Joan Roediger

Imagine managing a multimillion-dollar company without any formal rules in place to outline how the business is run, the roles of leadership, and decision-making processes. Sound far-fetched? You'd be surprised just how many medical practices operate this way. 

No matter what size your practice, you need to have processes in place that give structure and direction to the governing body of your group. Your board of directors and shareholders will be better able to lead your practice in the right direction if they have a roadmap to follow.

Typically, the decision-making authority among physicians, as well as most operational processes, is delineated in the practice bylaws, operating agreement, or partnership agreement. These are similar documents with different names, depending on the corporate organizational structure of your practice.

At first glance, the bylaws look like fairly dry documents, with plenty of legalese. You may be tempted to simply take sample bylaws from online legal resources, insert your practice's name at the top, and be done with it. That's a mistake. Since they are so integral to the governance of your practice, your bylaws should be tailored to the inner workings and size of your group, with the help of your attorney. Among the items to include:

At a minimum, the shareholders should meet formally once a year to discuss the business of the practice. If a special meeting is required, the bylaws should say how it can be called and how much notice must be given, tailored to your practice's needs. For instance, large practices may not want a special meeting to be called at the request of only one shareholder.

Be careful to establish a policy for how notices can be given to the shareholders and board members. It is tempting to simply communicate by e-mail or fax. Instead, notices should be delivered by courier or overnight or regular mail, with proof of receipt. 

The bylaws also outline shareholders' voting rights in the practice. Most medical practices tie voting power to the number of shares owned by each shareholder. Make sure your practice bylaws clearly address how votes are cast, who is entitled to vote, and how many votes each shareholder is permitted to cast. 

It's important to spell out how many shareholders must participate in the meeting to have a sufficient representation of the practice (a quorum). Most practices require at least 50 percent of all voting shareholders to be present for a shareholder meeting, in person, by phone, or videoconference.

Shareholders can also make decisions by unanimous consent instead of holding a meeting. A unanimous consent is a resolution of the shareholders that authorizes a certain action and is signed by all of the shareholders. 

Minutes of the shareholders' meetings should be approved by the shareholders and placed in your practice's corporate minute book.


A key function of the shareholders is to appoint the board of directors. The board oversees the daily functions of the practice and appoints the officers to run the practice - commonly a president, vice president, secretary, and treasurer.  

In very large medical practices, the board may delegate some of its management responsibilities to practice managers or to a management committee made up of physicians who can share the administrative tasks of the practice.  

For the board of directors, your bylaws should include:

In a small practice, board members may serve for a one-year renewable term. In larger practices, they may rotate, requiring elections. 

How frequently should elections occur? Certainly no more than once a year. If board members are serving for a few years at a time, you may decide to stagger the elections so all board positions are not up for election at the same time.  

The board should hold regular meetings, at least annually, if not more frequently. Minutes of the board meetings should be taken and stored in the practice's minute book.

Just as quorum is important for shareholders meetings, the bylaws should clearly state how many board members must be present at a meeting.

Most bylaws state that decisions can be made by majority vote of those in attendance at a meeting. Considering that most bylaws only require half of those eligible to vote to be present in person (or by phone, etc.) to constitute quorum, the majority vote could be achieved by having a little over a quarter of those eligible to vote acting on a particular matter.

To avoid having fundamental issues being decided by so few voting members of your shareholders or board, consider requiring a higher percentage of votes - a super-majority vote - for certain key business decisions. This generally means 60 percent or more voting approval. Here are some situations in which you may consider requiring super-majority approval:

Selling or disposing of the assets of the practice 

Making any assignment for the benefit of creditors; filing any reorganization or bankruptcy petition on behalf of the practice 

The termination of any physician-employee (except the affected physician) 

The hiring, firing, or replacement of the practice administrator or manager or practice advisers 

The opening of new offices, expansion or termination of the practice's services 

Approval of office leases, subleases, or equipment leases 

The settlement of any action, claim, controversy, or litigation 

The establishment, amendment, or repeal of practice policies, or benefits offered by the practice 

Entering into loans or other financial obligations in excess of an agreed per-transaction and annual amount 

The purchase of real estate by the practice 

In certain circumstances, it may also make sense to implement "founding shareholder" protections. This clause requires that the founding shareholder must agree to the "fundamental changes" outlined above and be part of the super-majority voting in favor of such issues in order for the resolution to receive formal practice approval.

Review your practice governance documents periodically and amend them as needed to keep them current with changes in your practice, medical practice in general, and legal requirements. By anticipating future problems and drafting appropriate policies, rules, or regulations to address them, your governing officers will have a clear plan in place for moving your practice in the right direction.

Joan M. Roediger, JD, LLM, is a partner with Obermayer Rebmann Maxwell & Hippel LLP of Philadelphia. She can be reached at (215) 665-3216, at 

This article originally appeared in the June 2005 issue of

Articles

Imagine managing a multimillion-dollar company without any formal rules in place to outline how the business is run, the roles of leadership, and decision-making processes. You'd be surprised just how many medical practices operate this way.

Let the Leaders Lead

It's been a busy month in your office, and some of your staff has been staying later than usual to keep up or catch up. But do you know who's eligible for overtime pay and who isn't? 

Since staff salaries generally make up about half of a practice's expenses, you need to keep up with federal and state rules that apply to the people who work for you. Virtually every medical practice is covered under the Fair Labor Standards Act ("FLSA"). The FLSA covers a broad array of subjects dealing with employee compensation, including minimum wage payments, overtime pay, and record-keeping requirements. 

The FLSA breaks employees down into two categories: exempt and nonexempt. It's your responsibility to determine each employee's classification to know whether your medical practice is legally obligated to pay the employee overtime.

Under the FLSA, employers must pay overtime to nonexempt employees who work more than 40 hours in a workweek. Overtime pay is a minimum of 1.5 times the employee's regular compensation.

Recently, the Department of Labor (DOL) issued long-awaited definitions of who qualifies as an exempt employee, and they are far more employer-friendly. 

In the past, there were a series of tests you had to pass to qualify your employees as exempt. Now, the regulations say that a worker who is employed as a bona fide executive, administrative, professional, or as a certain type of computer employee is potentially eligible to be qualified as exempt and not subject to the FLSA's overtime requirement.

What does "potentially eligible" mean? Two things. First, all employees are potentially eligible based on what they do. For example, only certain IT employees are automatically exempt. More importantly, as I mention later, even if the employee would otherwise qualify as exempt, the employer can negate that by then paying the employee on an hourly basis or deducting time from their wages. 

You should have written descriptions for each position within your practice. Now is the time to review these descriptions to see if they are up to date. If not, use this as an opportunity to clearly document each employee's job responsibilities and job classification. 

Of most importance to medical practices are the DOL's changes to the professional employee definition. This exemption includes those employed in a bona fide professional capacity -- physicians and other practitioners licensed and practicing who are paid a salary of at least $455 per week. 

For the healthcare sector, this includes employees whose primary duty is performing work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized instruction. Thus, employees must perform work that is intellectual in nature and requires the consistent exercise of independent discretion and judgment. 

The FLSA regulations are very clear that advanced knowledge is not evidenced by a high school degree. The professional employee exemption is only available to those individuals who have acquired it either through an academic degree or a combination of work experience and academic training. The new FLSA regulations specifically discuss the applicability of this professional employee exemption to healthcare workers, including physicians, physician assistants, nurses, and medical technologists.

Physicians clearly meet this standard. The FLSA regulations define physicians as medical doctors, osteopathic physicians, podiatrists, dentists, and optometrists with either a doctorate in optometry or a bachelor of science in optometry. Residents and fellows who are actively pursuing one of these professional degrees are also included as exempt employees under the FLSA regulations.

Registered nurses who are licensed by the appropriate state licensing board also meet the definition of exempt employees. However, licensed practical nurses, medical assistants, and the like, do not generally qualify as exempt professional employees, as a specialized advanced academic degree is not required for those jobs.

The FLSA regulations specifically discuss registered or certified medical technologists. As long as these individuals have successfully completed at least three years of pre-professional study in an accredited college or university plus a fourth year of professional course work in an approved school of medical technology, they may also meet the definition of a learned professional employee and may be exempt from overtime.


Physician assistants (as opposed to medical assistants) who have completed four years of academic study and have graduated from an accredited physician assistant program may likewise meet this exemption to overtime.

The new regulations clarify that only certain administrative employees qualify as exempt. To meet the exemption, the employee must be: compensated on a salary or fee basis of no less than $450 per week; performing primarily office duties or nonmanual work directly related to the management or general business operations of your practice; and exercising independent judgment and discretion with matters of significance.

Before you rush off to characterize all of your administrative employees as exempt, consider their day-to-day responsibilities. Most likely, very few employees in your practice, besides your practice manager, will qualify under this exemption.

Also, don't make the mistake of assuming you can simply amend your employees' job title or description to meet these three requirements. Unless your employees legitimately carry out these administrative responsibilities and satisfy all three elements, they will not qualify for the exemption. 

As your practice has expanded, you may have hired one or more individuals to work on computer-related issues for your practice, including Web site design, network administration, and software integration. How do you categorize these employees?

The FLSA permits computer systems analysts, computer programmers, software engineers, or other similarly skilled computer workers to be classified as exempt employees, provided their daily work responsibilities involve a high level of skills related to areas such as system analysis techniques; design, development, creation, or testing of computer systems or programs; and/or design, documentation, testing, creation, or modification of computer programs related to machine operating systems. Before determining whether or not your computer employees are exempt or nonexempt, look carefully at their actual responsibilities. 

Even if your employees otherwise qualify as exempt employees, you, as their employer, can invalidate the exemption. If it is your practice pattern to "dock" employees for absences (for instance, for lateness or partial-day personal absences), you may have unwittingly eliminated your employees' qualification for exempt status. 

While it is permissible to deduct nonwork time from a nonexempt employee, an intentional deduction in the salary of an exempt employee will likely be viewed by the government as stripping your employees' exempt status. Bear in mind, you should have in place a clearly communicated policy that prohibits improper salary deductions from exempt employees as well as a grievance policy. Under this grievance policy, you must reimburse the employee for any improper deductions.

For all of your employees that are classified as nonexempt, there are additional record-keeping requirements. You are required by law to maintain information about each nonexempt employee regarding their identifying information (name, address, Social Security number, and date of birth, if under the age of 19), as well as information relating to their wages and hours worked per day and workweek. Employers are not required to maintain time clocks; however, if you use a payroll company, they can help you maintain all necessary information.

If you are found to have violated these regulations, you will likely owe the employee the overtime compensation, and possibly additional monetary damages equal to the unpaid wages. You will also likely be responsible for paying the employee's attorneys' fees. 
If your practice's actions are flagrant, the government can institute civil and criminal proceedings.

Keep in mind, the statute of limitations for these actions can be up to three years, depending on the facts and circumstances. If your state specifically addresses overtime and wage issues, make sure to double-check those requirements. If your state has a more stringent requirement than the federal law, then you must comply with your state law, in addition to the FLSA. 

Don't make guesswork of classifying employees' exempt/nonexempt status. Seek professional advice from your legal advisers to help you navigate this complex area of law. It is easier to get it right the first time and avoid financial and legal consequences. 

Joan M. Roediger, JD, LLM, is a partner with Obermayer Rebmann Maxwell & Hippel LLP of Philadelphia. As a member of the firm's health law department, her practice is focused on advising physician practices on legal and regulatory issues including hiring new doctors, buy-in and buy-out arrangements, income division, practice sales, physician termination, fraud and abuse, HIPAA compliance, and other issues. Ms. Roediger is a nationally recognized speaker on practice management related issues. She can be contacted at (215) 665-3216 or via e-mail at 

This article originally appeared in the March 2005 issue of 

Understand when you need to pay overtime to staff

Headed Toward Overtime

Many medical practices primarily retain medical records to preserve and communicate information in order to improve patient care. But it's important to remember that medical records are legal documents and can become evidence in legal proceedings such as malpractice cases, reimbursement decisions, Medicare/Medicaid and workers' compensation determinations, peer review issues, and regulatory compliance investigations.

Well-documented, legible medical records can assist your defense in any of these actions. On the other hand, illegible, incomplete records can subject you to potential liability. Furthermore, destroying, losing, or altering an original record can be interpreted as an attempt to conceal misconduct, and can plant a seed of suspicion in the event of a legal proceeding or investigation.

The reality is everyone makes occasional mistakes when documenting patient records. And the methods you use to correct those mistakes can make or break you in a legal challenge. Here are some key risk prevention criteria for medical records management.
       


All entries should be legible, comprehensive, and free of abbreviations. Each entry in the medical record should be dated and initialed or signed by the physician. It is a good idea to use a pre-printed examination form to assist you in making sure you appropriately document all elements of the office visit and your impressions. 

Only patient notes, correspondence, test results, consent forms, and the like belong in the patient's chart. Correspondence to your malpractice carrier, peer review notes, general notes, and other items should not be stored in patient charts. Also, think twice about what you write -- it could later become Exhibit 1 in a case against you. For example, avoid including witticisms or personal comments ('This patient is a grouch!') in medical records. Things that may seem amusing to you at the time you write them may not be funny to a potential jury.

Also avoid changing an entry in order to tone down an overly critical observation of a patient's personality or behavior. "Cosmetic" changes are not necessary for patient care and should not be made at any time.  

The fact that a record may contain something that is incorrect or that may have legal implications does not justify destroying, rewriting, or replacing the prior record. Doing so places the credibility of the entire record in jeopardy. 

The only time it is appropriate to destroy and rewrite a medical record entry is when an error is recognized when it is being written and before the entry has been completed. For instance, if you are in the middle of a patient exam and you realize you wrote the wrong name on the progress note, you can properly dispose of the incorrect progress note and start over. 

In some instances destroying a record can be considered a violation of the law and criminal in nature. Punitive damages have been awarded in cases where a physician improperly altered a medical record, regardless of whether doing so caused compensable damages to the patient.

Here's another scenario: Suppose a patient comes in and tells you that you misdiagnosed her. Now is not the time to start amending the records. Certainly, once you have reason to believe that you are or will be subject to any licensing action, peer review action, malpractice action, billing audit, or other action, do not then start performing housekeeping on your medical records. You should, however, make sure that all information related to the patient in question is contained in the chart and that no related information remains to be filed. 

Courts and licensing bodies have universally held that intentional alteration, falsification, or destruction of a medical record to avoid liability is gross malpractice and subject to punitive damages.

Also, be aware that there are many techniques that can confirm the integrity of a record. These include using a handwriting expert to determine whether medical record notes were written at the same or at different times, and examining the paper the record is written on to determine when the paper was manufactured.  
       


It is always appropriate to make chart changes that are necessary to protect a patient's health status. For example, perhaps a patient is allergic to penicillin and the chart is erroneously marked to indicate that the patient is allergic to tetracycline. Failure to correct that error could endanger the patient. Change such an error as soon as it is discovered by making a single line through the incorrect entry that does not obliterate the prior entry. The physician should then sign, date, and explain why the change was made. Never, under any circumstances, use correction fluid or cut out parts of the record when making a change to the record.

Similarly, there may be occasions when your dictation was interpreted improperly, to the detriment of the patient's care. If you notice the change before the dictation becomes part of the patient chart (when the dictation is sent to you for proofreading) make the change then and have it incorporated into the final, approved patient note. However, if you discover the error after you have approved the note and it is part of the patient chart, use the same process to make the change: with a single line, mark the incorrect part of the dictated note, handwrite the appropriate entry, date, and sign the amended entry with a notation as to why the change was needed.


You may also dictate an amendment to the note. This amendment will be placed in the chart in chronological order but will reference the prior incorrect note, the amendment to the note, the reason for the amendment and the date of the amendment. Thus, if you discover on February 20 that the progress note from January 3 is incorrect, you can dictate an amendment, but it will be placed in the chart as of February 20, not as a replacement of the January 3 entry.

This should only be done if the new note is for patient-care purposes. Defensive entries, which have no bearing on the patient's future care, can bring your motives and the credibility of the record into question.  

HIPAA provides patients with the right to request an amendment to their medical records. It does not, however, give them the right to make unfettered changes. You should have a form for patients to complete describing the correction they are requesting; you then have the right to accept or refuse the proposed change. Your decision should be well documented, and may include a comment to the patient's requested change to the record.

Any HIPAA amendments should then be placed in the patient chart in chronological order.  Under no circumstances are patients permitted to make changes directly on the medical record. Thus, patients are not permitted to cross out your notes and write in their own.   

Here are some additional tips to keep in mind:

It is likely that you will not be the only person in your practice reading or viewing your documentation. Your nurse may need to reference a note for clarification of a medication, or your partner may see the patient for a sick visit. Their inability to read your note wastes time and affects patient care. All the more reason to make charts legible.

Be sure your medical records are well maintained. Organized records that use chart clips to keep papers in place are well worth the time and expense involved. One lost note, message, or test result could have a real impact in a malpractice case.    

Develop a list of standard abbreviations used by your office for continuity and clarification purposes.

Avoid using a rubber-stamped signature in a medical record. Rubber stamps are difficult to keep track of and can easily be misused.

Make sure your staff is aware of your practice's policy regarding amendment of medical records. If a staff member finds an error, he or she should point out the error to a physician, but never correct it. 

Keep your medical records the minimum amount of time required by law, which varies by state. Also, recognize that Medicare may audit your records if they believe fraud has been committed for a period in excess of most states' statute of limitations.  

If at all possible, never dispose of medical records. Instead, archive them off-site or have them stored electronically. If you do decide to dispose of medical records, make sure that doing so does not violate any other law such as HIPAA, and that all confidential information is destroyed. There are numerous cases of medical records that were carelessly disposed of (left on computer hard drives, for example). Patients' right to privacy has been destroyed in these cases.

Your medical records are an integral part of your practice. They serve as historical documents of the care you provide to patients. In this era of heightened legal scrutiny of physicians, it is important to understand what you can and can't do with regard to the creation, amendment, and storage of medical records. Following these suggested guidelines will serve to reduce your legal risk. 

Joan M. Roediger, JD, LLM is a partner with the law firm Obermayer Rebmann Maxwell & Hippel LLP, where she is a member of the health law department. She can be reached at (215) 665-3216, at 

Patricia M. Salmon is a certified health business consultant (CBHC) and the president of Patricia M. Salmon & Associates, Ltd., which provides practice management services to physician practices. She can be reached at (610) 225-1990, or at 

This article originally appeared in the February 2005 issue of 

Facts on making legal changes to medical records

Making Changes in Charts

Despite the fact that patients are the lifeblood of your life's work, extricating yourself from a less-than-ideal relationship with a patient while staying within the scope of the law is something that many physicians -- more than 60 percent of our surveyed readers -- are interested in knowing more about. 

Patients who fail to pay, who consistently miss appointments, and who refuse to submit to tests or screenings you recommend may be appropriate candidates for dismissal from your practice. What about patients seeking services that you object to for moral or religious reasons, or patients who just show up in the ER with no apparent means to pay? Proceed with caution: With certain laws come obligations.

While physicians are within their rights to terminate a physician-patient relationship under some circumstances, it's important to understand all the legal implications and background first. And when you do decide to dismiss a patient, have a policy in place that you apply consistently.

At the cornerstone of this issue is the physician-patient relationship and how it is defined. To establish a physician-patient relationship, both parties must voluntarily consent to it, and the physician must indicate an intention to treat the patient. 

A physician-patient relationship is expressly established when the physician actually sees the patient. But it can be implied in other ways; for example, when the patient schedules an appointment with the physician, or when a primary-care physician refers the patient to a specialist and the specialist's office gives the patient an appointment at a designated time and place.

Once a physician-patient relationship is established, the physician has a duty to continue to provide care to the patient until that relationship is terminated by mutual consent; the patient dismisses the physician; the services of the physician are no longer needed; or the physician properly withdraws from the physician-patient relationship.

Assuming the relationship exists, you have a duty to treat and cannot simply deny care to a patient without exposure to liability for abandonment of the patient, possible risk of malpractice suits, and possible licensure revocation, suspension, or other disciplinary action, based on specific state laws. However, under common law, there is a "no-duty rule" that says a physician has the right to refuse treatment to a patient in need of emergency care if there is no prior physician-patient relationship.

Statutory laws, which vary by state, add several layers of complexity to the common-law rules. Laws including those governing emergency treatment provided by hospitals (EMTALA, the Emergency Medical Treatment and Labor Act) and antidiscrimination statutes, as well as certain ethical constraints, play a significant role in how and when a physician can terminate that relationship. 

Withdrawal from the relationship should not be attempted or done during a time when the patient is in need of medical attention. Otherwise, in very broad terms, you can legally terminate your relationship with a patient if you:

Give the patient adequate notice in writing, preferably by certified mail, return receipt requested (30 days is a good rule of thumb).

Give the patient a brief explanation of why you are terminating the relationship. Be absolutely certain that the reason given could not be a pretext for discrimination.

Document notification and the reasons for termination in the patient's medical record.

Help the patient find another physician. Generally this can entail giving the patient the phone number of the local medical society or a physician referral service. 

Offer to transfer medical records to a newly designated physician upon receiving signed patient authorization to do so. 

Continue to provide care if the patient remains in need of care.

It's also advisable to check with your malpractice carrier, particularly if you're in the middle of a course of treatment, and check with payers to make sure you're not in violation of your contract.

A physician's office is considered a "place of public accommodation," and is therefore subject to certain state and federal laws that affect the establishment of the physician-patient relationship. For example, Title III of the Americans with Disabilities Act (ADA) prohibits a place of public accommodation from denying access to healthcare because of disability, unless the disabled individual poses a direct risk to the health and safety of others. The ADA also provides broad protections for those who are considered disabled by virtue of having certain diseases, such as HIV. 

EMTALA (Emergency Medical Treatment and Labor Act) was enacted by Congress in 1986 in response to a concern over "patient dumping" by hospitals refusing treatment to individuals who could not afford to pay for medical services. EMTALA imposes a duty on the hospital and its physicians to provide medical screening exams and stabilization of everyone seeking emergency care, regardless of their ability to pay. Under EMTALA, a patient cannot directly sue a physician for not complying with the act, but physicians may be subject to civil monetary penalties and exclusion from participating in Medicare and Medicaid for flagrant or repeated violations of EMTALA.

Certain federal and state laws, including antidiscrimination laws, do provide some grounds for physicians to refuse certain patient relationships. One allows physicians, other healthcare providers, and faith-based health systems to refuse to provide services, such as abortions and sterilizations, which are morally or religiously objectionable to them. Most states have some form of these "conscience clauses."

For example, some state laws stipulate that a physician cannot be required to perform, participate in, or make a referral for artificial insemination, sterilization, or termination of pregnancy. However, in the case of a failure to refer, physicians can be liable for civil or disciplinary action if the courts find that it led to a serious or long-lasting injury or death to the patient.


The Ethical Opinion of the Medical and Chirurgical Faculty of Maryland, and similar edicts in other states, says "a physician may freely choose the patients he wishes to treat. However, fear of contagion should not be the sole reason a physician refuses care." Similarly, the AMA Council on Ethical and Judicial Affairs has deemed it unethical to refuse to treat patients because they are HIV-positive.

Probably the best-known case surrounding treatment of an HIV-positive patient was decided in 1998 when a patient sued a dentist who refused to provide treatment in his office, but was willing to do so in a more expensive hospital setting. The court ruled that HIV constitutes a disability and ruled accordingly under the ADA. 
As awareness and knowledge about HIV's spread and treatment have improved since then, these types of situations seem somewhat anachronistic.

Given these legal limitations, there are some circumstances in which you can "fire" a patient in nonemergency situations. If the patient does not currently require treatment and fails to pay for prior medical care, some courts have held that a physician can terminate the relationship after giving the patient reasonable notice (generally 30 days) and sufficient opportunity to secure another physician. 

In addition, at least one court has found that a physician may terminate treatment when he no longer participates with the patient's health plan. In that instance, you must inform the patient of the change, give the patient a list of providers participating in their health plan, or obtain the patient's agreement to pay out-of-pocket.

If you treat a patient during a limited time for a specific service, such as a surgery or consultation, you have no duty to continue visits or treatment thereafter. In this situation, be sure that the patient understands the treatment is limited to a certain illness or injury, or to a certain specified time and place, and that another physician or provider will be responsible for follow-up care.

Since there are so many sticky circumstances surrounding the termination of a patient relationship, it's best to have a written policy in place -- particularly with regard to payment of services -- and apply it consistently. For example, your policy might state that if the patient has been dismissed for administrative reasons (as opposed to clinical noncompliance), you will allow the patient to resume his care if 100 percent of the outstanding balance is paid. 

Some practices have decided that once a patient is dismissed, they will no longer agree to extend credit, even after readmitting the patient. That is, the patient has to pay 100 percent of his bill at the time of service, and he can file his own insurance claim if he so wishes. And some practices will no longer schedule an appointment with a dismissed patient, but will treat the patient on a walk-in basis.  

For issues of clinical noncompliance, your policy should be reviewed by the physicians in your practice and your malpractice carrier.

Just as you must exercise reasonable care and skill in treating your patients, you must exercise reasonable care and skill in discontinuing the physician-patient relationship. Dismissing a patient should be a last resort. 

Joanne Tetrault, director of editorial services for Physicians Practice, can be reached at 


. Joan Roediger, JD, LLM, a partner with the law firm Obermayer Rebmann Maxwell & Hippel LLC in Philadelphia, contributed to this article. She can be reached at (215) 665-3216, 

This article originally appeared in the January 2005 issue of 

How to legally end a patient-physician relationship

Severing the Ties


It's hard to believe that it is already November. At this time of year, it's common for people to reflect back on what the year has brought them and how they've progressed since those early days of January. But all businesses, particularly medical practices, should also consider this as a time to look ahead. Now is the time to start focusing and planning for 2005, from a corporate, financial, and operational standpoint. Here are my suggestions to help you get started.

Most medical practices are organized as professional corporations - and as such there are certain activities that need to take place. When was the last time you reviewed your corporate minute book? Did you know, for example, that some states require corporations to hold annual meetings to remain in good standing? And if you have been incorporated for more than 10 years, you may have to satisfy a state filing requirement. Failure to adhere to state-mandated corporate formalities could subject you to a legal liability if a plaintiff in an action establishes that your corporation is not properly organized. If this challenge is successful, it could potentially increase your financial exposure in the suit. 

For those medical practices organized as limited liability companies or partnerships, an annual meeting is not required under state law, but they should still try to hold one as a good business practice. An end-of-year corporate meeting does not have to follow any particular guidelines. Consider including the following on your meeting agenda: the election of corporate officers (even if you are the sole shareholder of your corporation), approval of actions taken since the last meeting, and approval of bonus distributions and retirement plan contributions. Actions taken at the year-end meeting should be documented in minutes that are signed by the secretary or other officer of your corporation and placed in your minute book. It's a good idea to keep these minutes on file indefinitely.

Before the meeting, you should review your corporate agreements. These documents, which outline the company's valuation and organizational structure, have different names for different types of corporate structures. Corporations have shareholders' agreements and bylaws; for limited liability companies it's an operating agreement; partnerships, a partnership agreement. 

The shareholders' agreement should specify the manner in which your shares may be sold and the price for such shares; it should be updated if it does not accurately and fairly value your practice. You should discuss this with your practice's professional advisers. 
The bylaws should reflect your current organizational structure, outlining the procedure for holding corporate meetings, the voting procedure, the election of directors, and the appointment of corporate officers. Similar items are included in operating and partnership agreements. Do not rely on the template forms provided in many incorporation kits; your bylaws should be tailored to your practice's needs.

Finally, each year, you should carefully review all of the employment agreements of your practice. For co-owners, the agreement should describe the buy-out entitlement (sometimes referred to as deferred compensation). For all employees, including co-owners, you should carefully review the employment agreement to determine if your practice is adequately protected in such matters as the length of termination notice, the causes of termination, and the language of any restrictive or nonsolicitation covenants. (For more information, visit 

and search for my article, "Understanding Noncompetes" in the July/August 2004 issue.) Are the practice and the employees in compliance with the agreement? If not, determine the ramifications to the practice and implement needed changes.

For most individuals and businesses, the end of the year is an opportune time for a financial review. Depending on your organizational structure, additional tax planning may be required. Start by reviewing this year's finances, comparing this year to last year. If possible, you should perform a side-by-side analysis of the two years so you can clearly see where changes occurred in your practice. Look at every category of expense separately - including accounts receivable, total charges to total collections, number of days in collections, and payer mix - to differentiate the changes in your practice. Most accountants will perform this type of financial analysis as part of their regular accounting duties. It may be helpful to do a periodic analysis, perhaps quarterly, to make year-end comparisons less daunting. (Visit the Tools section of 

and click on the calculator called "Measure the Financial Health of Your Practice.")

This comparison will help you consider what changes you should be implementing at your practice to improve next year's cash flow, which may include additional staffing, upgrading your billing software or computer system, or possibly changing outsourced billing companies. Your analysis may also lead you to decide to change your third-party payer participation if you determine that some are no longer advantageous. 

Review your accounts receivable with an eye toward estimating how much cash your practice is likely to receive in January. If necessary, consider a line of credit to meet your cash flow needs for the beginning of the year. 

Once you have completed your retrospective review of your practice finances, you should begin budgeting next year's finances. Make sure to include any major purchases and staffing changes in your next year's budget.

Year-end operational planning can include items like compliance plans and personnel.

All practices should be performing some form of compliance assessment. Begin by reading the guidance published by the Office of Inspector General, available at 

http://oig.hhs.gov/fraud/complianceguidance.html

. If your practice does not have a compliance plan in place, add it to your end-of-year planning agenda items. 

It is essential that you comply with your own compliance plan. If you discover that your practice is unable to do so, figure out why, and amend your compliance plan to meet the capabilities of your practice. (For more information on developing a compliance plan, visit 

, and search for the article "Are You in Compliance?" in the October 2004 issue.)

Another important part of your end-of-year planning is an assessment of your personnel management. Review your personnel policy manual and make sure that it is up-to-date with current legal issues. As with your practice's compliance manual, you should verify that your practice complies with its personnel policy manual. Changes in technology, HIPAA, and overtime regulations may warrant updating your policy manual.

You should also use the end of year, rather than anniversary dates, to perform employee evaluations. It is easier to perform evaluations all at once and you decrease the likelihood of missing an employee. Use written job descriptions (if available) and a standard form to evaluate all employees with consistency. Base end-of-year bonuses and raises on employee performance. 

Effective end-of-year planning does take time. It is, however, a valuable tool that will help your practice in the long run.

Joan M. Roediger, JD, LLM, is a partner with Obermayer Rebmann Maxwell & Hippel LLP of Philadelphia. She is a member of the firm's health law department. She can be reached at (215) 665-3216 or via e-mail at 

This article originally appeared in the November/December 2004 issue of 

Now is the time to start focusing and planning for 2005, from a corporate, financial, and operational standpoint.

Planning Ahead


If you’re like most physicians you can expect to change practices several times in your career, so it is important to understand the legal ramifications of your written employment agreement - especially any noncompetition covenants. Oftentimes, these are the stickiest points in a contract negotiation. 

These covenants, found in most physician employment agreements, may come in the form of noncompete or restrictive covenants, or a nonsolicitation covenant that precludes you from taking certain actions after you terminate employment with the practice. 

Perhaps one of the most common misconceptions among physicians is that restrictive covenants are not enforceable. While this may be true in certain limited situations, that belief can get you into a great deal of trouble down the line. 

Even if you think otherwise, and are ultimately proven correct in court, you will have spent tens of thousands of dollars or more in your defense and will likely be emotionally and financially exhausted - which means the other guys will have won in the end anyway. 

Restrictive covenant enforceability varies by state but most allow them. It’s wise to consult a healthcare attorney to advise you on what’s allowed in your state. Some states, such as Massachusetts, do not allow restrictive covenants in physician employment agreements. California does not allow restrictive covenants in employee contracts, but they are permitted if a physician is an owner in a medical practice. 

In general, restrictive covenants must be “reasonable” in scope, nature, and duration. In other words, the covenant must be very specific as to what services you may not provide after you terminate employment, where you may not provide these services, and for how long. What constitutes “reasonable” is not always clear. Oftentimes, practices are overzealous in protecting their turf and may try to impose more restrictions than necessary. 

Geography is essential in the enforcement of a restrictive covenant. 

Covenants can prohibit you from practicing in one or more counties, in specified ZIP codes, within certain town borders, or within an area marked on a map attached to your contract. Commonly, the limitation is within a mileage radius of certain locations. The mileage radius is usually interpreted “as the crow flies,” or a straight line from a point on a map, not in terms of driving distance. Practices in coastal areas might use other measures than radius to protect their area. 

See where the practice derives its patients and referral sources and expect that area to be the most logical one to protect. You can measure for yourself by reviewing a ZIP code analysis of the practice’s active patients and referral sources. If you are uncomfortable requesting this information, ask the physicians or manager where the practice’s patients and referral sources come from during your employment interview. 

If the practice draws patients from a small geographical area, it would not make sense to agree to a covenant that precludes you from practicing within a great portion of the state. If the practice is in a metropolitan or urban area, it won’t make sense to block out entire counties. 

Consider the type of practice you are joining before signing any covenants. Absent unique circumstances, a hospital-based specialty group (such as radiology, pathology, anesthesia, or emergency medicine) should not claim a huge restricted area. 

If you are joining a large health system, watch for any restrictive covenants that would prohibit you from working in the area surrounding each hospital within the health system as well as near any of the system’s outpatient offices, facilities, clinics, etc. - it could end up as the entire state or several states. 

Just as geography is important, so is a clear description of the type of services you are precluded from performing. The contract should explicitly define what services are prohibited within the restricted area. Thus, if you are dual boarded, are you prohibited from performing both areas of your specialty or just one? 

There are other reasons to reject a contract based upon its restrictive covenant. For instance, if you are from a particular area, you might not want to accept a contract requiring you to move away to remain in practice after your contract terminates. Further, if you accept a position as a locum tenens physician, watch for restrictive covenants precluding you from accepting other job opportunities. 

One- and two-year restrictive covenants are common, but look skeptically at agreements that contain covenants longer than two years. Be especially wary of covenants that would last longer than the contracted term of your employment. One notable exception to this rule is in the context of a practice sale. In that limited circumstance, it is not unheard of to see restrictive covenants last several years. 

Also be aware that other agreements related to your employment may affect what type, if any, of restrictive covenant can be included in your employment agreement. Hospital recruitment agreements have gained popularity in recent years and may offer existing community practices financial assistance to recruit a new physician to the area. 


These hospital agreements are complex and often fraught with legal peril so you would be wise to have an experienced attorney help you sort out the terms. However, the one bright spot with these agreements is that Stark regulations bar existing practices that accept hospital financial assistance from including restrictive covenants in contracts they write with physicians. Notwithstanding this, some practices may still try to include some form of restrictive covenant into your employment agreement. 

Even in states that prohibit restrictive covenants, nonsolicitation covenants are regularly enforced. A nonsolicitation clause bars you from using your position within the practice and the knowledge you gained in your employment for your own personal benefit. 

Common items in these clauses may include prohibitions on soliciting the patients, staff, referring sources, and contracts of the practice. Read the language of the nonsolicitation clause carefully to see if it is appropriate for your practice opportunity. 

For example, a nonsolicitation clause that prohibits you from placing a listing in a telephone business directory following your departure is not necessarily a reasonable restriction, particularly if you do not identify your former practice in the ad. 

Similarly, a nonsolicitation clause that prohibits you from soliciting any employee of the practice may not be reasonable if it extends to, say, 20 offices of the practice, but you work at only one of those offices. However, it may be deemed reasonable to restrict you from taking a list of patients from the practice when you leave and contacting them to transfer to your new practice, unless otherwise permitted under state law. 

Noncompetition covenants are enforced by either injunctive relief or by payment of liquidated damages. Your employment agreement likely will state which remedy the practice intends to seek. 

In the former, the practice will seek a court injunction prohibiting you from violating your contractual promises. This would be especially troublesome if you had already leased new office space and a court issued an injunction barring you from using that space. 

If your contract calls for liquidated damages, then the amount the practice would seek in court is outlined in your employment agreement. This amount must be reasonable and not a penalty for your violation. Although what constitutes “reasonable” is subject to judicial interpretation, you should try to avoid contracts that would require you to pay a percentage of your new practice’s gross income. In general, the liquidated damages remedy should not exceed a fixed percentage of your annual salary, but that could vary from 20 percent or less to as much as 200 percent. 

It is not uncommon for contracts to propose outrageous amounts for liquidated damages relief. Be prepared to negotiate these amounts before you sign, especially if there is any chance that you would remain in the community after you left the practice. 

Most importantly, avoid at all costs contracts that call for both liquidated damages and injunctive relief as remedies. You should not have to pay liquidated damages at the same time that you are prevented from practicing within the restrictive covenant area. 

While restrictive covenant clauses, however, may have either form of relief, nonsolicitation clauses commonly call for liquidated damages as the remedy. The rationale is simple: by the time the practice has gone to court to enforce the nonsolicitation covenant, the associate will have most likely already violated the terms of the nonsolicitation covenant and will have already damaged the practice. 

Always consider negotiating the terms of a restrictive covenant in any contract before you sign. First, try to change the restricted area and the length of time the covenant applies to an area and time that is more acceptable to you. Next, consider negotiating a buy-out to your noncompetition covenants. Thus, if you decide to stay in the area following the termination of your employment, you can pay a specified sum to your former employer and be released from the covenants. 

You also may want to suggest certain contractual additions to your restrictive covenant. Terms to ask for might include removal of the restrictive covenant if your employer terminates your employment for cause due to your disability or if you terminate your employment for cause. Sometimes new employees request that there be no restrictive covenant for the first six months of their employment. 

Don’t expect your new employer to agree to all of these additions or exceptions to your noncompetition covenants. If they are inflexible with the restrictive covenant and if you have reservations about the wording of the covenants, walk away from the proposed arrangement and look for another position. 

You will be much better off waiting and signing a deal that you can live with than having to deal with the legal and financial consequences if the relationship does not work out. The time you spend negotiating your restrictive covenant will help you ward off legal headaches down the line. 

This article originally appeared in the October 2004 issue of 

Perhaps one of the most common misconceptions among physicians is that restrictive covenants are not enforceable.