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Leases for Medical Offices

Medical offices need special lease provisions. All leases need negotiation and revision, but leases for physicians need a little more. In this article, I discuss some advanced lease provisions that medical practices frequently need. For a basic explanation of commercial leases, refer to my article Understanding Commercial Leases. Without further ado, physicians should consider these additional lease provisions: TENANT IMPROVEMENTS Negotiate a construction plan with the landlord before you sign the lease. Also be clear what the lease requires at the end of the term regarding your removal of the tenant improvements and restoration of the premises to their original condition. At the end of a lease, a landlord is more likely to demolish the specialized tenant improvements of a medical office than the more classic office or retail tenant finish. You might want to negotiate the cost of restoration in the lease. HOURS OF OPERATION In many leases, the landlord does not provide basic services on the weekend, holidays or after hours. If you service patients on the weekend, after-hours or on holidays, or at other unusual hours, be sure that the lease reflects this and that the landlord provides basic services during off-hours. Heating and air-conditioning are the most obvious needs – when these services are not provided, office space (especially space with big windows) can be freezing in the winter and roasting in the summer. Also, note that some leases require specific hours for which you must be open for business, so be sure that you will be open at these times (or change the lease to reflect your business hours). ADA COMPLIANCE You’ll pay the costs of ADA compliance for your office; usually you do this when building out the space and constructing tenant improvements. With ADA compliance, the real issue is who pays for compliance to the building (as opposed to your premises). Understand that as a practical matter, your medical office may trigger the need for ADA compliance for the whole building. You don’t want to bear the entire cost of this work, however; you’d much rather make the landlord pay for it or at worst, share the cost with the other tenants in the building. Therefore be on the lookout for leases that obligate the tenant to pay the costs of ADA compliance for the building (not just your premises). FORCED MOVE TO SUBSTITUTE PREMISES Many leases have provisions requiring the tenant to consent to a substitute premises if the landlord wants to move the tenant. Delete these provisions from the lease if your tenant improvements are significant, or if your patients can only access your original office. USE OF PREMISES You may want to take on other health care practitioners to increase the scope of services you offer your patients. In this respect, be careful that your use clause isn’t too narrow. ASSIGNMENT / SUBLET You may want to sublet single offices in your premises to related health care providers. Make sure your assignment / sublet provision permits this. Also, it helps to have a provision that permits you to assign the lease to a buyer of your practice who meets certain financial standards — this helps with your exit from your practice. CO-TENANCY TERMINATION To get patients or other business, your medical practice might depend on another practice or business that is located next door or in the same building or complex. If this is the case, consider negotiating for the right to terminate your lease if this other practice or business were to leave. DEATH / DISABILITY TERMINATION For solo practitioners, consider negotiating for an automatic termination of the lease if you were to die or become disabled. This gives peace of mind to you and your family, because they won’t be stuck with your lease liability after you lose the ability to practice. And lastly, PRIVACY AND LANDLORD ACCESS Physicians need to limit the landlord’s access to examining rooms and other areas during certain hours of the day. Generally, medical tenants want to restrict the landlord’s reentry rights to public areas of the office. Please read Understanding Commercial Leases for a more basic explanation of commercial leases. Then try this article — Common Area Maintenance (CAM) in a Commercial Lease. I hope this article is useful to you. As always, I only glossed over the outlines of the subject. A lease is a major financial commitment so please talk with a lawyer before signing one. Good luck.

Office Sharing Agreements

You use an Office Sharing Agreement for separate practices that share the same suite of offices. Here is an outline of the basic terms of an Office Sharing Agreement. NO APPEARANCE OF PARTNERSHIP From a lawyer’s perspective, priority #1 is to draw clean lines between the co-habitating practices. You do not want anyone to believe that the practices are a partnership or a combined practice. If a patient has reason to believe that you and your office-mates are partners, then you can be liable for each other’s malpractice. To maintain the appearance of separate practices, each practice must have its own telephone number. Be sure that each practice (or the common receptionist) answers the phone using the individual practice’s own name, not a generic “Hello, medical [dental, etc.] offices.” Post clear signs on the outside door or plate glass that show the separation of practices. State in the Office Sharing Agreement that no party may imply the existence of a partnership or combined practice to any third party. On a related note, all doctors must carry malpractice insurance. TELEPHONES AND COMPUTERS Own your telephone number and computer system. If you move, you must be able to take your phone number and all of your data and patient records. It’s OK to share electronic health records software, so long as your data is segregated from the other practice’s data, and you can remove your data immediately when you leave. SHARED EQUIPMENT In the Office Sharing Agreement, maintain a schedule that states the ownership of all shared equipment and the responsibility for costs, maintenance and repair. State who gets each piece of equipment if the office mates split up, or who may continue to use the equipment and under what terms. SHARED PERSONNEL It’s best not to share personnel. If you share personnel, state in the Office Sharing Agreement (i) who is the employer of the personnel, that is, who is responsible for employer obligations, (ii) work priorities for the shared personnel, (iii) cost sharing for the personnel, and (iv) supervision, disciplining and firing of the shared personnel. Train the shared personnel to always give the impression to patients that the doctors have separate practices. OFFICE MANAGER Someone has to be in charge of the little things. Otherwise no one will do anything, and one decent person will be stuck with all the work. This includes dealing with the landlord, maintenance and cleanup, the kitchen, the coffee pot, the copy machine, the fax machine, and anything else that is shared. The Office Sharing Agreement should state who is in charge, and the compensation for this thankless responsibility. Hint: Delegate to outside contractors as much of this work as possible, and have the doctors split the cost. PENALTIES It’s crucial that the Office Sharing Agreement states penalties for failure to timely pay any shared cost; and you must enforce these provisions every time. For example, a doctor’s late payment of rent on a shared Lease will force the other doctors to cover the late doctor’s rent to avoid a default under the Lease. A doctor must pay up if she puts the others at risk in this way. PATIENT COVERAGE Solo doctors need call and coverage help. Frequently office sharing comes up between an established doctor and a young doctor so that the young doctor can cover the older doctor’s patients, including call duties, overflow, weekends and vacations. When a doctor refers patients to another doctor in the office, the referring doctor should not receive any compensation for the referral (due to the Stark and other referral laws). The doctor providing the coverage help should directly bill and collect for the services, and keep 100% of the payment. If it turns out that some patients migrate from the referring doctor to the coverage doctor, so be it. The referring doctor, graciously and without resentment, should accept that some patients will like the coverage doctor more. There’s enough for all of us in this world. TERMINATION Doctors come and go. The Office Sharing Agreement needs a notice period for leaving the office, getting out of the office Lease (if possible), removing the departing doctor’s equipment, or paying a doctor off for her share in jointly purchased equipment. As a final note, pay attention to the office Lease. The Lease is a contract that can bind you independent of the Office Sharing Agreement. If a doctor is a party to the Lease, the doctor might not be able to leave until a substitute tenant is found. It’s simplest if one doctor holds the Lease, and that one doctor sub-leases space to the other doctors. Be aware, however, that the master tenant / doctor will now have enhanced power and liabilities vis-à-vis the other doctors. It’s a trade-off.

Leaving a Medical Practice / Closing a Medical Practice

This article gives a very brief overview of how a physician leaves or closes a medical practice. The physician can’t just walk away – leaving or closing a medical practice is more complex than you think. In this article I try to give both sides of the story, that is, the perspectives of both the individual physician and the group practice. CONTRACT REVIEW Both the physician and the surviving practice should look over their contracts when the physician leaves. Review managed care contracts, the employment agreement and the shareholders (buy-sell) agreement if you have one. The latter 2 contracts become important if the physician wants to continue to practice medicine. Employment Agreement. Most physician employment agreements require a notice period before termination of employment. The consequence of failure to give the contracted notice is that the employer / practice might sue the physician for breach of contract. Usually the practice wants to recover the costs of hiring a temp physician to cover for the departing physician’s absence until the practice replaces him or her. Further, if the practice must pay deferred compensation, the practice might try to offset its damages against the compensation to be paid. Lastly, beware any non-competition or non-solicitation clauses in the employment agreement. I have many articles on these and related subjects in the sidebar to the right. Shareholders Buy-Sell Agreement. If the practice has a shareholders buy-sell agreement, check it for any buy-back of the physician’s shares in the practice. Medical groups frequently require a mandatory buy-back of shares. The buy-sell agreement also will provide for the share price, either by an accounting formula or through an arbitration process. Once again, beware any non-competition or non-solicitation clauses in the buy-sell agreement. For more information, read Shareholder buy-sell agreements for medical corporations, and the other articles in the right sidebar. COMPENSATION AFTER TERMINATION When a physician leaves a practice, usually the practice will pay compensation after the termination date. First, there is salary owed to the date of termination plus accrued vacation pay. Second, there might be (i) compensation owed for the physician’s share in accounts receivable or collections; (ii) a pro-rated share in year-end bonuses; and (iii) a pro-rated share in the practice’s contributions to the physician’s retirement plan. Word #1 to the wise: The latter 2 items (pro-rated share in bonuses and retirement plan contributions) frequently create timing issues, specifically, whether the termination date falls before or after vesting in the particular payment. Word #2 to the wise: Consider using an exit / severance agreement (discussed next) to require that the practice give financial data, and permit inspections, that make clear its calculation of post-termination payments. EXIT / SEVERANCE AGREEMENT Exit / severance agreements are useful when a physician leaves a practice to tie up loose ends and prevent misunderstandings, all of which can lead to litigation. Typical matters for an exit / severance agreement are: 1. The content of any notice that the departing physician and the practice give to patients and referral sources. Both sides should discuss who is responsible for the mailing, its costs, and the deadline for the mailing. I talk more below about notices to patients. 2. Mutual access to patient records. 3. Who gets the patient records. Retaining patient records is a significant burden, but usually the keeper of the records gets the patient. The CMA recommends a minimum of 10 years for holding patient records. Consider also any retention periods required by contract, e.g. managed care contracts and malpractice insurance policies. ***Regarding patient records, read Who owns the patient’s medical records? *** 4. The buy-out of shares in the practice and post-termination payments (all discussed above). 5. Mutual liability releases. 6. The departing physician might buy a malpractice insurance tail. 7. Indemnities in favor of the departing physician for any guarantees that the physician gave for practice debts. Word #3 to the wise: Identify and resolve (as best you can) any personal guarantees that the departing physician signed to secure financing given to the practice. Guarantees are the wild card when leaving a practice. NOTICES A physician who leaves or closes a practice must notify a host of persons of the change in status. Notice to Patients. A physician must give notice to patients of his or her leaving or closing a practice, otherwise face a possible claim of patient abandonment. The notice to patients should be a minimum of 30 days. The notice should specify the date of departure, the physician’s new contact information if applicable, and who the patients can choose for future medical care. Medical Records. Be sure to include in the notice a patient authorization form that states where medical records will be stored. For example, the notice might have 2 boxes that can be checked – one that keeps records at the practice, and one that transfers the records to the departing physician. As I discuss above (at exit / severance agreements), it is best that the practice and the departing physician agree in advance to the form of notice and the retention of records. Notice to Malpractice Carriers. The insured (whether the practice or the departing physician) should notify its insurance carrier of the change. Notice to Managed Care Plans and Insurance Networks. Get this notice out early, at least 60 to 90 days before the change. Medicare and Medi-Cal have their own forms and procedures for this notice. If the departing physician will continue to practice, ensure continuity in managed care plans. Notice to Licensing Boards. Notify the Medical Board of CA within 30 days of any change in address; use the Board’s “Change of Address Form.” Also notify the Drug Enforcement Administration (for controlled substances) and any specialty practice groups as necessary. Notice to Hospitals re Privileges. First call the hospital administrators and staff, then follow up with a detailed letter that includes future contact information. INSURANCE A tail policy covers malpractice claims for incidents that occurred while the departing physician was still with the practice (even though the claim was filed after the physician left the practice). Tail coverage is expensive but worth the money. Someone must pay for the tail policy, be it the practice and/or the physician, and this is why an exit / severance agreement is so useful. The practice can consider deducting the costs of the tail policy from any deferred compensation or buyout amounts owed to the departing physician. For more on tail policies, see Termination clauses in physician employment and contractor agreements. As I mentioned in the introduction, I’ve given you only a brief outline of the topic of leaving or closing a medical practice. It’s a complex topic, so please get competent legal counsel to help you.

Overview of License Defense for a Physician

This article gives you a birds eye view of professional discipline for a physician, that is, the process by which your medical license comes under attack and your defense of it. To summarize the process: Violation+Reporting ⇓ License Defense Procedures: Investigation ⇒ Suspension ⇒ Hearing / Plea Bargain ⇒ Sentence ⇓ Collateral Damage VIOLATION The process of professional discipline starts with your violation of law. California statutes have a large list of prohibitions for physicians, the violation of which triggers professional discipline against the physician’s license. Some examples include: * Excessive use of alcohol or drugs, * Billing fraud, * Dishonesty, * Disciplinary action taken against you by other regulatory agencies, * Unprofessional conduct, which includes, among other generalities, violation of a provision of the Medical Practice Act. Notice that these violations incorporate other laws, and disciplinary action taken against you by other agencies, thereby creating an infinite pool of possible violations. The laws applicable to physicians are voluminous and growing, with most of the laws being unknown to you and everyone else, but your violation of any one of them can start the process of professional discipline. REPORTING The CA Medical Board learns of your violation from a number of sources, including from informants (beware employees). CA law also requires reporting from certain persons. For example, * A physician must report his own felony charge, or misdemeanor or felony conviction. [Doesn’t it feel unfair to force people to rat on themselves?] * A district attorney must report a physician’s felony charge. * 805 Report—A hospital must report actions taken against physicians. * Professional liability insurers must report settlements and judgments for claims for death or personal injury. In many cases, the ideal scenario is to stop the process before a report is made. Once the report gets made, you’re in the system, and the system has a life of its own. LICENSE DEFENSE PROCEEDINGS As I outline above, the legal proceedings flow like this: Investigation ⇒ Suspension ⇒ Hearing / Plea Bargain ⇒ Sentence For the Medical Board, the suspension is an appetizer, leading to the first course — whether a suspension is warranted. From there you can demand a hearing, or you can immediately start to plea bargain for a reduced sentence. Usually the physician’s violation is an established fact (like a DUI), so the discussion isn’t whether you violated the law, but what’s the punishment. The Medical Board has standard ranges of discipline for each offense. For example, the range for excessive treatments is a minimum of 5 years probation up to a maximum of license revocation; the range for dishonesty related to patient care, billing etc. is a 1 year suspension + from 7 years probation up to license revocation. For some offenses, e.g. billing fraud, the Medical Board imposes permanent revocation of your license. You argue your case hoping for a sentence closer to the minimum. The law uses two factors in locating your punishment between the minimum and maximum. You should argue both factors, that is, (1) you do not pose a risk to patient safety, and (2) you are in rehab and getting appropriate treatment and education. COLLATERAL DAMAGE The scariest thing in license defense is the cascade effect among the various agencies that regulate the medical industry. The agencies cross-default their violations, meaning that a violation of one agency’s regulations will trigger discipline by another agency, which triggers discipline by still another agency.

Multi-Discipline, Integrated Health Care Practices

Physicians sometimes team up with chiropractors, physical therapists, acupuncturists, massage therapists and other health care providers to offer integrated care. In this article I discuss how physicians and other providers can work together in a multi-discipline practice. In brief, the various health care providers should avoid any appearance of being partners; they should avoid any appearance of fee-splitting or paying for referrals; and each must comply with the legal obligations of her specialty regarding supervision, scope of practice and standard of care. SUPERVISION, SCOPE OF PRACTICE, AND STANDARD OF CARE The California Medical Board is on the lookout for non-physicians who “rent” an MD’s license. This happens when a lower level licensee (usually a nurse) uses a physician as cover, but really provides medical services independently. Renting a license usually results in: * the nurse providing medical services without proper supervision by the physician * the physician failing to meet her standard of care * the nurse exceeding her scope of practice. Both the nurse and the physician will be liable for this. Both their licenses will be at risk, most likely for the non-physician’s unlicensed practice of medicine. Supervision / Scope of Practice. Each mid-level provider must work within his scope of practice, and receive the required level of supervision from higher level providers. In general, the physician must examine the patient before delegating a task to a lower level provider. In turn, the lower level provider must act within his legislatively authorized scope of practice. You cannot have, for example, chiropractors providing services beyond chiropractic care, or nurses acting independently of the physician’s supervision. The rules for supervision and scope of practice are complex. For a detailed example, consider a cosmetic practice. Registered nurses (and physician assistants) may use lasers or intense pulse light devices under a physician’s supervision. Registered nurses and vocational nurses (and physician assistants) may inject Botox under a physician’s supervision, but medical assistants may not inject Botox. A registered nurse (or PA under supervision; but not an MA) may do microdermabrasion. Standard of Care. Each provider, including the physician, must meet her standard of care. For example, a physician may not blindly sign off on procedures recommended by another provider, to be performed by that other provider. The usual suspects are laser therapy, vitamin B12 injections, hormone therapies, weight loss, and the like. The physician must diagnose the patient and ensure that these therapies are medically appropriate for the patient. Otherwise the physician is not meeting her standard of care. FEE-SPLITTING AND KICKBACKS California and federal law prohibit fee-splitting and kickbacks for physicians and other health care providers. In general, physicians may not split their compensation with non-physicians, and no one may be compensated for making a patient referral. I have more articles on this subject on my website. CORPORATE PRACTICE OF MEDICINE California law prohibits any control by a non-physician over a physician’s provision of medical services. Only a physician may: * Employ, hire or fire a physician * Hire or fire other providers of medical care in the practice * Hold ownership in a medical practice (with exceptions– for example, certain other licensed persons may own a minority share in a medical corporation) * Select medical equipment and medical supplies * Advertise the provision of medical services RECOMMENDED LEGAL STRUCTURE I advise clients to keep it simple. The relationship between the various health care providers should be clear-cut. Avoid any structure that looks like a partnership or combined operation, because this will violate a number of the prohibitions discussed above. To integrate different health care specialties, my preferred structure is a simple employment or contractor relationship. The physician may hire the other health care provider, whether as an employee or a contractor. In contrast, the other health care provider may not hire the physician (see CA’s corporate practice of medicine prohibition, above). Compensation to all persons must be fair market value, and there should be no fee splitting. Certain licensed health care providers can even be minority shareholders in the physician’s medical corporation, and thereby participate in corporate dividends pro-rata based on the number of shares owned. If the health care providers want to stay separate, they can share office space. See my website article entitled, Office Sharing Agreements. Sharing office space makes consultations and referrals between the practices more convenient for patients and the doctors. As always, no compensation may be attached to the referrals, including that the leases / subleases involved must be on fair market terms. One final note: Never let another health care practice bill under your provider number, no matter how many rationales that other practice has for it being OK. Most likely this would constitute billing abuse.

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