior to the end of its terms pursuant to the provisions of Paragraph __ below.”

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DUTIESDUTIES Time CommitmentTime Commitment

Full time? Full time? Define?Define?

Part time?Part time?

Work schedule Work schedule (days/hrs)(days/hrs)

Night, weekend and Night, weekend and holiday holiday call schedulecall schedule

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Locations (limit?)Locations (limit?)

Time Commitment for Administrative MattersTime Commitment for Administrative Matters

MoonlightingMoonlighting?? Ability to work outside Ability to work outside Physician Organization Physician Organization

Practice may want to restrict since it may affect Practice may want to restrict since it may affect Group Practice definition under Stark (75% test)Group Practice definition under Stark (75% test)

Does PracticeDoes Practice’’s Malpractice Insurance Cover?s Malpractice Insurance Cover?

DUTIESDUTIES

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Compliance with Ethical Standards of Medical Compliance with Ethical Standards of Medical ProfessionProfession

Compliance with Other Documents of the Compliance with Other Documents of the Practice, including:Practice, including:

EmployersEmployers’’:: Ownership Agreement, Bylaws, Rules Ownership Agreement, Bylaws, Rules and Regulations, Compliance Plans, HIPAAand Regulations, Compliance Plans, HIPAA

HospitalsHospitals’’ or other Facilitiesor other Facilities’’ where Physician is where Physician is on staffon staff:: Bylaws, Rules and Regulations.Bylaws, Rules and Regulations.

DUTIESDUTIES

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Required Licenses, Required Licenses, Hospital Privileges Hospital Privileges and Board and Board Certification.Certification.

Requirement for Requirement for Continuing Medical Continuing Medical EducationEducation

DUTIESDUTIES

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Inclusion or exclusionInclusion or exclusionof income/revenue of income/revenue generated from sources generated from sources ““outsideoutside”” practice practice

Define outside sources, Define outside sources, i.e., expert testimony, i.e., expert testimony, lectures, medical director lectures, medical director fees, otherfees, other……....

DUTIESDUTIES

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DUTIES: BILLING DUTIES: BILLING ISSUESISSUES

Fee schedulesFee schedules

Assignment of feesAssignment of fees

Completion of medical records and reportsCompletion of medical records and reports

Responsibility for accuracy in billingResponsibility for accuracy in billing

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COMPENSATION: COMPENSATION: OVERVIEWOVERVIEW

What does the What does the Practice wish to Practice wish to reward?reward?

Reward should Reward should encourage specific encourage specific behavior.behavior.

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BenchmarkingBenchmarking

Adequacy for Adequacy for retentionretention

Income securityIncome security

Contains incentivesContains incentives

Elements of a Well-Designed Plan

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1. Equal Compensation1. Equal Compensation

2. Productivity Formulas: must understand2. Productivity Formulas: must understand Stark Law Stark Law

Fraud & Abuse LawsFraud & Abuse Laws

Applicable State LawsApplicable State Laws

Medicare Reimbursement RatesMedicare Reimbursement Rates

IRS Unreasonable Compensation Issues IRS Unreasonable Compensation Issues

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3. Combination of Equal and Productivity3. Combination of Equal and Productivity4. Point System ( or relative Value Method 4. Point System ( or relative Value Method

((““RVUsRVUs””))))

5. Fixed Base Periodic Salary + Bonus5. Fixed Base Periodic Salary + Bonus

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Severance/Deferred Severance/Deferred Compensation on Compensation on terminationtermination

Disability CompensationDisability Compensation

Definition of disabilityDefinition of disability Offset for disability insurance Offset for disability insurance

paymentspayments Accrual of time off during Accrual of time off during

disability?disability?

OTHER COMPENSATION OTHER COMPENSATION ISSUESISSUES

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BENEFITSBENEFITS ItIt’’s not all about s not all about

moneymoney

Vacation (scheduling Vacation (scheduling issues)issues)

Sick daysSick days

Seminars, conventions, Seminars, conventions, and continuing medical and continuing medical educationeducation

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BENEFITS :BENEFITS :Expense Expense ReimbursementReimbursement

Automobile payments, gas, tolls & parkingAutomobile payments, gas, tolls & parking

Cell phone & beeper, dues & staff fees Cell phone & beeper, dues & staff fees (hospital, (hospital, MCOsMCOs, , IPAsIPAs, societies), societies)

Moving expensesMoving expenses

Maternity leaveMaternity leave

Subscriptions and journalsSubscriptions and journals

Pension plan & 401(k)Pension plan & 401(k)

Entertainment & other fringe benefitsEntertainment & other fringe benefits

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Disability InsuranceDisability Insurance

Medical InsuranceMedical Insurance

Dental InsuranceDental Insurance

Vision InsuranceVision Insurance

BENEFITSBENEFITS

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MALPRACTICE MALPRACTICE INSURANCEINSURANCE

Malpractice Insurance Crisis?Malpractice Insurance Crisis?

Occurrence Policy Occurrence Policy vsvs Claims Claims Made Policy (Need for Tail)Made Policy (Need for Tail)

Amount? Amount?

Cancellation of policy, Cancellation of policy, refund entitlementrefund entitlement

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TERMINATIONTERMINATION Mutual AgreementMutual Agreement

DeathDeath

DisabilityDisability

BreachBreach

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TERMINATION: TERMINATION: Without CauseWithout Cause

By the Employee or the Employer By the Employee or the Employer without without cause (for any reason or no reason)cause (for any reason or no reason) on at on at least __________________ (___) days advance least __________________ (___) days advance written notice to the other party, provided that written notice to the other party, provided that upon receipt of notice by the Employee, upon receipt of notice by the Employee, the the Employer shall have the right to terminate the Employer shall have the right to terminate the employment of the Employee prior to the employment of the Employee prior to the expiration of the notice period and pay the expiration of the notice period and pay the Employee only through his/her last day of Employee only through his/her last day of employment.employment.

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TERMINATION: TERMINATION: With CauseWith Cause

Recurring absenceRecurring absence

Failure to abide by the terms of employment, Failure to abide by the terms of employment, after notice and a ten (10)after notice and a ten (10)--day opportunity to day opportunity to curecure

The loss of license or suspension or the right to The loss of license or suspension or the right to dispense or prescribe narcotic drugsdispense or prescribe narcotic drugs

The suspension, revocation, or curtailment of The suspension, revocation, or curtailment of privileges to practice at necessary facilitiesprivileges to practice at necessary facilities

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TERMINATION:TERMINATION:With CauseWith Cause

Fraud, misappropriation, Fraud, misappropriation, embezzlement, theft, embezzlement, theft, dishonesty or similar actions dishonesty or similar actions

Intoxication while on dutyIntoxication while on duty

Illegal use or possession of Illegal use or possession of drugs drugs

Act or omission constitutes Act or omission constitutes an indictable criminal offensean indictable criminal offense

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Sale of [stock / membership interests] of the Sale of [stock / membership interests] of the Employer, if an ownerEmployer, if an owner

Failure to maintain or qualify for malpractice Failure to maintain or qualify for malpractice insurance at standard rates (Malpractice insurance at standard rates (Malpractice Insurance Crisis?)Insurance Crisis?)

Failure to obtain (or maintain) board Failure to obtain (or maintain) board certification within the time period certification within the time period

Exclusion from Medicare, Medicaid and other Exclusion from Medicare, Medicaid and other federally funded healthcare programsfederally funded healthcare programs

Violation of AMA Code of EthicsViolation of AMA Code of Ethics

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If a hospitalIf a hospital--based practice (i.e., based practice (i.e., radiology, anesthesia, or pathology), the radiology, anesthesia, or pathology), the termination or nontermination or non--renewal of the renewal of the exclusive agreement with Hospital.exclusive agreement with Hospital.

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Catch all provision:Catch all provision: ““any other conduct of any other conduct of Employee which the Employer deems detrimental to Employee which the Employer deems detrimental to its practice or which constitutes cause for its practice or which constitutes cause for termination in the Employer's reasonable discretion, termination in the Employer's reasonable discretion, it being impossible to specifically enumerate all it being impossible to specifically enumerate all events, conduct, and occurrences which would be events, conduct, and occurrences which would be injurious to the Employer and which would injurious to the Employer and which would constitute causeconstitute cause””

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RESTRICTIVE RESTRICTIVE COVENANTS:COVENANTS:

Prohibited ActivitiesProhibited Activities PostPost--employment practice of medicineemployment practice of medicine

Solicitation of:Solicitation of:

PatientsPatients

EmployeesEmployees

Referral sourcesReferral sources

Conflicting economic interestsConflicting economic interests

Medical directorshipsMedical directorships

InvestmentsInvestments

MoonlightingMoonlighting

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RESTRICTIVE COVENANTS: RESTRICTIVE COVENANTS: Reasonableness/ThreeReasonableness/Three--

Pronged TestPronged Test

1.1. Restrictive covenant must Restrictive covenant must be necessary to protect a be necessary to protect a legitimate business legitimate business interest of the employerinterest of the employer..

-- Patient listsPatient lists

-- Ongoing patient relationshipsOngoing patient relationships

-- Value of physicianValue of physician’’s training and s training and experienceexperience

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RESTRICTIVE COVENANTS:RESTRICTIVE COVENANTS:Reasonableness/ThreeReasonableness/Three--

Pronged TestPronged Test2.2. Restrictive covenant must not impose Restrictive covenant must not impose an undue hardship on the employeean undue hardship on the employee..

Cannot deprive an employee/member from Cannot deprive an employee/member from earning a living in his/her professionearning a living in his/her profession

Mere adverse financial consequences or Mere adverse financial consequences or personal hardship imposed as a result of a personal hardship imposed as a result of a restrictive covenant do not rise to level of restrictive covenant do not rise to level of undue hardshipundue hardship

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3.3. Restrictive covenant must not be injurious Restrictive covenant must not be injurious to the public at large.to the public at large.

Right of public to consult physician or health care Right of public to consult physician or health care professional of choiceprofessional of choice

Cannot prohibit patients from independently seeking Cannot prohibit patients from independently seeking out employeeout employee’’s servicess services

Cannot restrict so as to cause a shortage of medical Cannot restrict so as to cause a shortage of medical professionals in either a particular area of specialty or professionals in either a particular area of specialty or geographic regiongeographic region

RESTRICTIVE COVENANTS:RESTRICTIVE COVENANTS:Reasonableness/ThreeReasonableness/Three--

Pronged TestPronged Test

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RESTRICTIVE RESTRICTIVE COVENANTSCOVENANTS

Liquidated damages vs. Liquidated damages vs. injunctioninjunction

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PATIENT RECORDS PATIENT RECORDS AND FILESAND FILES

Ownership of Patient Records by Ownership of Patient Records by EmployerEmployer

Right to Copies of Patient Records and Right to Copies of Patient Records and ChartsCharts

Local LawsLocal Laws

CostsCosts

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OWNERSHIP OWNERSHIP OPPORTUNITYOPPORTUNITY

When will Employee When will Employee be be eligibleeligible to be an to be an Owner?Owner?

Firm Offer Firm Offer

Nonbinding IntentNonbinding Intent

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OWNERSHIP OWNERSHIP OPPORTUNITYOPPORTUNITY

Typical to have waiting Typical to have waiting periodperiod

2 years to become 2 years to become eligibleeligible

Better to manage Better to manage expectations at expectations at beginning of beginning of employmentemployment

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BUYBUY--IN TO A IN TO A MEDICAL MEDICAL PRACTICEPRACTICE

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THE BUYTHE BUY--ININ: : Due DiligenceDue Diligence

Documents, agreements and contracts Documents, agreements and contracts relating to the Practice should be relating to the Practice should be reviewedreviewed

•• Certificate of Incorporation / Certificate of Incorporation / FormationFormation•• BylawsBylaws•• Operating/Stockholder AgreementOperating/Stockholder Agreement•• Organizational MinutesOrganizational Minutes•• Tax ReturnsTax Returns•• Payor Agreements Payor Agreements •• Hospital AgreementsHospital Agreements

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THE BUYTHE BUY--IN: IN: Due DiligenceDue Diligence

••Property leases and subleasesProperty leases and subleases••Equipment leasesEquipment leases••Employment, consulting, Employment, consulting, management and other management and other service agreements (owners and nonservice agreements (owners and non--owners)owners)••Agreements with respect to shared Agreements with respect to shared facilities and functionsfacilities and functions••Purchase and supply contractsPurchase and supply contracts••LicensesLicenses

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THE BUYTHE BUY--IN: IN: Due DiligenceDue Diligence

•• Lines of creditLines of credit•• Loan and credit agreements, mortgages, Loan and credit agreements, mortgages, promissorypromissory

notes, security agreements and other evidences ofnotes, security agreements and other evidences ofindebtedness indebtedness

•• Accounts payableAccounts payable•• Deferred Compensation AgreementsDeferred Compensation Agreements•• Policies and procedures, including employment Policies and procedures, including employment manualsmanuals

and compliance plansand compliance plans•• Employee benefits agreementsEmployee benefits agreements•• 401(k) plan and other pension plans401(k) plan and other pension plans•• Health, accident, life and disability insurance Health, accident, life and disability insurance policiespolicies

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THE BUYTHE BUY--IN IN Related Party Related Party TransactionsTransactions

Are there any arrangements Are there any arrangements between an owner and the Practice? between an owner and the Practice? Are they at fair market value?Are they at fair market value?

-- Real estate (the medical office)Real estate (the medical office)-- EquipmentEquipment-- Employment of relativesEmployment of relatives-- Loans from / to related partiesLoans from / to related parties

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ANATOMY OF A PURCHASE orANATOMY OF A PURCHASE orSUBSCRIPTION AGREEMENTSUBSCRIPTION AGREEMENT

Ownership Percentage Ownership Percentage PurchasedPurchased

How will the Practice be How will the Practice be valued?valued?

Representations and Representations and WarrantiesWarranties

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Ownership AgreementsOwnership Agreements

1. Control and Management1. Control and Management Minority Protection Rights & SupermajorityMinority Protection Rights & Supermajority

2. Transferability of Ownership Interests2. Transferability of Ownership Interests Triggering EventsTriggering Events ValuationValuation Tax ConsiderationsTax Considerations Funding BuyFunding Buy--outsouts

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Dissolving/Closing a Dissolving/Closing a PracticePractice

General principles General principles

You should help your client to comply with legal You should help your client to comply with legal requirements applicable to a Practice closure, but requirements applicable to a Practice closure, but also help your client understand the practical also help your client understand the practical business issues business issues

Directors/officers need to understand fiduciary Directors/officers need to understand fiduciary dutiesduties--cancan’’t just leave the Practice in the hopes t just leave the Practice in the hopes that someone else will that someone else will ““clean up the messclean up the mess””

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Check state law and Practice governing Check state law and Practice governing documents to determine procedure to documents to determine procedure to dissolve dissolve Required vote/action Required vote/action Required government agency filings (notice Required government agency filings (notice

filing and certificate of dissolution filings) filing and certificate of dissolution filings)

See sample practice closure planning checklist (exhibit A of outSee sample practice closure planning checklist (exhibit A of outline) line)

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Other considerationsOther considerations Terminate payor contractsTerminate payor contracts PostPost--closure billing and collection closure billing and collection Medical/business record storage Medical/business record storage Patient notice (check state law) Patient notice (check state law) Personnel issuesPersonnel issues--employee PTO payout? employee PTO payout?

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Other considerations (contOther considerations (cont’’d) d) Sale/other disposal of office Sale/other disposal of office

equipment/suppliesequipment/supplies Licensure termination (infectious waste; state Licensure termination (infectious waste; state

pharmacy board) pharmacy board) Terminate service contractsTerminate service contracts--termination termination

provision? provision?

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TOP 10 SOURCES OF CONFLICTSTOP 10 SOURCES OF CONFLICTSBETWEEN PHYSICIAN AND BETWEEN PHYSICIAN AND

PRACTICEPRACTICE

Compensation Compensation –– expense allocationexpense allocation Departing physician Departing physician –– income income

continuation payment continuation payment ---- A/R collection A/R collection efforts by Practiceefforts by Practice

Departing physician Departing physician –– tail tail coverage/other benefit payoutcoverage/other benefit payout

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Departing physician Departing physician –– nonnon--competecompete Departing physician Departing physician –– medical records / medical records /

patient listpatient list Departing physician owner Departing physician owner –– buybuy--out out

calculation (my accountant vs. Practice calculation (my accountant vs. Practice accountant)accountant)


PRACTICEPRACTICE

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OnOn--call responsibilitiescall responsibilities Productivity Productivity –– bonus calculationsbonus calculations Outside income / activitiesOutside income / activities Support staff Support staff –– personality conflictspersonality conflicts


PRACTICEPRACTICE

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Questions?

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Representing Physicians:Representing Physicians:Potential Perils & Pitfalls:Potential Perils & Pitfalls:Life Cycle of a PhysicianLife Cycle of a Physician--

PracticePracticeA Presentation For:A Presentation For:

American Health Lawyers AssociationAmerican Health Lawyers AssociationFundamentals of Health LawFundamentals of Health Law

ChicagoChicagoNovember 13 November 13 -- 15, 201115, 2011

Michael F. Schaff, Esq.Michael F. Schaff, [email protected]@wilentz.com

Elizabeth A. Elizabeth A. KastnerKastner, Esq., [email protected]@taftlaw.com