Associate Editor for Medical Economics, Physicians Practice

Sequestration cuts have been put off for now, but Anders Gilberg, Senior Vice President of Government Affairs for MGMA, says that can change without congressional action.

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Sequestration cuts have been put off for now, but that can change.

The threat of sequestration

, JD, MBA, advises clients on compliance and transactions in healthcare, cybersecurity, corporate and securities law, while representing plaintiffs in False Claims Act and Dodd-Frank whistleblower cases. She also teaches bioethics at Baylor College of Medicine in Houston. Rachel can be reached through her website, 

U.S. Attorney’s Office in the Eastern District of Texas (EDTX) and the U.S. Department of Health and Human Services (HHS-OIG)

 against individual physicians, a hospital CEO, and a hospital should cause providers to take note for the following reasons: (1) the Anti-Kickback Statute (AKS) and Stark Law violations remain a focus of the government; (2) the False Claims Act was utilized; and (3) the defendants cooperated.

Before delving into the specifics of the settlement and other critical facts and circumstances, it is important to appreciate what cooperation credit is. In 2019, the U. S. Department of Justice (DOJ) announced 

 and updated Justice Manual (Section 4-4.112). Importantly, the DOJ does not only extend cooperation credit in False Claims Act cases. Credit for defendants is available in other situations, such as cases involving the Foreign Corrupt Practices Act. As the DOJ notes:

Under the policy, cooperation credit in False Claims Act cases may be earned by voluntarily disclosing misconduct unknown to the government, cooperating in an ongoing investigation, or undertaking remedial measures in response to a violation. Even if the government, cooperating in an ongoing investigation, or undertaking remedial measures in response to a violation. Even if the government already has initiated an investigation, for example, a company may receive credit for making a voluntary self-disclosure of other misconduct outside the scope of the government’s existing investigation that is unknown to the government. Similarly, a company may earn credit by preserving relevant documents and information beyond existing business practices or legal requirements, identifying individuals who are aware of relevant information or conduct, and facilitating review and evaluation of data or information that requires access to special or proprietary technologies.

Bottom line – if you are or your company is the subject of a government investigation, the most prudent step that can be taken is to hire knowledgeable outside counsel and cooperate with the government. The Eastern District of Texas settlement illustrates this point.

To resolve False Claims Act allegations involving illegal remuneration, which violates the AKS and Stark Law, seven physicians and a hospital executive agreed to pay $1,106,499. The heart of the illegal remuneration stemmed from attempting to disguise the kickbacks as a form of investment arrangement. “Our office [EDTX] is committed to looking through the disguise a putting an end to any arrangement where the purpose is to improperly influence medical decision making through the payment of kickbacks.” In this case, seven doctors received thousands of dollar in illegal remuneration from eight management service (MSOs) in exchange for ordering laboratory tests from Rockdale Hospital d/b/a Little River Healthcare (Little River), True Health Diagnostics LLC (True Health), and Boston Heart Diagnostics (Boston Heart). The remuneration was premised on volume-based commissions paid to independent contractor recruiters, who used MSOs to pay numerous doctors for their referrals. “

These payments were allegedly disguised as investment returns but in fact were based on, and offered in exchange for, the doctor’s referrals.”

As part of their respective settlements, the individual physicians agreed to cooperate with the DOJ’s investigations of and litigation against other parties involved in the case. Equally as important is that fact that Richard DeFoore of Anson, Texas, the former CEO of Jones County Regional Healthcare, not only paid $50,000 to cooperate, but is still excluded for three years from participation in federal healthcare programs. In sum, this settlement serves as a reminder that the DOJ does consider AKS and Stark Law violations material to payment and often times, a False Claims Act case is brought. Cooperation is important but persons should evaluate their compliance programs, too, in order to ensure that the AKS, Stark Law, and False Claims Act are not violated in the first place.

Articles

Actions taken against healthcare professionals show the priorities of the government.

Federal program exclusion shows importance of fraud, waste, abuse compliance

MGMA Senior Vice President for Government Affairs Anders Gilberg walks us through what can be expected this year as far as healthcare policy.

What to expect this year

The reasons physician owners decide to sell a practice are as varied as the reasons for starting a practice in the first place. Some practices are sold because no one in the younger generations wants to continue in the business as an owner. In some instances, practice owners may not be actively considering selling when they are approached by an interested party (e.g. hospital, physician practice, or private equity-backed MSO). Because of their fiducial duty to act in the best interest of the practice, shareholders must carefully consider even unsolicited offers.

A buyer’s reason for targeting a practice for acquisition can be equally varied. The target may have developed a market into which the buyer wishes to expand, whether a geographic expansion, patient base, or referral base. The target may have a medical specialty that the buyer believes would be valuable to its business operations. Often larger companies (such as hospital systems or private equity-backed MSOs) can maximize the efficiency of a smaller practice or create other synergies by bringing in-house various administrative functions that otherwise eat away at profits of smaller practices. A buyer may also attempt to literally buy market share by purchasing a competing practice.

Regardless of the motivations from the buyer or seller’s side, the ultimate driver for an acquisition is price. A seller wants to realize a return on investment (as that term is used in the broadest sense), and a buyer wants to realize value in the long term through the target’s business or assets. It is for all these reasons outlined above, that physician owners would be wise to engage experienced professionals to help them first navigate the strategic aspects and then to wade through the transaction details.

Waiting to sell is sometimes motivated by successors or lack of potential successors. Physician owners without succession plans, may need more in-depth planning prior to the sale of the practice.From the acquirer’s perspective, buying a medical practice with an existing succession plan complete with experienced management on board can be a huge incentive for private equity groups operating via an MSO.

For those contemplating succession planning, remember it’s never too soon to start. Succession planning helps you balance both personal and business interests and helps ensure that your family-run medical practice gets through the transition successfully. Without formal succession planning, these practices run the risk of not being sustainable. Some physician owners regard succession planning as simply a question of informally handing over the practice from one generation to the next. They do not want to plan or think about their withdrawal from the business. This reluctance typically arises from a strong sense of attachment to the practice, an aversion to letting go of control and power, fear of retirement, and also the inability to make succession choices between their children. Financial factors often also play a part. Just remember, if you want your practice to survive and your patients to continue to be cared for, you will eventually have to hand off the reigns.

Perhaps you’ve not yet reached the point of business “burn-out.” Those who’ve been there know precisely what it is when they reach it. It’s that place when the practice no longer is the autonomy-providing blessing it once was. Sometimes physician owners continue to work the medical practice until they grow tired of the grind (i.e. declining reimbursements, burdensome government regulations, etc.) and finally reach that point when they say, “it’s time.”

The journey for a physician owner who has decided to sell their business can be a very challenging; both physically and emotionally. It is human nature to put our ‘blood-sweat-&-tears’ into our most valuable assets, and for a physician, this is your medical practice. When you decide that now is the right time to sell, regardless of the reason, it is generally a painstaking process so avoid navigating these waters alone. The following four areas are some of the most common reasons medical practices are sold.

Often today this is the most common reason a medical practice is sold. General fatigue, boredom, and burnout can have very negative impacts on productivity and therefore your medical practice value. When your practice is young and fresh excitement brings you into the office. When that dies, you should consider getting out.

Running a practice requires a significant investment by a physician owner, and this is generally more by way of their time than actual capital. Running the practice becomes a daily routine and it can be very hard to break old habits. Physician owners are generally passionate, driven individuals who love what they are trying to achieve. If they do not reach the “I’m over it” stage, mentioned above, a physician owner will generally stick with it until they can no longer physically keep up. This happens when it is finally time for them to retire.

Life doesn’t always follow the path you intend. Should the physician owner or a close family member be distressed with a major sickness, they will look to sell. Linking to the point above, having your practice ready to sell will help alleviate some extra stress. Divorce is also a common reason for selling a medical practice, sometimes not by choice.

Medical practices that have been running for 10+ years must innovate and respond to the rapidly evolving market; or be passed by. The alternative is selling when the practice is competitive and before these positive trends have passed. This decision can lead to an increased sale price when looking to sell to private equity. What normally gets in the way here is pride and stubbornness.

Selling your medical practice can be financially rewarding as well as give you the personal satisfaction that what you created will continue after you. Your patients will be happy, and the jobs your practice provides will continue. Also, you will give another physician a chance to be a small business owner. While each medical practice owner chases success in his or her own unique way, there are some things nearly all physician practice owners have in common: hard work, determination, a vision of what could be, and the will to make it happen. But there is also another common factor that binds together all physician practice owners: the need to someday transition your practice to its next owner.

A look at the reasons physicians sell their practices.

When is it time to sell your practice?

, JD, has practiced law exclusively in the areas of asset protection, risk management and wealth preservation for the last 16 years. He helps protect a national client base with more than $5 billion in personal assets, including several thousand physicians. He is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter. 

Trusts can be effective and important legal tools, but they are not all the same and they are not universally interchangeable. We examine some of the trust law basics and terms every successful physician should know when evaluating their own legal planning needs.

For the purposes of our discussion, a trust is a formal, binding, legal document that allows an individual to create and transfer title to property or value of any kind to the control of another, for the benefit of a third party.

The person who creates and funds a trust is known as a “

”. If there is more than one, they are known as “co-grantors” etc. i.e., husband and wife as co-grantors.

The trust is under the control of an individual known as a “

”. If there is more than one trustee serving at the same time, they are known as “co-trustees”

The trustee manages the trust in accordance with the terms it provides, most commonly for the benefit of a 3rd party, known as the “

There may be one or more beneficiaries and some trusts name ‘primary’ and ‘contingent’ beneficiaries, i.e., wife leaves estate to her husband as 

There are also cases where one may create and fund a trust for their own benefit, during their own lives, as opposed to those created solely for the benefit of third parties. These are referred to as “

” are commonly seen in various forms of asset protection trusts including both those used by successful, high risk professionals 

The term “situs” refers to the jurisdiction and choice of law selected for the trust.Trusts may be established under the law your state, another U.S. state, or the 

, “offshore”.Different jurisdictions may have significantly different laws, taxation, and compliance requirements including the 

Offshore trust, aka, International Asset Protection Trust or (APT or IAPT)

Domestic Asset Protection Trust (DAPT) established in one of 

Some special purpose asset protection trusts don’t rely on specific creditor protection laws at all, but rather on other well-established legal principles including arm’s length sales transactions (i.e. you sell an asset to a trust for fair market value) and gifts to trusts that are considered “completed gifts” 

 for tax purposes and where you permanently relinquish title and control.

Any asset protection plan or planner that uses the term “secret” should be a glaring red flag and most likely avoided. There is no such thing as “

which does exist and can be a trust benefit) and any plan that relies on assets being held in a trust, LLC etc. that you 

 isn’t found will also require your willingness to actively lie to conceal it. Why? Because an experienced litigator will simply ask you, 

 in discovery, in a deposition, in a debtor’s exam etc. to disclose, “Any trust, partnership, corporation, foundation or similar device that you are a grantor, trustee, beneficiary, officer, member or director of”. You’ll either answer honestly, or you’ll be committing perjury.

 is, it is not a substitute for careful drafting, compliance, and the right choice of jurisdiction all of which can lead to a trust being an effective and defensible, even when you disclose it to an adverse party.

Two key trust terms: “revocable” and “irrevocable”

These are key terms in any trust and understanding them is especially important to those that are using any trust as part of an asset protection plan. Fortunately, their usage in the law is plain-English usage. A 

 can be revoked at any time up until your last breath, allowing you to change the trust details, including the trust’s assets, and beneficiaries. 

As such, a revocable trust is defective against your creditors and liabilities, during your lifetime

 on the other hand makes a permanent transfer of assets away from yourself to the trust so that the assets are trust property and not available for your personal or professional liability. With these basics in mind, we will continue our look at specific types of trusts in greater detail.

Not all trusts are equal, find out what kind you need.

Trusts 101 for physicians 

Many healthcare businesses have an employee handbook, or employee policy handout, but fail to update them on a regular basis. There have been a large number of changes to employment law over the past couple of years that have forced me to review these documents more closely.


The handbook should be a general overview of your expectations while working in your business. Sometimes you can get too specific in your guidelines for disciplinary action, which can tie your hands in situations when an immediate action would have been better for your business. Your handbook is an evolving document and should be reviewed every year after the Supreme Court has ruled on all pending cases and released all their rulings at the end of June. It is not intended to be a comprehensive list of rules, but rather guidelines about how you expect employees to conduct themselves in your business.

Here are some items you should be sure to include:

8 tips for avoiding employee handbook crises

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Can your employee handbook get you in trouble?

8 tips for avoiding employee handbook crises 

Medscape National Physician Burnout report

, a majority of physicians believe that excessive bureaucratic tasks such as paperwork contribute to the observed increase in physician burnout. Coupled with expectations of a 

 of up to 122,000 physicians by 2032, practices will likely find that staffing challenges of any kind can impact their ability to deliver effective care.

Many hurdles can impede the timely hiring of physicians, including inefficient provider credentialing processes, credentialing mistakes that increase costs, and lengthy onboarding procedures. However, healthcare organizations that streamline these processes can significantly improve their ability to attract and retain providers, as well as accelerate patients’ access to care.

Simplify credentialing for physicians and staff

Hiring physicians is a competitive endeavor with healthcare organizations across all markets vying to recruit top talent from the same candidate pool. As such, organizations that offer a unique benefit or an advantageous change in process can favorably distinguish themselves from the pack. One way to do so is by providing easier and faster credentialing and onboarding processes.

The sheer amount of information physicians need to submit for their credentialing can be daunting, especially when it must be supplied separately to different organizations or locations. The fatigue created by this “paperwork hassle” too often results in missing information, errors, and may even dissuade physicians from applying.

An automated credentialing system can substantially streamline the process for physicians by importing information directly from primary sources such as state licensing boards to create a physician profile that can be extended among health system locations. Instead of taking three or four hours to complete a lengthy document, for example, the physician might need to spend only 15-20 minutes verifying the pre-filled data and supplying any missing information. In addition to the initial time savings, once onboarded, physicians are saved the aggravation of refiling the same paperwork each time they move to a new practice within a health system.

Integrated solutions that enable primary source verification from state licensing boards, DEA sites, AMA sites, and other sources can also ease the burden on staff by automatically updating providers’ license and credentialing status. This allows the system to alert staff when licenses or insurance enrollments are about to expire, when disciplinary actions or sanctions have been levied, and other crucial details. By keeping provider information up-to-date and accurate, practices can also reduce their potential for billing errors and claim denials. And they can ensure that no physician is scheduled without the proper paperwork in place.

Using an integrated system to centralize and simplify what is usually a fragmented, time-consuming process gives practices greater transparency across the board. It saves time and lowers costs by limiting clerical errors while reducing the amount of paperwork that would otherwise inundate physicians’ inboxes.

While easing provider onboarding is a critical competitive differentiator for practices, credentialing also impacts patient flow. One of the biggest keys to improving patient care in the post-pandemic era is the ability to hasten access to credentialed providers. Forcing patients to accept appointments weeks or months down the road may very well cause them to look elsewhere for care.

Improving patient scheduling requires adding physicians to the docket as quickly as possible. Consequently, practices need credentialing systems that reduce the onboarding process from two months or longer to two weeks or less. Then, once physicians are onboarded, credentialing technology integrated with an enterprise scheduling system allows health systems to appropriately utilize staff across locations and shifts thereby maximizing productivity while simultaneously lessening provider burnout. 

Overall, reducing credentialing and onboarding time offers practices a competitive edge in their quest to attract and retain patients while increasing provider satisfaction and engagement.

As an industry, we must do better to ensure the well-being of physicians. Easing paperwork by automating the credentialing process grants them more time to see patients and maintain their work-life balance.

Credentialing is the first step toward making informed decisions to enhance provider satisfaction, increase their accessibility, and improve their ability to deliver superior patient care.

Inefficient provider credentialing processes, credentialing mistakes that increase costs, and lengthy onboarding procedures are just some of the hurdles to hiring healthcare staff.

Streamlining credentialing to boost provider satisfaction, patient access

The Biden administration has awarded even more American Rescue Plan (ARP) funds aimed at reducing burnout and promoting mental health and wellness among the nation’s healthcare workforce.

 have been awarded to improve retention by funding evidence-informed programs, practices, and training with a specific focus on practices in underserved and rural areas. The money will be given to 45 different grantees.

“I have traveled to many health centers across the country and know that the COVID-19 pandemic has intensified issues that have long been a source of stress for frontline health care workers — from increased patient volumes to long working hours,” HHS Secretary Xavier Becerra says in the release. “This funding reflects the Biden-Harris Administration’s commitment to ensuring we have enough critical frontline workers by supporting health care providers now and beyond as they face burnout and mental health challenges. We will continue to promote the well-being of those who have made so many sacrifices to keep others well.”

 among healthcare workers have only been compounded by the COVID-19 pandemic as staff member suffering the physical and emotional demands of treating patients during a public health emergency. The ARP money will fund the creation of partnerships and utilization of local resources to support healthcare professionals’ response to workplace stressors, the release says.

“Now more than ever, it is critical to support the well-being of our health care workforce, who are working every day to protect each of us,” Health Resources and Services Administration Administrator Carole Johnson says in the release. “Today’s awards will provide new tools to help support our health professionals’ resilience as they continue to face the stress and challenges of responding to COVID-19 and other health care needs and provide high quality care.”

The awards will be made through three programs:

Promoting Resilience and Mental Health Among Health Professional Workforce

 - $26.8 million will go to 10 grantees to help healthcare organizations to establish, improve, or expand programs and practices to promote mental health and well-being among healthcare workers

Health and Public Safety Workforce Resiliency Training Program

 - $68.2 million will go to 34 grantees to support tailored evidence-informed training development with the medical profession and nursing training activities

Health and Public Safety Workforce Resiliency Technical Assistance Center

 - $6 million will go to George Washington University to provide tailored training and technical assistance to other awardees

More funding has been released to help with healthcare workers mental wellbeing.

HHS announces more ARP funds for healthcare workforce

Deirdre Ruttle is Chief Marketing Officer, InstaMed and Head of Payments Healthcare Marketing, J.P. Morgan

The most startling yet persistent trend in healthcare payments over the years is the disconnect between consumer expectations and payment realities. Recent data gives insight into why providers have not prioritized payments as many do not consider payments in the overall patient experience.

However, their patients are indeed making that connection. More than half of patients would consider switching providers for a better healthcare payments experience, including having the ability to understand costs upfront and make payments how they want.

The most recent trends found that consumers increasingly want to manage their healthcare payments with digital and contactless channels, especially during the pandemic. The payment trends for smaller provider organizations offer a glimpse into the possibilities for contactless channels.

Regardless of an organization’s size, the financial consequences of the ongoing COVID-19 pandemic for providers will be difficult to overcome without streamlined and effective approaches to healthcare payments. Contactless payments and communication channels are the paths forward for providers to rebuild.

Startling disconnect between providers and patients

There is a troubling disconnect between consumer expectations and payment realities in healthcare. Year after year, the trends in healthcare payments show what consumers want is not matched by their actual healthcare payment experiences.

However, nearly half of providers did not see the connections between collection efforts and the patient experience. This persistent oversight puts patient loyalty and satisfaction at risk for provider organizations.

Legacy processes dependent on staff intervention and paper statements continue to dominate the industry. In particular, 66% of consumers receive their medical bills in the mail, yet only 14% want to return the payment through the mail. Additionally, 86% of consumers pay household bills online, but 58% of providers still rely on manual and paper collections.

Consumers are responsible for the cost of provider visits more frequently and for higher amounts than in the past. This trend in payment responsibility stands to further bind consumer loyalty to the payment experience in healthcare, especially as consumers engage with providers for medical bills more often. For providers, the increase in payment interactions can ultimately be an opportunity to avoid customer attrition and increase revenue.

Smaller provider organizations benefited from a digital focus

Smaller organizations may have been better positioned for the financial challenges presented by the pandemic with contactless payment channels in place before the start of the pandemic. The trends in healthcare payments show that organizations with 15 or fewer physicians actually had an increase in online payments, up 55% in 2020, coupled with a 64% increase in plan volume in 2020.

Online payments enable organizations to increase collections with minimal staff involvement and fewer resources, such as paper statements. The efficiency of contactless payments may have attracted smaller organizations that needed to increase cash flow without additional costs, even amid a pandemic.

The pandemic drove many providers to adapt their payment strategy to include contactless channels. More than half of providers changed their contactless due to the pandemic. Nearly a quarter of providers adopted contactless payments for patient collections during the pandemic.

Contactless payments that rely on electronic transactions will be key for providers of all sizes to recover from the financial consequences of the COVID-19 pandemic. Electronic transactions offer considerable savings potential to providers as demonstrated by payment-related transactions with payers. From eligibility to claim payments, providers save time and money on each electronic transaction over manual processes. This savings potential will be crucial on their path to a financially healthy post-pandemic reality.

What consumers want in healthcare payments

The pandemic accelerated many trends in healthcare payments beyond the contactless payment options offered by providers. The COVID-19 pandemic also caused an unprecedented surge in digital adoption. In particular, eCommerce saw a significant increase in 2020 according to payment trends: $211.5 billion was spent on eCommerce in the second quarter of 2020 alone, up 31.8% quarter over quarter.

This trend will likely only gain momentum as the convenience and efficiency of eCommerce are realized by more consumers. Almost 7 in 10 consumers worldwide say the shift to digital payments will likely be permanent. In healthcare, the majority of consumers also want digital to remain in the future. This includes online check-in, digital payments and electronic communications.

For over a decade, consumer sentiment has shown an increasing preference for contactless and digital options in healthcare payments. An important component of digital channels in healthcare payments is electronic payment methods, instead of paper checks and cash that require manual posting and processing. More than 80% of consumers prefer electronic methods for healthcare payments.

The reality of provider processes: Paper persists

Outside of the COVID-19 pandemic, provider organizations have not kept pace with the digital growth experienced in other industries. Throughout the healthcare industry, paper and manual processes still dominate provider processes related to patient check-in and collections:

72% of providers use paper and manual processes for check-in

81% of providers use paper and manual processes for collections

76% of providers use paper and manual notifications for collections

The current processes providers use for patient collections require valuable resources. However, that investment does not guarantee that a payment is received. Many providers report that a balance can take more than a month to collect, including larger balances. Even after a balance is collected, there is no guarantee that the amount owed is the same as the amount paid. Nearly all providers report issuing patient refunds.

To rebuild in a post-pandemic future, the benefits of contactless channels will be crucial to cut costs, promote efficiency and improve collections. The path to contactless interactions must begin with electronic payments. While many providers accept electronic payments, this payment type does not fully dominate patient collections. Providers will need to actively promote electronic options over cash and paper checks to fully eliminate the drag of paper and manual payments.

Electronic payments allow providers to securely save consumer payment cards on file. Providers should not fear patient pushback on this as 83% of consumers already save their cards on file or would in the future. Many providers, however, report that they do not support saving cards on file. For providers that do, the number of cards saved on file increased 206% or an average growth of 45% year over year, according to data from the InstaMed Network.

Trends in healthcare payments in action: Consumers overwhelmingly adopt contactless

The trends in healthcare payments tell us consumers want contactless options from providers. When providers make that available, patients can quickly adopt those options. In this example, a pediatric surgical practice increased collections by 250% during the worst of the pandemic.

Previously, the practice offered families access to an online portal to communicate with providers, view test results, and manage appointments. However, the clinical portal did not allow patients to make payments. Patients had to use a separate billing portal to pay online.

Moreover, setting up an account on the billing portal was so complex it required staff intervention. Instead of reducing workload, the system created more work for staff. Families calling to set up a payment account on the portal often ended up paying the bill with a credit card, rather than going through the longer and more process of setting up an online account.

Working with its billing service, the practice implemented a quick-pay option for online payments at the beginning of 2020. The new payment channel gave families a simple, self-service option to pay online without the hassle of accessing a separate payment portal or adding to staff workloads.

The practice promoted the new payment channel by including the URL on all billing communications, such as statements and pre-collection letters. Additionally, every staff member who fields a patient call encourages family members to pay their balance online rather than make a payment over the phone.

When billing staff had to work remotely beginning in March 2020, the payment portal helped support the transition. Rather than being forced to take credit card information over an unsecured phone line, staff directed patient families to the new, secure online payment site. Families were able to continue making payments via the channel with minimal staff intervention. In fact, the system was so successful that April 2020 saw the highest level of patient payments in the company’s history.

Contactless payments and experiences are key for provider organizations

Payment trends in smaller provider organizations offer hope for what can be accomplished with contactless payment channels. This segment of providers saw payment growth in self-service and automated channels, even during a pandemic when non-essential services were closed. The trends indicate that the clearest path forward for all providers will be paved with digital, contactless payment and communication channels, which can improve the patient experience and ultimately help providers collect more from patients at lower costs.

Technology can help bridge the gap between physician and patients.

Finding a path forward: Build a digital connection with patients

Physician business owners often approach me, confused why they need an LOI. The short answer is commercial transactions between businesses are complex. While all parties prefer a long and detailed contract, these agreements take an enormous amount of time to draft. Often parties want to get their ideas down on paper. Here is where an LOI, or letter of intent, comes in. An LOI is a document created between two parties who want to spell out the essential terms of their deal in writing. This “term sheet” outlines the agreement between the parties in a brief document.

Entrepreneurs use an LOI after completing discussions about a transaction; primarily for the sale or purchase of a healthcare facility, a merger, joint venture, and sometimes it’s used in an employment agreement.

The LOI determines major issues and can make clear to both parties why the transaction might be a good and/ or bad idea.

As a general business matter, whether you’re the buyer or the seller in the sale, both parties’ benefit from drafting an LOI early.

DO NOT use a LOI if it becomes so detailed and overly negotiated where it is as expensive and time-consuming as the definitive agreement (full agreement) but lacks the same level of enforcement; simple transactions do not need an LOI.

Although the LOI sets the “stage” for the transaction, there can be concern amongst the parties about the enforceability of the document; LOIs are non-binding;

Watch out, when reviewing and drafting an LOI, there are terms in the document which make the document binding. Pay attention to how announcements or other actions are written; its important that such documents should not make it appear that an agreement was executed.

Many states have different standards regarding the intent of the parties in an LOI. In Texas, the legal standard is if a “reasonable person” believed that there was an agreement. This standard has reached unpredictable outcomes in Texas and caused costly litigation. For instance, in Texaco, Inc. v. Pennzoil Co., Pennzoil won a $10.5 billion judgment against Texaco for tortious interference with Pennzoil’s “handshake” agreement to gain a controlling interest in Getty Oil for $5.3 billion. Texaco filed for bankruptcy. Here, the parties never signed a definitive merger agreement for the transaction. However, the court found that an agreement had been reached based on a 5-page Memorandum of Agreement and a press release that stated they had executed an agreement.

Exclusive dealings or no-shop provisions in LOI’s are binding even if the rest of the deal is non-binding.

Make sure to include a statement that the letter of intent that does not include all the essential terms of the deal.

Remember, even when you have an executed agreement, an LOI can still be enforceable

In Kelly v. Rio Grande Computerland Group, parties entered a “Letter of Intent” providing favorable employment terms for the largest shareholder to serve as President after merging of two companies. However, the purchase agreement omitted these and several other provisions. When the largest shareholder was not kept as the President or even as an employee, he sued the purchaser for breaching the “agreement” contained in the LOI and won thousands in damages from lost wages.

Therefore, although an LOI can appear to be a simple document, it makes sense to hire an attorney to review the document to avoid unnecessary legal traps.

Doris Dike is the managing partner at Dike Law Group. Mrs. Dike offers legal advice to healthcare businesses and healthcare providers in the state of Texas and nationwide. She frequently provides healthcare businesses with transactional advice, LOIs, acquiring new businesses, MSOs, employment agreements, compliance guidance and a host of other issues relating to healthcare business law. Mrs. Dike has worked for various healthcare providers including doctors, physician practice groups, and is currently serving as Chief Legal Officer for a rural hospital system in North Carolina.

What to look out for when executing a letter of intent.