Super groups legal issues associated with the formation of large multi site medical groups
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Super Groups: Legal Issues Associated with the Formation of Large Multi-site Medical Groups. a presentation for the Middlesex County Medical Society at Due Mari Restaurant, New Brunswick, N.J. by: Michael F. Schaff, Esq. WILENTZ, GOLDMAN & SPITZER, P.A . 90 Woodbridge Center Drive

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Super Groups: Legal Issues Associated with the Formation of Large Multi-site Medical Groups

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Super groups legal issues associated with the formation of large multi site medical groups

Super Groups: Legal Issues Associated with the Formation of Large Multi-site Medical Groups

a presentation

for the

Middlesex County Medical Society

at Due Mari Restaurant, New Brunswick, N.J.

by:

Michael F. Schaff, Esq.

WILENTZ, GOLDMAN & SPITZER, P.A.

90 Woodbridge Center Drive

Woodbridge, NJ 07095

732-855-6047

[email protected]

October 17, 2012


I overview

I. Overview

  • Changes in the Health Care Environment

  • Physician Associations

    • Are Super Groups the Answer?

  • Traps for the Unwary: Assessing prospective Groups

  • Questions & Answers


Ii changes in the health care environment

II. Changes in the Health Care Environment

  • Managed Care

    • market penetration

    • provider panels

    • reduced fees

    • consolidation

  • Greater Efficiency forced by Market

    • reduced fees

    • reduced staff

    • reduced overhead

    • greater patient volume


Ii changes in the health care environment1

II. Changes in the Health Care Environment

  • Regulatory change & uncertainty

    • Accountable Care Organizations

    • Medicare/Medicaid will change

    • Reimbursement Changes


Iii physician associations options

III. Physician Associations OPTIONS

  • Employment in private practice; no ownership

  • Employment by hospital or other entity

  • Solo practice

  • Group Practice

    • small; 2-5 Drs.

    • medium; 6-15 Drs.

    • large; 16- 25 Drs.

    • Super Groups; 26+ Drs.


Iii physician associations your current situation

III. Physician AssociationsYour CURRENT SITUATION

  • What do you want?

    • personal needs

    • financial needs

    • career needs

  • Current Likes & Dislikes

  • Characteristics

    • age

    • culture

    • personality


Iii physician associations what alternatives exist

III. Physician AssociationsWHAT ALTERNATIVES EXIST?

  • All’s Fine

  • Sell Practice & Retire

  • Sell Practice & Work

  • Contract Away Administration

    • Management Service Organization (MSO)

    • Physician Practice management Company (PPMC)

    • Join Hospital

  • Merge or Combine Practice

    • Into existing Super Group?

    • Start a new Super Group?


Iii physician associations major considerations

III. Physician AssociationsMAJOR CONSIDERATIONS

  • Compensation

    • How much will you make?

  • Group Practice

    • Rights & Obligations

    • Control?

  • Centralized Management

    • Benefits

    • Costs


Iv traps for the unwary assessing prospective groups why form or join a group practice

IV. Traps for the Unwary:Assessing Prospective GroupsWhy Form or Join a Group Practice?

  • Significant Benefits

  • Improved Negotiating

  • Increased Revenue Sources – Ancillary Revenue

  • Economies of Scale

  • Shared duties & info.

  • Coverage

  • Practice risks

  • Retirement


Iv traps for the unwary assessing prospective groups why form or join a group practice1

IV. Traps for the Unwary:Assessing Prospective GroupsWhy Form or Join a Group Practice?

  • Significant Disadvantages

  • Reduced Control

    • medical

    • financial

  • Possible change in compensation structure

  • Increased Costs- Higher Overhead

  • Culture “shock”


Iv traps for the unwary assessing prospective groups culture shock

IV. Traps for the Unwary:Assessing Prospective Groups“Culture Shock”

  • Different styles

  • Demographics

    • age

    • specialties

    • culture/ethnicity

  • Decision Making

  • Support staff

  • Office Policies

  • Integration of Information Systems

    • Practice management systems

    • Electronic Health Records (EHR)


Iv traps for the unwary assessing prospective groups business issues

IV. Traps for the Unwary:Assessing Prospective GroupsBusiness Issues

  • Administrator & Management

  • Staff Satisfaction

  • Advisors

    • legal

    • accounting

    • consultants

  • Quality of Payer Contracts


Iv traps for the unwary assessing prospective groups honeymoon period

IV. Traps for the Unwary:Assessing Prospective GroupsHoneymoon Period

  • May ease transition

  • Disassociation planning

  • Cost/profit center accounting


Iv traps for the unwary challenges in combining groups legal hurdles

IV. Traps for the Unwary: Challenges in Combining GroupsLegal Hurdles

  • Anti-trust laws

    • limits mergers that reduce competition

    • limited exemption for health care professional coalitions

    • Concerns about the use of “pseudo-merger” to engage in illegal price fixing

    • Must do an analysis of increased market power vs. benefits of integration

    • There is a PULL between integration requirement vs. desire for independence

      • control (decision making)

      • sharing of profits and losses

      • clinical, operational and marketing integration


Iv traps for the unwary challenges in combining groups legal hurdles1

IV. Traps for the Unwary: Challenges in Combining GroupsLegal Hurdles

  • Self-referral law “group practice” requirements

    • centralized billing & management

    • single taxpayer ID

    • general sharing of overhead

  • Pension plan rules require coordination of plans

  • Taxability of transaction– be careful; structure may have significant tax ramifications


Iv traps for the unwary assessing prospective groups level of integration

IV. Traps for the Unwary:Assessing Prospective GroupsLevel of Integration

  • Partially Integrated Medical Group “PIMG”

    • cost/profit centers

  • Fully Integrated Medical Group “FIMG”


Iv traps for the unwary combination models

IV. Traps for the Unwary: Combination Models

  • Top to Bottom Merger is a complete merger.

  • Division Model is a way to allow existing groups to retain control over various existing elements of their practice, such as staff and billing.

  • Leasing Assets vs. Merger or Contributions

    • tax issues


Iv traps for the unwary division model

IV. Traps for the Unwary:Division Model

  • Operation as a single legal entity with a single billing number and payroll (referred to as the “LLC”)

  • Several divisions (one for each existing group) that are not separate legal entities.

  • Operational control over each division by governance at the division level

    • each division determining their own method of division-level governance

    • but subject to the LLC final approval


Iv traps for the unwary division model con t

IV. Traps for the Unwary:Division Model (con’t)

  • Billing and collection is done in the name of the LLC

  • Buy/sell terms and obligations at

    • Division-level (for Division Assets) and

    • Centralized Level (Common Asset Level)


Iv traps for the unwary division model con t1

IV. Traps for the Unwary:Division Model (con’t)

  • Cash distributions:

    • allocated to divisions based on agreed upon mechanism

      • allocation of division-specific costs and revenues to the division

        • concerns STARK LAWS & distribution of DHS Revenue unless division has >5 members

      • allocation of common overhead costs to all divisions based on agreed upon formula

        • per capita vs. per division vs.per owner vs. per FTE vs. revenue vs.# of staff

    • allocation of distributions at the division level determined by division-level governance


Iv traps for the unwary division model con t2

IV. Traps for the Unwary:Division Model (con’t)

  • Joint exposure to liability

    • malpractice

    • overpayment

    • billing fraud, etc..

  • Assets may be kept in existing entities owned by members of a division and leased to the LLC

    • lease payments will be allocated to the division (should be a wash for the Members of the division)

    • unwind provision allows for termination of leases during “honeymoon period” or beyond

    • bank loans secured by an exiting group’s guarantees continue to be secured by those member’s guarantees


Iv traps for the unwary payor contracting

IV. Traps for the Unwary:Payor Contracting

  • In general, payor contracts would be at the LLC level

  • While existing contracts with third party payors must be reviewed in the due diligence process, if the combination of the groups is accomplished by creating the LLC as a new entity (and not by merging the existing entities into the LLC), the pre-combination contracts should not apply to services provided through the LLC.


Iv traps for the unwary assessing prospective groups determination of ownership

IV. Traps for the Unwary:Assessing Prospective GroupsDetermination of Ownership

  • Value of existing practices

  • Adjustments?

  • Equal?

  • Other?

  • Significance of Ownership

    • control, compensation & equity


Iv traps for the unwary assessing prospective groups allocation of control

IV. Traps for the Unwary:Assessing Prospective GroupsAllocation of Control

  • Centralized Control

    • Executive or Management Committee

  • Control at Division Level for daily items

  • Protection for minority members

  • Corporate ethics

  • Business decisions

  • Medical decisions


Iv traps for the unwary assessing prospective groups how is compensation determined

IV. Traps for the Unwary:Assessing Prospective GroupsHow is Compensation Determined?

  • Cost/income allocation

    • division level

    • full integration

  • Activities & status

    • production

    • seniority or ownership

    • non-medical activities

  • Mechanics

    • formula

    • committee


Iv traps for the unwary assessing prospective groups how can employment be terminated

IV. Traps for the Unwary:Assessing Prospective GroupsHow can Employment be Terminated?

  • Voluntary withdrawal

    • retirement

    • honeymoon period

  • Without Cause

  • Cause

    • loss of license, etc...

  • Disability

  • Different Standards?

  • Appeal Procedure?


Iv traps for the unwary assessing prospective groups post termination payments

IV. Traps for the Unwary:Assessing Prospective GroupsPost-Termination Payments

  • How Determined?

    • Business Valuation

    • Formula

  • How Allocated?

    • Ownership Interests

    • Teermination/Deferred Compensation (Tax issues)

    • Restrictive Covenant

  • Funding Issues


Iv traps for the unwary assessing prospective groups applicability of restrictive covenants

IV. Traps for the Unwary:Assessing Prospective GroupsApplicability of Restrictive Covenants

  • Area and Duration

  • Prohibited activities

  • Liquidated Damages Vs. Injuction

  • Trial period affect


Iv traps for the unwary assessing prospective groups agreements with related unrelated parties

IV. Traps for the Unwary:Assessing Prospective GroupsAgreements with Related & Unrelated Parties

  • Management

  • Employment

    • Non-medical staff

    • Medical staff

  • Billing & collecting

  • Equipment Leasing

  • Real Estate

  • Labs & ancillary services


Super groups legal issues associated with the formation of large multi site medical groups

IV. Traps for the Unwary:Assessing Prospective GroupsAgreements with Related & Unrelated Parties -- Concerns

  • Who owns entities?

  • Are certain members benefiting disproportionately?

  • Are non-members benefiting? Are terms “arms length”?

  • Do transactions comply with laws & regulations?


V questions and answers

V. QUESTIONS AND ANSWERS


Super groups legal issues associated with the formation of large multi site medical groups1

Super Groups: Legal Issues Associated with the Formation of Large Multi-site Medical Groups

a presentation

for the

Middlesex County Medical Society

at Due Mari Restaurant, New Brunswick, N.J.

by:

Michael F. Schaff, Esq.

WILENTZ, GOLDMAN & SPITZER, P.A.

90 Woodbridge Center Drive

Woodbridge, NJ 07095

732-855-6047

[email protected]

October 17, 2012


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