RepresentingRepresenting Physicians:Physicians: PotentialPotential PerilsPerils && Pitfalls:Pitfalls: LifeLife CycleCycle ofof aa PhysicianPhysician

A Presentation For: American HealthPractice Lawyers Association FundamentalsPractice of Health Law Chicago -- November 13-15, 2011

Michael F. Schaff, Esq. [email protected]

Elizabeth A. Kastner, Esq. [email protected] 1 OVERVIEWOVERVIEW  GeneralGeneral ConsiderationsConsiderations  Who is Your Client?  Who Can Employ a Physician?  BasicBasic IssuesIssues inin EmploymentEmployment ContractsContracts  TheThe BuyBuy--In:In: BecomingBecoming anan OwnerOwner inin aa MedicalMedical PracticePractice  RetirementRetirement Issues/SaleIssues/Sale  PostPost TerminationTermination RestrictionsRestrictions  Dissolving/ClosingDissolving/Closing aa PracticePractice

2 WHOWHO ISIS YOURYOUR CLIENT?CLIENT?

 TheThe medicalmedical practicepractice itselfitself ((““PracticePractice””))  TheThe physicianphysician beingbeing admittedadmitted toto thethe PracticePractice  AA youngeryounger ownerowner  AnAn olderolder ownerowner  TheThe PresidentPresident ofof thethe PracticePractice 3 UNDERSTANDUNDERSTAND YOURYOUR CLIENTCLIENT

 AdviseAdvisepartiesparties eacheach andand ownerownerthethe professionals?professionals? toto havehave hishis oror herher ownown counsel,counsel, accountantaccountant andand otherother necessarynecessary professional(s)professional(s)  KnowKnow whowho youyou areare dealingdealing withwith ““WhoWho areare thethe ””

 AccountantAccountant  AttorneyAttorney  OutsideOutside practicepractice managementmanagement consultantsconsultants  WhatWhat areare youryour clientclient 4

’’ss goals?goals? WHOWHO CANCAN EMPLOYEMPLOY AA PHYSICIAN?PHYSICIAN?

 CorporateCorporate PracticePractice ofof MedicineMedicine DoctrineDoctrine  ProhibitsProhibits unlicensedunlicensed individualsindividuals oror entitiesentities fromfrom practicingpracticing medicinemedicine oror employingemploying healthcarehealthcare professionalsprofessionals  RegulatesRegulates whowho cancan employemploy physiciansphysicians inin somesome statesstates

5 WHOWHO CANCAN EMPLOYEMPLOY AA PHYSICIAN?PHYSICIAN?  CheckCheck CurrentCurrent StateState LawsLaws  PhysiciansPhysicians cannotcannot bebe employedemployed byby unlicensedunlicensed entities,entities, generalgeneral businessbusiness corporations,corporations, oror generalgeneral businessbusiness limitedlimited liabilityliability companiescompanies ((LLCsLLCs))  ManyMany statesstates allowallow physiciansphysicians toto formform aa professionalprofessional corporationcorporation oror LLCLLC 6 BASICBASIC ISSUESISSUES ININ PHYSICIANPHYSICIAN EMPLOYMENTEMPLOYMENT CONTRACTSCONTRACTS

7 start?start? TERMTERM

 Commencement Date: WhenWhen doesdoes employmentemployment

 Conditions Precedent vs. Conditions Subsequent

 Examples:

 Receipt of State License

 Receiving Hospital or other privileges

 “The Employee’s first day of employment is contingent on the Employee’s receipt of his/her [State] medical license and obtaining [provisional or attending] staff status at ______hospital(s), however, the actual first day of the Employee’s employment shall be the “Commencement Date.” If the Commencement Date has not occurred by ______, 200_, the Employer may terminate this Agreement.”

8 TERMINATIONTERMINATION DATEDATE Renewal 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.” 9 DUTIESDUTIES

 TimeTime CommitmentCommitment

 FullFull time?time? Define?Define?

 PartPart time?time?

 WorkWork scheduleschedule (days/hrs)(days/hrs)

 Night,Night, weekendweekend andand holidayholiday callcall scheduleschedule

10 DUTIESDUTIES

 LocationsLocations (limit?)(limit?)

 TimeTime CommitmentCommitment forfor AdministrativeAdministrative MattersMatters

 MoonlightingMoonlighting?? AbilityAbility toto workwork outsideoutside PhysicianPhysician OrganizationOrganization

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

 Does Practice’s Malpractice Insurance Cover?

11 DUTIESDUTIES

 ComplianceCompliance withwith EthicalEthical StandardsStandards ofof MedicalMedical ProfessionProfession

 ComplianceCompliance withwith OtherOther DocumentsDocuments ofof thethe Practice,Practice, including:including:

 Employers’: Ownership Agreement, Bylaws, Rules and Regulations, Compliance Plans, HIPAA

 Hospitals’ or other Facilities’ where Physician is on staff: Bylaws, Rules and Regulations.

12 DUTIESDUTIES

 RequiredRequired Licenses,Licenses, HospitalHospital PrivilegesPrivileges andand BoardBoard Certification.Certification.

 RequirementRequirement forfor ContinuingContinuing MedicalMedical EducationEducation

13 DUTIESDUTIES

 InclusionInclusion oror exclusionexclusion ofof income/revenueincome/revenue generatedgenerated fromfrom sourcessources ““outsideoutside”” practicepractice

 DefineDefine outsideoutside sources,sources, i.e.,i.e., expertexpert testimony,testimony, lectures,lectures, medicalmedical directordirector fees,fees, otherother……....

14 DUTIES:DUTIES: BILLINGBILLING ISSUESISSUES  FeeFee schedulesschedules

 AssignmentAssignment ofof feesfees

 CompletionCompletion ofof medicalmedical recordsrecords andand reportsreports

 ResponsibilityResponsibility forfor accuracyaccuracy inin billingbilling

15 COMPENSATION:COMPENSATION: OVERVIEWOVERVIEW

 WhatWhat doesdoes thethe PracticePractice wishwish toto reward?reward?

 RewardReward shouldshould encourageencourage specificspecific behavior.behavior.

16 COMPENSATION:COMPENSATION: OVERVIEWOVERVIEW Elements of a Well-Designed Plan

 BenchmarkingBenchmarking

 AdequacyAdequacy forfor retentionretention

 IncomeIncome securitysecurity

 ContainsContains incentivesincentives

17 COMPENSATION:COMPENSATION: OVERVIEWOVERVIEW 1.1. EqualEqual CompensationCompensation 2.2. ProductivityProductivity Formulas:Formulas: mustmust understandunderstand  Stark Law

 Fraud & Abuse Laws

 Applicable State Laws

 Medicare Reimbursement Rates

 IRS Unreasonable Compensation Issues

18 COMPENSATION:COMPENSATION: OVERVIEWOVERVIEW 3.3. CombinationCombination ofof EqualEqual andand ProductivityProductivity 4.4. PointPoint SystemSystem (( oror relativerelative ValueValue MethodMethod ((““RVUsRVUs””)))) 5.5. FixedFixed BaseBase PeriodicPeriodic SalarySalary ++ BonusBonus

19 OTHEROTHER COMPENSATIONCOMPENSATION ISSUESISSUES

 Severance/DeferredSeverance/Deferred CompensationCompensation onon terminationtermination

 DisabilityDisability CompensationCompensation

 Definition of disability  Offset for disability insurance payments  Accrual of time off during disability?

20 BENEFITSBENEFITS

 ItIt’’ss notnot allall aboutabout moneymoney

 VacationVacation (scheduling(scheduling issues)issues)

 SickSick daysdays

 Seminars,Seminars, conventions,conventions, andand continuingcontinuing medicalmedical educationeducation 21 BENEFITSBENEFITS ::ExpenseExpense ReimbursementReimbursement  AutomobileAutomobile payments,payments, gas,gas, tollstolls && parkingparking

 CellCell phonephone && beeper,beeper, duesdues && staffstaff feesfees (hospital,(hospital, MCOsMCOs,, IPAsIPAs,, societies)societies)

 MovingMoving expensesexpenses

 MaternityMaternity leaveleave

 SubscriptionsSubscriptions andand journalsjournals

 PensionPension planplan && 401(k)401(k)

 EntertainmentEntertainment && otherother fringefringe benefitsbenefits 22 BENEFITSBENEFITS

 DisabilityDisability InsuranceInsurance

 MedicalMedical InsuranceInsurance

 DentalDental InsuranceInsurance

 VisionVision InsuranceInsurance

23 MALPRACTICEMALPRACTICE INSURANCEINSURANCE  MalpracticeMalpractice InsuranceInsurance Crisis?Crisis?

 OccurrenceOccurrence PolicyPolicy vsvs ClaimsClaims MadeMade PolicyPolicy (Need(Need forfor Tail)Tail)

 Amount?Amount?

 CancellationCancellation ofof policy,policy, refundrefund entitlemententitlement

24 TERMINATIONTERMINATION

 MutualMutual AgreementAgreement

 DeathDeath

 DisabilityDisability

 BreachBreach

25 TERMINATION:TERMINATION: WithoutWithout CauseCause

 ByByEmployerEmployer thethe EmployeeEmployee shallshall havehave oror thethe thethe EmployerEmployer rightright toto terminate terminatewithoutwithout thethe causecauseemploymentemployment (for(for anyany ofof reason reasonthethe EmployeeEmployee oror nono reason)priorreason)prior toto thetheonon atat leastleastexpirationexpiration ______ofof thethe noticenotice periodperiod (___)(___) andand daysdays paypay advanceadvance thethe writtenwrittenEmployeeEmployee noticenotice onlyonlytoto thethe throughthrough otherother party,party,his/herhis/her providedprovided lastlast dayday that that ofof uponupon receiptreceipt ofof noticenotice byby thethe Employee,Employee, thethe employment.employment.

26 TERMINATION:TERMINATION: WithWith CauseCause

 RecurringRecurring absenceabsence

 FailureFailure toto abideabide byby thethe termsterms ofof employment,employment, afterafter noticenotice andand aa tenten (10)(10)--dayday opportunityopportunity toto curecure  TheThe lossloss ofof licenselicense oror suspensionsuspension oror thethe rightright toto dispensedispense oror prescribeprescribe narcoticnarcotic drugsdrugs

 TheThe suspension,suspension, revocation,revocation, oror curtailmentcurtailment ofof privilegesprivileges toto practicepractice atat necessarynecessary facilitiesfacilities

27 TERMINATION:TERMINATION: WithWith CauseCause  Fraud,Fraud, misappropriation,misappropriation, embezzlement,embezzlement, theft,theft, dishonestydishonesty oror similarsimilar actionsactions  IntoxicationIntoxication whilewhile onon dutyduty

 IllegalIllegal useuse oror possessionpossession ofof drugsdrugs

 ActAct oror omissionomission constitutesconstitutes anan indictableindictable criminalcriminal offenseoffense

28 TERMINATION:TERMINATION: WithWith CauseCause  SaleSale ofof [stock[stock // membershipmembership interests]interests] ofof thethe Employer,Employer, ifif anan ownerowner

 FailureFailure toto maintainmaintain oror qualifyqualify forfor malpracticemalpractice insuranceinsurance atat standardstandard ratesrates (Malpractice(Malpractice InsuranceInsurance Crisis?)Crisis?)

 FailureFailure toto obtainobtain (or(or maintain)maintain) boardboard certificationcertification withinwithin thethe timetime periodperiod  ExclusionExclusion fromfrom Medicare,Medicare, MedicaidMedicaid andand otherother federallyfederally fundedfunded healthcarehealthcare programsprograms  ViolationViolation ofof AMAAMA CodeCode ofof EthicsEthics 29 TERMINATION:TERMINATION: WithWith CauseCause  IfIf aa hospitalhospital--basedbased practicepractice (i.e.,(i.e., radiology,radiology, anesthesia,anesthesia, oror pathology),pathology), thethe terminationtermination oror nonnon--renewalrenewal ofof thethe exclusiveexclusive agreementagreement withwith Hospital.Hospital.

30 TERMINATION:TERMINATION: WithWith CauseCause

 CatchCatch allall provision:provision: ““anyany otherother conductconduct ofof EmployeeEmployee whichwhich thethe EmployerEmployer deemsdeems detrimentaldetrimental toto itsits practicepractice oror whichwhich constitutesconstitutes causecause forfor terminationtermination inin thethe Employer'sEmployer's reasonablereasonable discretion,discretion, itit beinbeingg impossibleimpossible toto specificallyspecifically enumerateenumerate allall events,events, conduct,conduct, andand occurrencesoccurrences whichwhich wouldwould bebe ininjjuriousurious toto thethe EmployerEmployer andand whichwhich wouldwould constituteconstitute causecause””

31 RESTRICTIVERESTRICTIVE COVENANTS:COVENANTS: ProhibitedProhibited ActivitiesActivities  Post-employment practice of medicine

 Solicitation of:

 Patients

 Employees

 Referral sources

 Conflicting economic interests

 Medical directorships

 Investments

 Moonlighting 32 RESTRICTIVERESTRICTIVE COVENANTS:COVENANTS: Reasonableness/ThreeReasonableness/Three-- ProngedPronged TestTest

1.1. RestrictiveRestrictive covenantcovenant mustmust bebe necessarynecessary toto protectprotect aa legitimatelegitimate businessbusiness interestinterest ofof thethe employeremployer.. - Patient lists - Ongoing patient relationships - Value of physician’s training and experience

33 RESTRICTIVERESTRICTIVE COVENANTS:COVENANTS: Reasonableness/ThreeReasonableness/Three-- ProngedPronged TestTest 2.2. RestrictiveRestrictive covenantcovenant mustmust notnot imposeimpose anan undueundue hardshiphardship onon thethe employeeemployee..

 CannotCannot deprivedeprive anan employee/memberemployee/member fromfrom earningearning aa livingliving inin his/herhis/her professionprofession

 MereMere adverseadverse financialfinancial consequencesconsequences oror personalpersonal hardshiphardship imposedimposed asas aa resultresult ofof aa restrictiverestrictive covenantcovenant dodo notnot riserise toto levellevel ofof undueundue hardshiphardship

34 RESTRICTIVERESTRICTIVE COVENANTS:COVENANTS: Reasonableness/ThreeReasonableness/Three-- ProngedPronged TestTest

3.3. RestrictiveRestrictive covenantcovenant mustmust notnot bebe injuriousinjurious toto thethe publicpublic atat large.large.

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

 Cannot prohibit patients from independently seeking out employee’s services

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

35 RESTRICTIVERESTRICTIVE COVENANTSCOVENANTS  LiquidatedLiquidated damagesdamages vs.vs. injunctioninjunction

36 PATIENTPATIENT RECORDSRECORDS ANDAND FILESFILES

 OwnershipOwnership ofof PatientPatient RecordsRecords byby EmployerEmployer

 RightRight toto CopiesCopies ofof PatientPatient RecordsRecords andand ChartsCharts

 LocalLocal LawsLaws

 CostsCosts

37 OWNERSHIPOWNERSHIP OPPORTUNITYOPPORTUNITY  WhenWhen willwill EmployeeEmployee bebe eligibleeligible toto bebe anan Owner?Owner?

 FirmFirm OfferOffer

 NonbindingNonbinding IntentIntent

38 OWNERSHIPOWNERSHIP OPPORTUNITYOPPORTUNITY

 TypicalTypical toto havehave waitingwaiting periodperiod

 22 yearsyears toto becomebecome eligibleeligible

 BetterBetter toto managemanage expectationsexpectations atat beginningbeginning ofof employmentemployment 39 BUYBUY --ININ TOTO AA MEDICALMEDICAL PRACTICEPRACTICE

40 THETHE BUYBUY--ININ:: DueDue DiligenceDiligence Documents, agreements and contracts relating to the Practice should be reviewed

• Certificate of Incorporation / Formation • Bylaws • Operating/Stockholder Agreement • Organizational Minutes • Tax Returns • Payor Agreements • Hospital Agreements 41 THETHE BUBUYY--IN:IN: DueDue DiligenceDiligence

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

42 THETHE BUYBUY--IN:IN: DueDue DiligenceDiligence • Lines of credit • Loan and credit agreements, mortgages, promissory notes, security agreements and other evidences of indebtedness • Accounts payable • Deferred Compensation Agreements • Policies and procedures, including employment manuals and compliance plans • Employee benefits agreements • 401(k) plan and other pension plans • Health, accident, life and disability insurance policies 43 THETHE BUBUYY--ININ RelatedRelated PartyParty TransactionsTransactions  Are there any arrangements between an owner and the Practice? Are they at fair market value? - Real estate (the medical office) - Equipment - Employment of relatives - Loans from / to related parties

44 ANATOMYANATOMY OFOF AA PURCHASEPURCHASE oror SUBSCRIPTIONSUBSCRIPTION AGREEMENTAGREEMENT

 OwnershipOwnership PercentagePercentage PurchasedPurchased  HowHow willwill thethe PracticePractice bebe valued?valued?  RepresentationsRepresentations andand WarrantiesWarranties

45 OwnershipOwnership AgreementsAgreements

1.1. ControlControl andand ManagementManagement  MinorityMinority ProtectionProtection RightsRights && SupermajoritySupermajority 2.2. TransferabilityTransferability ofof OwnershipOwnership InterestsInterests  TriggeringTriggering EventsEvents  ValuationValuation  TaxTax ConsiderationsConsiderations  FundingFunding BuyBuy--outsouts

46 Dissolving/ClosingDissolving/Closing aa PracticePractice General principles

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

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

47 Dissolving/ClosingDissolving/Closing aa PracticePractice  CheckCheck statestate lawlaw andand PracticePractice governinggoverning documentsdocuments toto determinedetermine procedureprocedure toto dissolvedissolve  RequiredRequired vote/actionvote/action  RequiredRequired governmentgovernment agencyagency filingsfilings (notice(notice filingfiling andand certificatecertificate ofof dissolutiondissolution filings)filings)

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

48 Dissolving/ClosingDissolving/Closing aa PracticePractice  OtherOther considerationsconsiderations  TerminateTerminate payorpayor contractscontracts  PostPost--closureclosure billingbilling andand collectioncollection  Medical/businessMedical/business recordrecord storagestorage  PatientPatient noticenotice (check(check statestate law)law)  PersonnelPersonnel issuesissues--employeeemployee PTOPTO payout?payout?

49 Dissolving/ClosingDissolving/Closing aa PracticePractice  OtherOther considerationsconsiderations (cont(cont’’d)d)  Sale/otherSale/other disposaldisposal ofof officeoffice equipment/suppliesequipment/supplies  LicensureLicensure terminationtermination (infectious(infectious waste;waste; statestate pharmacypharmacy board)board)  TerminateTerminate serviceservice contractscontracts--terminationtermination provision?provision?

50 TOPTOP 1010 SOURCESSOURCES OFOF CONFLICTSCONFLICTS BETWEENBETWEEN PHYSICIANPHYSICIAN ANDAND PRACTICEPRACTICE

 CompensationCompensation –– expenseexpense allocationallocation  DepartingDeparting physicianphysician –– incomeincome continuationcontinuation paymentpayment ---- A/RA/R collectioncollection effortsefforts byby PracticePractice  DepartingDeparting physicianphysician –– tailtail coverage/othercoverage/other benefitbenefit payoutpayout

51 TOPTOP 1010 SOURCESSOURCES OFOF CONFLICTSCONFLICTS BETWEENBETWEEN PHYSICIANPHYSICIAN ANDAND PRACTICEPRACTICE

 DepartingDeparting physicianphysician –– nonnon--competecompete  DepartingDeparting physicianphysician –– medicalmedical recordsrecords // patientpatient listlist  DepartingDeparting physicianphysician ownerowner –– buybuy--outout calculationcalculation (my(my accountantaccountant vs.vs. PracticePractice accountant)accountant)

52 TOPTOP 1010 SOURCESSOURCES OFOF CONFLICTSCONFLICTS BETWEENBETWEEN PHYSICIANPHYSICIAN ANDAND PRACTICEPRACTICE

 OnOn--callcall responsibilitiesresponsibilities  ProductivityProductivity –– bonusbonus calculationscalculations  OutsideOutside incomeincome // activitiesactivities  SupportSupport staffstaff –– personalitypersonality conflictsconflicts

53 Questions?

54 RepresentingRepresenting Physicians:Physicians: PotentialPotential PerilsPerils && Pitfalls:Pitfalls: LifeLife CycleCycle ofof aa PhysicianPhysician

A Presentation For: American Health Lawyers Association FundamentalsPractice of Health Law ChicagoPractice November 13 - 15, 2011 -- Michael F. Schaff, Esq. [email protected]

Elizabeth A. Kastner, Esq. [email protected] 55