Legal considerations of practice expansions

October 5, 2018

There are many ways in which a practice can grow, so it’s important practices expand in a way that’s sustainable to ensure long-term success.

Physicians often reach out to me when looking to expand their medical practices. Many have no idea what type of expansion they are looking for or what their options might be. Since expansion can mean so many different things depending on who you ask, it is important for a practice to think carefully about its long-term goals and choose the expansion approach that works best. Many expansion ideas can even be combined. Here are some common expansion approaches for medical practices:

Expansion through acquisition of additional space and equipment.

A practice might consider expansion if it has outgrown space for its providers, and/or has inadequate equipment or other facilities in which to serve its patients. This might mean opening a second office or acquiring additional equipment to meet demand. Sometimes, expansion goals can be achieved through short-term space and equipment leases, which can help a practice get a feel for expansion without a long-term capital commitment. Even renting space through a space and/or equipment sharing arrangement with another physician practice can allow for just the right amount of expansion that a practice might require.

A practice might also be ready to acquire a building, enter into a more expensive office build-out, or invest in new equipment. Any practice ready to make such a commitment should work with their bank and/or financial advisers to determine the best approach to assume such debt and to make certain the anticipated increase in revenue will justify the expense.

 

Expansion through additional providers.

Many practices seek ways to expand their revenue without taking on additional debt. This can be a challenge even when patient volume is available since the hours in the day for patient care are limited. Financial expansion of a medical practice can be achieved through the addition and effective use of practice extenders.

If you’re thinking about adding mid-levels to your practice, it’s important to consider some important questions:

  • Is the patient volume really there?
  • Is the reimbursement going to cover the expense of the provider?
  • Do you have adequate physicians to provide supervision?
  • Is your patient base willing to see a mid-level?
  • Do you have the space and equipment to add new providers to your practice?

Physicians need to do their homework when hiring practice extenders and should not consider this approach as a quick way to increase revenue. Practices must confirm proper billing and coding of all professional services, provide the appropriate level of supervision (if any), and meet any prescription authorization requirements. It’s also important to be familiar with the scope of a mid-level’s license so that the practice is not expecting more than what the extender can offer. Finally, many states require written documentation for practice extenders. A review of legal requirements is therefore important.

 

Expansion through merger or acquisition.

Another popular practice expansion approach is merging or integrating with a different practice of the same or different specialty. There are many supergroups in which certain specialties have been rolled together into a larger practice with multiple locations, sometimes expanding beyond state lines. Such an expansion can benefit physicians who are looking for managerial support, additional clinicians, marketing, and patient volume. On the other hand, the larger such groups become, the more physicians may lose a sense of the personalized practice they once enjoyed. Nonetheless, supergroups appear to be a growing trend throughout the marketplace.

It’s important to obtain complete legal and financial advice before entering into any such transaction as there are many legal, compliance, tax, and other issues to consider. Smaller expansion efforts through strategic mergers with complementary specialties is also a great way for practices to expand. By merging into a single entity, groups can often share overhead, staffing, ancillary services, and space. The result can be a larger footprint in the region, increased revenue, and locked-in patient referrals. Again, there are many legal and related issues to discuss with a lawyer when considering such an expansion.

The above concepts are only some ideas of how practices can expand. Practices might also expand by offering new services to their patients or even updated technology, e.g., telemedicine. Other practices might choose to expand by bringing in specialists to capture their outgoing referrals. For every practice, the best expansion route depends entirely on the practice’s goals and expectations.

Ericka L. Adler has practiced in the area of regulatory and transactional healthcare law for more than 20 years. She represents physicians and other healthcare providers across the country in their day-to-day legal needs, including contract negotiations, sale transactions, and complex joint ventures. She also works with providers on a wide variety of compliance issues such as Stark law, Anti-Kickback Statute, and HIPAA. Ericka has been writing for Physicians Practice since 2011.