Planning Your Return to Private Practice

As published in the September 2007 edition of Bulletin, a publication created by the AlleghenyCounty Medical Society.

While medical practice acquisitions continue, some physicians and practices are returning to private practice. These returns are sometimes driven by regional strategies, specialty strategies, or just individual decisions made on a physician-to-physician basis, some voluntary and some involuntary. Although returning to private practice presents many of the same issues as starting a new practice, we will focus on those issues as they are presented in a return to private practice environment. The return to private practice is actually more similar to a separation from an existing practice because, rather than starting a new practice, you are actually transitioning a practice from a third party.

Returning to private practice is not a guaranteed right and is usually not available unless it was either negotiated at the time of the original agreement or is subsequently established by mutual agreement. The planning for a return to private practice should have started before the initial affiliation or acquisition. Issues such as restrictive covenants, office leases, medical records, solicitation of staff, and others are all issues which should have been negotiated at the beginning of the arrangement. For our purposes, we are going to assume that these issues are not contested.

The issues can be broken down into the number of general categories, i.e., facilities, staff, patients, financial issues, i.e., accounts receivable, malpractice coverage, Mcare and professional liability tail responsibility, structure and planning. 

FACILITIES

You will need a place to practice. Ideally, you would assume the existing lease, but that may not be possible if you are separating from an affiliated medical practice unit that will remain intact or your existing space would be in a medical office building owned by a hospital or health system which will view you as a competitor. Remaining in an office space in a hospital-controlled medical office building or on campus may be the most difficult issues in return to private practice scenarios, unless the issue is resolved before the agreement or is by mutual agreement.

The new office will obviously need medical equipment. Your choices are to keep the old equipment by mutual agreement, or buy or lease new equipment. This issue is often legally the easiest because it is a simple matter to acquire new office equipment. However, from a financial perspective, this may be a significant hurdle because it may require a significant initial capital investment, as opposed to simply signing leases for big ticket items or office space. Proper planning and budgeting are a must.

STAFF

Are you permitted to hire or solicit the existing employees of the medical practice? Although it is unlikely that staff have restrictive covenants, your restrictive covenant may prohibit you from soliciting or employing these individuals. On the other hand, you might specifically have the right to offer employment to all members of the staff who are working for your medical practice unit prior to separation. That does not guarantee that the staff will make that transition. This will be both a financial issue, primarily in terms of matching compensation and more importantly benefits, and it may be a job security issue as well. You must also make arrangements for the replacement of a retirement plan, decide whether your new retirement plan will accept rollover contributions from the system retirement plan, whether the individuals in those circumstances will have investment direction rights, and whether you will credit all of the “new” employees of your practice with the years of service equal to the term of the employment at the system.

This is also your opportunity to be selective; you are not required to offer positions to all members of the staff.

MEDICAL RECORDS

In Pennsylvania, all patients have a right to copies of their medical records if they pay the copy expense established by state regulation. This right does not present the easiest or most practical way to transfer records, because the existing practice can require written request, take time for copies, and generally make it difficult for that transition.

The preferred method by far is to have an agreement allowing the transfer of the originals of all medical records which have been designated as the medical records of the patients of the departing physician. Obviously, you need a system for identifying those patients. It is easy to identify those records if the whole practice unit is departing and all medical records will be transferred; it is much more difficult to identify those records when only some of the physicians in an existing practice unit are transferring.

The neutral position of last resort is a notice to all patients with directions to select a physician whom will control their medical records. The physician or practice unit losing custody of the originals should have the right to either retain copies at their own expense or access to make copies in the event of future need, such as malpractice defense.

The advent of ­­­­­­­­­­­­­electronic health records both complicates and simplifies this issue. On one hand, it makes the transfer much easier because presumably that can be done electronically. On the other hand, if you must resort to the patient request for copies of the medical records, this could be a complicated process. If you are using electronic health records, you should address this issue early in the separation process. Compatibility and the electronic transfer of the contents of one EHR system to another is by no means automatic.

FINANCIAL ISSUES

Barring agreement to the contrary, the existing practice entity or employer owns the accounts receivable generated by a physician services because they are intangible personal property. The right to transfer the medical record is unrelated to the remaining revenue stream. Obviously, this is an issue that should be negotiated, and the point of this article is to alert you to the fact that payments will not follow the patients unless agreed otherwise. Furthermore, collecting existing accounts receivable and starting new accounts for patients can generate complications. An agreement for the transfer or the shared use of patient financial information is essential.

Continued malpractice coverage is obviously is essential. Physicians leaving a system with a captive insurance product may not be eligible to continue coverage in that product. If the existing insurance is a claims made policy, then the responsibility for the tail must be addressed. Mcare abatement responsibility will not be an issue if the departing physician remains in Pennsylvania to practice.

ENTITY STRUCTURE

One of the early decisions that must be made is the structure of the new practice. Although the formation of a professional practice entity, such as a professional corporation or a limited liability company (restricted professional company) is a relatively simple process, and one which can be accomplished fairly quickly, the establishment of an assignment accounts with third party payors requires an employer identification number and lead times of at least six months in order for things to go smoothly. That decision must obviously be made early enough so this can be accomplished prior to the effective date of the separation. Ownership and governance rights in the professional practice entity are obviously important issues, but those issues are basically the same whether you are starting a new practice or a “return” practice and are not the subject of this article.

PLANNING

Ideally, the time for planning the return to private practice is before the affiliation or acquisition, so the issues identified above can be addressed at the time. That planning issue is separate from the actual time needed to affect the return to private practice dealing with the issues addressed above. Obviously, all of those issues have typical lead times, such as the six months required for the assignment account enrollment. Your planning should start earlier than the earliest of these actual time requirements.