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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

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
slide30
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?
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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