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Group Compensation Structures

Outline of a Compensation / Expense Structure in a Group Medical Practice

Here are a few compensation structures for your consideration. THE SIMPLEST COMPENSATION STRUCTURE Here it is: Each physician keeps his or her own collections, and pays a percentage of group expenses based on the percentage of his or her collections as against the group’s total collections. You can use collections in this structure or any other measure of productivity (but collections are the simplest). Frequently in life, the simplest is the best. This structure is eat-what-you-kill, because that’s as simple as it gets. A collateral benefit of this formula is that lesser producing physicians pay less in expenses, which makes it easier for doctors with small practices to stay in the group (e.g. a young doctor or one in semi-retirement). COMPENSATION STRUCTURES WITH MORE VARIABLES Simple might not be fair. For example, in the above formula, you allocate expenses based on collections, which might or might not correlate with actual usage of group resources (e.g. PA usage). Many practices prefer to allocate compensation directly to those producing it, and allocate each expense to the physician incurring it. In fact, some specialties require more staffing and other resources, but generate a lesser proportion of collections than other specialties. The question is, how to get a more accurate allocation of expenses? It’s not easy. Frequently it’s prohibitively complex to allocate expenses in detail based on physician usage. The trickiest aspect of eat-what-you-kill is calculating expenses accurately, because it requires allocating staff, supplies, equipment and other resources on a physician-by-physician basis. So let’s talk expenses. EXPENSES If you need more accuracy in dividing expenses, consider this 3 pool structure. Pool #1 Includes all general overhead expenses, such as rent, utilities, bookkeeping, tax preparation, legal, corporate, receptionists, and more. The physician / shareholders divide the expenses in Pool #1 based on their share ownership. Pool #2 Includes expenses that can be attributed to a physician / shareholder’s individual practice, such as physician assistants, nurses, employees, contractors, malpractice insurance, and equipment and supplies that are only used within a particular specialty. The physicians divide the expenses in Pool #2 based on their percentage share in the practice’s gross billings or collections. Pool #3 Includes all personal expenses, such as rental cars, continuing education, meals, and the like. Each shareholder individually pays all expenses allocated to him or her in Pool #3. Word to the wise: Keep the compensation plan simple and transparent. Including too many variables in the formula will make it too complex for physicians to understand and for staff to calculate. INCOME Dividing income usually is easy once you’ve figured out expenses. Recall that income is what’s left over after the payment of expenses. Consider this two-part system, which pays salary first for managerial services performed for the group practice as a whole, and divides collections after that. First, pay managers a base salary or some hourly rate based on time spent in administrative or managerial capacities, then second, distribute remaining profits to the physician / shareholders based on their individual collections, RVUs or what have you. At this second level, note that: *** Some practices use gross billings as the basis for allocating income and expenses, as opposed to collections. A practice uses gross billings when it wants to avoid the time lag between billing and collections. *** Using RVUs can be complex and in most cases will require a computer system capable of tracking utilization by CPT code and doctor. RVUs are useful in multispecialty groups where significant variations in reimbursement exist between the specialties.

Compensation Structures for a Group Medical Practice

In general, a group practice pays its physicians in some combination of three ways: (1) salary, (2) productivity payments, that is, productivity bonuses or shares in profits or collections, (3) corporate dividends. Your balance of the three forms of payment determines in large part the culture of your group practice. SALARY VS. PRODUCTIVITY PAYMENTS In a compensation structure, the tension is between salary and productivity payments. Both have their pluses and minuses. On the positive side of the ledger, salaries create team spirit, while productivity payments give incentive to work. As for the negatives, a compensation structure that is heavy on salary leads to freeloading. [see ft.1 below for definitions of freeloaders and malcontents] Why work so hard if either way you’ll get paid the same? A compensation formula heavy on productivity bonuses and profit shares leads to: (i) malcontented doctors who are unhappy to make less than others in the group; (ii) administrative staff devoting their time to tracking individual production and allocating overhead; (iii) complexity because you must find some other way to compensate physicians for necessary work that doesn’t produce revenue, for example, practice governance, management, staff development, hospital committee work. Further, some group practices now factor capitation into the mix. This creates another tier of compensation, and requires a separate system for tracking data to measure capitation rewards. COMBINE SALARY AND PRODUCTIVITY PAYMENTS, AND ACCOUNT FOR SPECIAL OVERHEAD I’m sure you saw the “solution” coming a mile away – use a combination of salary and productivity payments. To determine base salary, you can use compensation surveys conducted by organizations such as the Medical Group Management Association, the American Medical Group Association, and the American Medical Association. To reduce the freeloading effect of salaries, you can tier salaries based on volume of work performed. For example, to be eligible for a full salary, a physician must work 90% of the group’s work days in the year + achieve 90% of the group’s annual quota for office visits (regardless of complexity of procedures) + 90% of the group’s quota for on-call hits. The group can reduce a physician’s salary proportionately based on the percentage drop below each 90% level. As for productivity bonuses and profit shares, most groups simply base them on collections from a physician’s work. If that’s not a fair method for your group, you can pay bonuses based on such factors as patient encounters, some other relative value unit (RVU) applicable to the practice, panel size or capitated lives under management, and even such non-revenue factors as seniority or management services for the group. No matter what factors you use, try to pay the productivity bonuses (and deliver the corresponding accounting reports) on a monthly or quarterly basis. Beware: a group medical practice must comply with the Stark and Kickback laws for every aspect of its compensation plan, especially productivity payments. See my next article, Stark and Anti-Kickback laws regarding the compensation structure of a group medical practice. Lastly, a group practice can charge a portion of certain costs against individual physicians. You do this if the costs inure to a particular physician’s benefit, for example, insurance for the doctor’s specialty, extraordinary continuing education expenses (the cruise to Hawaii) and special equipment or supplies. CORPORATE DIVIDENDS Corporate dividends are much simpler than the first two forms of compensation. Most corporations pay dividends on a per-share basis, meaning that the more shares you own, the more you get paid. Founders get paid more because they usually own more shares. Consider using stock options or restricted stock (stock subject to repurchase by the group) to regulate stock ownership among founders, incoming physicians and outgoing physicians. Ft.1 — Matt’s theory of freeloaders and malcontents: All partners in a business, including you and me, fall into one of two categories, and frequently both. Each of us is either a freeloader or a malcontent. Having trouble with the concept? – visualize your marriage. You’re a freeloader if you’re happy to do less work than the other guy. Freeloaders say things like, “The value I bring is intangible but necessary; someone has to keep morale up.” You’re a malcontent if you resent working more than the next guy. Malcontents say, “I’m so tired of doing all the work around here; it’s just not fair.” In practices that survive, the physicians develop a sense of perspective because they know they’ve played either or both roles before, and will do so again. In case you’re interested, I’m a freeloader. My article, Shareholder buy-sell agreements for medical corporations, elaborates on the subject. Again, for a barebones outline of a compensation structure, read Outline of compensation / expense structure in a group medical practice

Stark and Anti-Kickback Laws Regarding the Compensation Structure of a Group Medical Practice

In this article, I briefly outline the legal requirements that apply when a group medical practice pays compensation to its members (whether owners, employees or contractors). My prior article, Compensation structures for a group medical practice, explains compensation plans from a non-legal perspective, including a discussion of “eat what you kill” practices and more team-oriented compensation structures. This article is hard work because I talk about the law, specifically, medical practice compensation plans under California and federal referral laws (Stark and Anti-Kickback). In general, a group medical practice pays its physicians in some combination of three ways: (1) salary, (2) productivity payments including a percentage of collections, (3) per-share corporate dividends. Let’s start right away with how the referral laws treat salary. SALARY Salary is the first element of a compensation plan. In general, salary should be reasonable and consistent with fair market value without taking into account any referrals. Salary usually is not a problem for Stark and Kickback compliance, and I won’t belabor it here. If you want to read more on the topic, see Stark and Anti-Kickback laws regarding physician employment and contractor agreements. In all cases, make sure you have a solid employment agreement that clearly shows its compliance with the Stark and Kickback laws. For more on employment agreements, see Physician employment and independent contractor agreements. PRODUCTIVITY PAYMENTS - BONUSES & SHARES IN PROFITS OR COLLECTIONS Productivity payments are the second element of a compensation structure. They include profit-shares, percentages of collections and productivity bonuses. To make productivity payments, your group must meet the Stark definition of a “group practice.” [The definition of group practice is important for many reasons, not just making productivity payments, but that’s a topic for another day.] A group practice may compensate its physicians (regardless of status as owner, employee or contractor) based on their productivity or work as follows: 1. Based directly on DHS (designated health services) personally performed by the physician. This can be a straight percentage of collections for professional services personally rendered. 2. Based on DHS that others perform “incident to” the physician’s personally performed services and subject to his or her supervision. This can be a percentage of collections or profit share that includes the billings made by other health care providers under the doctor’s supervision. 3. Based on factors that have nothing to do with referrals, for example, tenure in the group or management services. What you may not do is base payments directly on referrals of DHS. Compensation may not be directly related to the volume or value of DHS referrals by the physician. Notes: *** The group must charge its overhead expenses and distribute its income in a manner determined prior to their occurrence (no ad-hoc allocations). The group may, however, modify its distribution method as often as desired so long as the changes are only applied prospectively and are not based upon a pattern of referrals. *** The group must have a written compensation plan for its members. Usually you see the plan as an attachment to board of director resolutions, but you also see it in shareholders agreements or even the bylaws. The compensation plan must track the Stark law without deviation. *** Word to the wise: Do not think that your compensation plan is OK just because other groups seem to pay their physicians the same way. Yes, it’s true that most medical practices pay percentages of collections or profit shares. It’s also true that the law doesn’t care what everyone else is doing. The law only cares about what you’re doing. DIVIDENDS AND OTHER PER-CAPITA SHARES IN PROFITS Dividends are the third element of a compensation plan. The group may pay per-capita shares of overall group profits, for example per-share dividends, provided that the share of profit is not directly related to DHS referrals. Dividends are straight-forward because a per-share dividend rarely has any relation to referrals. The referral laws are voluminous, complex, subtle and idiotic. Get competent legal help for your group practice’s compensation plan.

Buy-In and Buy-Out of Physicians to a Medical Group

Physicians come and go from medical groups. When a physician enters a practice as a shareholder or partner, the practice should prepare for the physician’s exit. The exit is inevitable. In this article, I give one simple rule for structuring the doctor’s buy-in to a practice and the later buy-out of the doctor’s shares from the practice. THE RULE Buy-in should mirror buy-out. If a doctor buys-in to a medical group at $X, the group should buy-out the doctor at the same $X. In other words, you should use the same formula to determine both a doctor’s purchase price for shares in a practice, and the doctor’s buy-out price when leaving the practice. The reason for the rule is fairness. Neither the practice nor the doctor should get a windfall from the buy-in and subsequent buy-out. Founders are the primary exception to the rule. Founders usually get a special deal because they built the practice and made it valuable. In the start-up years, a founder’s compensation is low and he suffers higher risk, so it’s fair for the founder to receive the full buy-back price later on. THE PURCHASE PRICE FOR BUY-IN AND BUY-OUT The buy-in & buy-out prices (when taken together) can be high (for example, $100,000-in and $100,000-out), or they can be low ($10-in and $10-out), depending on the practice. In most practices, the price is either a formula that approximates fair market value (FMV), or an arbitrary or nominal number. I’ve seen many different buy-in and buy-out prices. I’ve seen one medical group with a nominal price of $10 for both buy-in and buy-out, and what’s more, the structure worked! Most practices, however, base the price on FMV. An FMV buy-in / buy-out price will equal the percentage share of the practice to be bought or sold, multiplied times the value of the practice. You determine the value of the practice based on 3 factors – tangible assets, accounts receivable, and goodwill. You can determine tangible assets and accounts receivable without much debate, because they represent hard assets that exist in the here and now. Goodwill is much harder to fix. Goodwill is the value of the practice’s expected future earning power, and the future is unknown. Goodwill varies from practice to practice. Although you can spend thousands of dollars on a fancy practice valuation and appraisal, ultimately you make a gut call on the value of goodwill. This is especially true for medical practices because they operate in a regulatory flux, and you can never predict what crazy policies Medicare will implement tomorrow. PAYMENT TERMS The doctor can pay the buy-in price, and the practice can pay the buy-out price, in cash or in installments. If a doctor pays for shares in cash, the doctor should receive the buy-out in cash (to the extent that practice liquidity permits this). Likewise a doctor who buys-in to the group over time using installment payments (e.g. a promissory note or salary reduction) should receive a buy-out in installments (e.g. a note or deferred compensation). Many groups pay the buy-out price as a combination of the buy-back of shares and deferred compensation. They do so for tax reasons because deferred compensation is deductible to the group and taxable to the doctor as ordinary income. Deferred compensation can be useful if a doctor paid the buy-in through reduced salary (which are pre-tax dollars for the doctor). At buy-out, the practice gets to deduct the deferred compensation, which evens out the tax benefit. If the practice pays a part of the buy-out price through a promissory note, the maturity of the note should be long enough that it does not overburden the practice yet short enough so the departing doctor does not wait too long for closure (e.g. 2-4 years). COMPETITION AFTER BUY-OUT A California practice can impose a non-competition clause on the departing doctor. In California, a non-competition clause is legal if it occurs as part of a bona-fide buy-back of the doctor’s shares. Some practices take very seriously the threat of competition, but other practices don’t really care. It depends on the nature of the practice and the market. If a practice does not demand a non-competition clause, it should at least regulate the process by which the departing doctor leaves. The practice should control how the doctor communicates with referral sources, employees and patients. The practice needs an orderly and professional process for separating the doctor from the practice. You don’t want either side (whether the departing doctor or the medical group) to poison the other’s well. For more on non-competition clauses, read May a physician compete against his or her former practice? and Stealing employees. CORPORATE DOCUMENTS The practice’s corporate documents should state the terms of the buy-in and the buy-out. Ordinarily you cover the buy-in in a Purchase Agreement, and the buy-out in a Shareholders Agreement. See also, Shareholder buy-sell agreements for medical corporations. To learn a little more about the process by which a medical group should bring in a new physician, read Bringing a new physician into a medical practice. You need an experienced attorney to implement my rule for buy-ins & buy-outs. Do not do this alone because there are many considerations and choices that I don’t have time to cover in this short article.



Employment & Contractor Agreements

Classifying a Physician as Employee or Contractor

Most medical practices want to classify their hired physicians as contractors not employees. Contractors are cheaper and easier than employees. You don’t withhold taxes for contractors, nor do you pay benefits, workers compensation or unemployment insurance, nor must you comply with the wage & hour laws (including overtime) for contractors. WHO IS AN EMPLOYEE AND WHO IS A CONTRACTOR? To determine who is an employee, the IRS considers 3 factors: (1) whether the employer has behavioral control over the worker, that is, whether the employer controls how the worker does the job; (2) whether the employer has financial control over the worker, that is, whether the worker is invested in his own business, has other clients, and is not dependent on the employer; and (3) the relationship between the parties, which takes into account that contractors usually work on projects and do not work open-ended jobs, and contractors usually do not provide the core services that the business offers to its customers, e.g. in a medical practice, workers who provide health care services usually are employees not contractors. In most medical groups, using the above 3 factors, hired physicians look more like employees than contractors. The exceptions are obvious, for example, physicians who do locum tenens, or physicians who have their own professional medical corporations and who bring their own ancillary personnel to the job. If your group believes it can safely classify a physician as a contractor, then be sure to comply with the safe harbor at IRS Section 530. Specifically, don’t convert an existing physician employee to contractor status without a significant change in job duties; where you have workers doing the same job, don’t classify some as employees and others as contractors; and be sure to file all tax returns on a basis consistent with the classification as contractor. MY ADVICE I advise clients to classify hired physicians as employees, with the sole exception when a physician is obviously a contractor. The risks of misclassification outweigh the benefits. If you get caught, you must pay all of the back payroll taxes, workers compensation, overtime and more, plus penalties and interest. The penalties hurt the most. The IRS assesses a penalty based on its opinion of you. If the IRS believes your story, the penalty can be as “low” as 20% of the FICA that should have been withheld and 1.5% of wages. If the IRS thinks you deliberately misclassified, it can hold you responsible for all employment taxes that should have been paid, including income tax and the employee’s share of FICA and FUTA. Worse, the IRS can seek recourse from the practice owners and officers individually for the entire liability – there is no corporate shield. In brief, the bill for misclassification gets very big very fast, and it’s not worth the risk. BUT WILL I GET CAUGHT? I don’t know if the IRS will find you out. I only know that the IRS makes good money from misclassifications, hence it has incentive plus expensive computer systems to catch you. Worse, I know that your own employees and contractors will be the first informants in line when an employment dispute arises. LEGAL NOTES 1. If you want to reclassify a contractor and call her an employee, try to do it as of January 1. With a January 1 effective date, the physician should not receive a 1099 and a W-2 in the same year for the same job, which could trigger an audit. 2. Characterizing a physician as an independent contractor may have billing implications; see 42 C.F.R. §424.80 and Section 3060.3 of the Medicare Provider Manual. 3. The number of contractors in a group practice affects its ability to meet the definition of physician group in the Stark law. For more on physician employment agreements and contractor agreements, see: Physician employment and independent contractor agreements Stark and Anti-Kickback laws re physician employment and contractor agreements Termination clauses in physician employment and contractor agreements Please get competent legal counsel when deciding if a physician is an employee or a contractor.

Physician Employment and Contractor Agreements

In this article, I look at the essential terms of a physician employment contract and a physician independent contractor agreement. But first, let’s ask the threshold question… IS YOU IS, OR IS YOU AIN'T, A CONTRACTOR? This is an important question because, from time to time, to generate revenue, the IRS and CA EDD will audit medical practices on the issue of whether a physician is an employee or independent contractor. These governmental agencies hope that the practice has misclassified the physician as a contractor (not an employee) so that they can collect on the plethora of taxes and premiums for employees, e.g. trust fund taxes, interest and penalties. A medical practice should always be clear and confident in how it classifies employees and contractors. The cost of misclassification is very high, and it’s never worth it. Please read my article Classifying a physician as employee or contractor to learn more, including the factors for classifying physician employees and contractors. ESSENTIAL TERMS OF A PHYSICIAN EMPLOYMENT CONTRACT AND AN INDEPENDENT CONTRACTOR AGREEMENT Essential terms of a physician employment contract and an independent contractor agreement The essential terms are about the same as between a physician employment contract and a physician independent contractor agreement. Once beyond the boilerplate, both contracts deal with the same basic issues, such as the description of services, compensation, reimbursement of expenses, and term and termination (all discussed below). One significant difference is that employment agreements sometimes have clauses that address the physician’s purchase of ownership in the practice, whereas independent contractor agreements rarely have such terms. Job Description Whether or not the agreement is for a contractor or an employee, it must clearly delineate the job responsibilities. Physicians particularly care about their hours, be it full-time or part-time, night and weekend coverage, on-call hours and the like. Be sure to clarify the physician’s administrative duties. Compensation You probably don’t need a lawyer to explain physician compensation, so I’ll keep it short. I frequently see physicians receive a fixed base salary + an incentive based on the income that the physician personally generates. For example, the physician might receive an incentive of X% of the gross revenue he or she generates in excess of $Y (Y being the expenses associated with the income including an allocation of general overhead, that is, the break-even point in income). IMPORTANT — Have an attorney run the compensation arrangement through the federal and CA Stark and Kickback laws. Read Stark and Anti-Kickback laws re physician employment and contractor agreements. Expenses The practice’s payment of a physician’s “personal” expenses is an everlasting and wondrous source of conflict. Everyone wants to run their expenses through the corporation. The employment contract or independent contractor agreement must clearly delineate the expenses that the practice will pay for the physician. A practice usually will pay more expenses for an employee than for a contractor. Here is a list of expenses that practices frequently pay: * Professional society dues (within reasonable limits) * Hospital privileges * Malpractice insurance * Continuing medical education and related travel costs (again, within reasonable limits) * Board certification Term and Termination I prefer that a physician’s employment contract or independent contractor agreement have a minimum term of 1 year (to satisfy the Stark and Kickback laws), but otherwise be at-will with a notice period, meaning that either the physician or the practice can terminate the relationship at any time (after the notice period) for any reason. I prefer a free relationship, as opposed to contractually locking the two sides into a relationship that isn’t working – this only leads to unhappy endings and litigation. If you want a contract for a term of years, be sure to include termination for cause. Common examples of cause are: * Loss of medical license or federal DEA registration * Termination or suspension of hospital privileges * Violation of a material provision of that agreement * Felony conviction or abuse of controlled substances For more on the termination of a physician employment contract or a physician contractor agreement, see my article, Termination clauses in physician employment and contractor agreements. Physician Buy-In Physician employment agreements sometimes have clauses on the physician’s purchase of ownership in the practice. Usually the clauses are vague and non-binding, and only express the parties’ expectations on the subject. If the physician’s buy-in is a material part of the deal, however, specify these deal terms: * The ownership percentage that the physician will obtain * The purchase price * The period over which the physician will pay the purchase price * The extent of the physician’s participation in control decisions for the practice, e.g. is the physician on the board of directors? For more information on this subject, see my article, Bringing a new partner into a medical practice. See also, Buy-in and buy-out of physicians to a medical group. To learn about another crucial contract for medical practices, read Shareholder buy-sell agreements for medical corporations. To learn about non-competition clauses for physicians, read May a physician compete against his or her former practice? and also, Stealing employees. This article only gives a short roadmap of physician employment contracts and independent contractor agreements. There is a lot more to this topic than introduced here. Please get competent legal counsel before you hire a physician.

Termination Clauses in Physician Employment and Contractor Agreements

Termination is the most important provision in a Physician Employment Contract and a Physician Contractor Agreement. Your exit from the relationship is crucial — everything must end, and most things will end bad, so be prepared. This article explains termination provisions and the consequences of termination of the contract. TERMINATION CLAUSES Most physician contracts have a set term of years, for example 2 years, plus a provision for early termination before expiration of the term if things aren’t working out. The grounds for early termination of the contract can be “for cause” or “at-will” (without cause). At-will termination usually has a notice period, typically 60 days. For cause termination usually is immediate but sometimes has a cure period. The contract will define “cause” to include a host of negative events, for example, loss of license, loss of hospital privileges, loss of participation status with third-party payers, etc. Cause will also include more nebulous events such as material breach and willful misconduct. Termination has consequences. In most contracts, the consequences depend on who is terminating the contract (the hospital or group practice, or the physician) and for what reason (for cause or without cause). The three most important consequences of termination are insurance tail coverage, reimbursement of recruitment costs, and restrictive covenants. TAIL COVERAGE Medical malpractice insurance is usually written on a claims-made basis. With a claims-made policy, there is no coverage for claims reported to the insurance company after the end of the term of insurance contract. For an employee or contractor physician, the insurance contract can end at termination of employment, after which there is no insurance coverage. After termination of employment, however, patients may still bring claims for medical malpractice allegedly committed earlier. Both sides want a tail coverage policy to protect them from these claims. Premiums for tail coverage can be low or high depending on the medical specialty. The issue is, who pays for the tail coverage? In many contracts, the deciding event is how termination came about. Some contracts require the physician to pay for the tail coverage if he quit or was fired for cause, and require the hospital or practice group to pay if it fired the physician without cause. In my opinion, this type of contract is an invitation to litigation. Both sides will spin the termination of employment to avoid having to pay for tail insurance. The better practice is to specify the allocation of tail insurance for all terminations regardless of cause. You might have the medical group pay the entire cost, or the physician pay all, or the two sides split the cost 50/50. Here, no matter how the end comes, or whose fault it is, the contract will be clear on the issue of tail insurance, and there’ll be one less thing to sue about. REIMBURSEMENT OF RECRUITMENT COSTS The termination of a physician’s employment is much more complex in the context of a hospital recruitment arrangement. For more on this, see Physician recruitment agreements. What’s important in this article is that, at termination of the physician’s employment, the hospital might try to recover from the physician or the group practice the money spent on recruitment and perhaps salary paid to the physician. Many recruitment contracts require that the physician or medical group pay money back to the hospital if the physician’s employment is terminated early or the physician fails to meet performance benchmarks. This type of contract invariably is long, complicated and poorly drafted, the result being that no one knows when, how and how much money the physician or medical group owes at the end. Frequently a promissory note and security documents are thrown into the mix, against either or both of the group and the physician. In sum, I advise you to get a lawyer if you intend to terminate employment in the context of a physician recruitment agreement. RESTRICTIVE COVENANTS The third consequence of termination is the non-competition clause. I won’t address this topic here, however, because I’ve already devoted an entire article to it — May a physician compete against his or her former practice? See also, Stealing employees. Regarding who gets the patient records at termination, read Who owns the patients’ medical records?

Who Owns the Patient's Medical Records?

In this article, I explain who gets the patient medical records after a physician leaves a group medical practice. I propose a structure that is fair and resolves the problem up-front for all sides. SUMMARY OF CA LAW Medical records are the property of the medical provider that prepares them, for example, the group practice or hospital. Patient records do not belong to the patient, nor do patient records belong to the physician. The group practice owns the patient medical records. The patient has a right to view the original medical records, and to get copies. The medical provider must send the copies within 15 days after the patient’s written request. The provider may charge 25¢ per page plus a reasonable clerical fee. For diagnostic films, such as an x-ray, MRI, CT and PET scans, the charge can be the actual cost of copying. The provider may even demand payment before sending the records. CA law does not require that the physician group transfer patient records to a departing physician. Rather, transferring records between providers is considered a professional courtesy. There is no deadline for transferring records, no penalty for failure to transfer the records, and the transferring group may charge a fee for the service. For this reason, the only way for a departing physician to require the transfer of medical records is to have the patient demand the records. The patient must send a written demand to the old provider requesting the records. Remember that the law does not require the old provider to send the records to the departing physician, but only to the patient — although it strikes me that the old provider must send the records to the address required by the patient, which might be the departing physician’s new address. WHAT ABOUT PATIENT ABANDONMENT? Most physicians leaving a group practice argue that the physician must give notice to the patients to avoid patient abandonment. The group’s counter is that it will continue the patient’s care, hence the patient is not abandoned. CA law does not decide the winner of this argument. You should avoid this argument altogether by using my notice procedures below. My notice procedures comply with the CA Medical Board’s requirements on patient abandonment, and using them will resolve, up-front, the whole mess of patient abandonment and who gets the patient records. THE CONTRACT SHOULD DECIDE WHO GETS THE PATIENT RECORDS Physicians in group practices usually work under employment agreements, contractor agreements, and sometimes shareholder agreements. (I have many articles on these contracts in the sidebar to the right.) Whatever contract you use, it should have provisions for giving notice to patients when the physician leaves the group practice. If the contract doesn’t have such provisions, then both sides should agree to a notice procedure before the physician leaves. Clearly it’s best to have a contract fix the notice procedures at the beginning of the relationship, because the two sides frequently can’t agree on anything at the end, by the time of departure. Send the notice only to patients of the departing physician. The notice should include the following: 1. State the last day the physician will be available to render medical care at the group’s facilities. 2. State the physician’s new contact data, and give the patient a choice to move with the physician or stay with the group. 3. Give instructions on how the patient can obtain or transfer his or her medical records. For example, the notice might have 2 boxes that can be checked – one that keeps records at the practice, and one that transfers records to the departing physician. The contract should state whether the physician or the group is responsible for sending out the notice and who pays the cost. The contract also should give a deadline for transferring patient records, for example, within 3 business days after the patient’s request. Delay is unfair to the patient, of course, and it also acts as a de facto non-competition clause against the departing physician. If a patient can’t wait, delay will drive the patient back to the group for continuing care. The American Medical Association confirms the above notice procedures in its Opinion 7.03 (Records of Physician upon Retirement or Departure from a Group). The Opinion states that it’s unethical to withhold from a patient information about his or her physician’s new practice; and that the notice should give patients the option to have their medical records forwarded to the departing physician. In conclusion, if you take nothing else away from this article, please remember that the departing physician and the medical group each risks charges of unprofessional conduct if it makes the transfer of patient records difficult for the other or for the patients.

Physician Recruitment Agreements

In this article I discuss physician recruitment agreements and their package of documents. A recruitment agreement allows a hospital to loan money to a physician or to a group practice in exchange for the physician’s promise to practice in a certain geographic area. Recruitment agreement packages frequently reach 100 pages of mind-numbing prolixity and obscure complexity. The basic idea is this: the hospital loans money to the physician so that the physician’s salary is stable during the first years of practice while he or she is building up collections. This is called the income guaranty, because the physician’s monthly income is fixed. LOAN=INCOME GUARANTY MINUS COLLECTIONS The loan is the amount that the hospital pays toward the physician’s salary + any other money the hospital pays for the physician (e.g. the physician’s malpractice insurance premiums, moving expenses or housing allowances). Notice in the example below that as collections increase, the loan decreases. If collections reach the income guaranty in a particular month, the hospital does not loan money in that month. Month Collections Loan Physician Income Guaranty 1 $0 $15,000 $15,000 2 $5,000 $10,000 $15,000 3 $10,000 $5,000 $15,000 4 $15,000 $0 $15,000 5 $13,000 $2,000 $15,000 6 $20,000 $0 $15,000 PHYSICIAN IS OBLIGOR ON LOAN The physician signs a promissory note in favor of the hospital for the loan. Usually the hospital reduces the amount owed on the loan over time, for example, the loan might reduce 1/3 each year starting at the end of the first year. By this example, the loan goes away after 4 years. GROUP IS GUARANTOR ON LOAN If the physician works for a group medical practice, the group usually guaranties the loan. If the physician quits or otherwise breaches the recruitment agreement (see below), the physician (primarily) and the group (secondarily) must repay the loan. The group should consider limiting the term of the guaranty, for example, the guaranty can automatically terminate after 2 years, or it can automatically terminate when there is no amount outstanding on the loan after year 1. EXCESS COLLECTIONS Who gets the excess collections, that is, collections over the income guaranty amount? In month 6 of the example above, collections exceed the income guaranty by $5,000. The hospital usually demands the excess collections to pay down outstanding amounts on the loan. Once the loan is paid off, either the physician or group keeps the excess collections. TERMINATION The hospital usually gives itself the right to terminate the recruitment agreement with or without cause. If the hospital terminates for cause, it usually can accelerate the loan (and the guaranty) and demand immediate repayment. Cause can include many failings, but the most important is the physician leaving the hospital’s geographic area. Physicians should pay attention to the triggers for acceleration, and perhaps get a payment plan for the loan in the event of acceleration. STARK AND ANTI-KICKBACK LEGAL COMPLIANCE Recruitment agreements must comply with the Stark and Anti-Kickback laws. This is a joyous circumstance for us lawyers given the inscrutability of said laws. One interesting item of note is that the Stark law restricts non-competition covenants in the physician’s employment agreement with the group. The group that employs the physician must understand that the physician can remain and work in the service area until the loan is forgiven. For more on the employment agreement for the physician, see Physician employment and independent contractor agreements and also Termination clauses in physician employment and contractor agreements. Remember this is complex stuff. Before you do anything, get competent legal counsel to help you.

Stark and Anti-Kickback Laws Regarding Physician Employment and Contractor Agreements

In this article, I briefly outline the legal requirements for paying compensation to a physician-employee and to a physician-independent contractor. My prior article, Physician employment and independent contractor agreements, gives you the basics about hiring a physician as an employee or contractor. This article explains how you pay compensation to a physician employee or contractor in compliance with the referral laws for California and the fed (Stark and Anti-Kickback). EMPLOYEE PHYSICIANS In general, under Stark, compensation to an employee-physician is OK if: 1. You have a contract with the physician 2. The contract is for identifiable services 3. The contract pays compensation at FMV 4. The contract doesn’t take into account the volume or value of referrals, and is commercially reasonable even if no referrals are ever made. A medical practice rarely has Stark issues when it pays its physician employees straight salary or compensation based on an hourly rate. Productivity payments are a little more difficult. The key concept is that you may pay an employee-physician in a manner that directly correlates to the professional services that the physician personally performs (e.g. the professional component of charges). Using this key concept, you may pay a physician employee as follows: *** A percentage of collections for services personally performed by the physician *** Compensation per unit of service personally performed by the physician (e.g. per relative value unit, patient encounter, or fee schedule) *** A bonus based on the physician’s personal productivity or the achievement of specified quality indicators *** For the physician’s own labor in supervising others. You may not, however, pay an employee-physician for services performed by others or a share in the overall profits of the group, or a facility or department. The primary exception is for a physician in the employ of a group practice; for more on physician compensation in group medical practices, see Stark and Anti-Kickback laws regarding the compensation structure of a group medical practice. CONTRACTOR PHYSICIANS In general, under Stark, you may pay an independent contractor physician if: 1. You have a contract with the physician 2. The contract specifies and encompasses all of the services that the physician will provide, and the aggregate services are reasonable and necessary for legitimate business purposes 3. The contract has a term of at least one year 4. Compensation does not exceed FMV 5. The contract sets compensation in sufficient detail so that it can be verified (“set in advance”) 6. As always, the contract may not take into account the volume or value of any referrals or any other business generated between the parties. Just as for employee-physicians, you may pay to a contractor a percentage of collections or productivity bonus, but only for services performed personally by the physician, not for services provided by someone else. See the discussion above re employee-physicians for more on this concept. You can base compensation on a formula (e.g. a percentage of collections) so long as the formula is set in advance in the contract. [Note that to fit within its safe-harbor, the Anti-Kickback law requires that the contract state the total, aggregate compensation payable to the physician, hence you may not use a formula under the Kickback safe harbor.] We’ve suffered enough. The referral laws are voluminous, complex, subtle and idiotic. Get competent legal help for your group practice’s compensation plan.

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