Physicians Require Health Law Advice to Avoid Legal Pitfalls

Every new business venture into which physicians enter could present significant legal risk and should properly be vetted.

In almost every blog I write, I suggest that physicians speak with health law counsel.  Far from being a marketing technique, I believe this piece of advice is extremely important for any physician entering into a business arrangement and can make all the difference between a legal and an illegal venture.  Perhaps some examples are the best way to illustrate:

Recently I met a client who started a successful business where he engaged licensed physician contractors to service nursing homes and provide patient certifications for home health agencies. The business was financially successful and, when I was approached, they merely wanted some contracts created. The client’s brother, an estate planning lawyer, had done all the legal work.  This sounds like an extremely successful business, does it not?  You might be surprised to learn that, in discussing this entity with my new client, I discovered some alarming information:

1. My client was not a licensed professional and yet was billing for medical services provided by physicians through a business entity, which had been credentialed with multiple payers, including Medicare and Medicaid.  In most states, only entities that are owned by licensed professionals can employ or contract with other licensed professionals to render medical services.  This is known as the “corporate practice of medicine” doctrine.  Simply because an entity has a Medicare provider number and is able to bill, does not mean it is properly formed under state law.   To resolve this issue, we needed to convert the existing business into a management entity and enter into new management and billing agreements with the physicians rendering the professional services. 

2. The compensation methodology being used was to pay each of the contractor physicians 55 percent of their collections.  Again, this presents an issue under the law of many states where fee-splitting is prohibited.  Generally, fee-splitting prohibits a physician from sharing professional revenue with a third party that is not licensed.  In some cases, fee-splitting may be linked to the making of a referral. To resolve this issue, under the new arrangements physicians were charged a percentage for billing (which may or may not be acceptable in all states) and a flat fee for all other management services.

Correcting these errors was complicated, expensive, and avoidable. Additionally, not a single physician with whom this client contracted had the agreements they signed reviewed by counsel, who might have recognized the issues involved.
Recently, I was presented with purchase documents for a medical practice by a young physician who asked me to take a “final look,” although the deal had been completely negotiated and drafted by counsel.  In reviewing the documents, an issue was immediately obvious.  The selling physician was to provide services for the new buyer and was to be compensated based on the volume of referrals which the selling physician was able to convince his referral sources to send to the new owner.  These referrals would include federal patients, a violation of the Anti-Kickback Statute and, depending on the type of referrals, the Stark Law.  This arrangement potentially violated state laws as well.

Although these concerns were immediately clear to me, this multimillion dollar transaction was documented by non-health law counsel.  We averted an illegal outcome in this case, but it is worrisome that many transactions are consummated without legal advice, and just as many are completed with improper legal advice.

Just as you would not go to a brain surgeon to have your gallbladder removed, similarly, in the legal profession, different lawyers specialize in different areas of the law.  Finding the correct professional can make all the difference in obtaining appropriate advice. 

Most importantly, physicians need to always be cognizant that every venture into which they enter, whether it is a lease, a new company, or even a medical director position, presents significant legal risk for a physician and should properly be vetted.  Healthcare is highly regulated and is not like any other business. Violation of the laws mentioned above can jeopardize a physician’s license, close down his or her practice, and involve lengthy and expensive legal investigation.  I’ve said it before and I’ll say it again - talk to health law counsel and make sure your arrangements are appropriate and legal.  Make that your resolution for 2013.