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Do You Understand Due Diligence In Physician Practice Acquisitions?

Posted by admin on February 22, 2019

Often in the sale of a physician’s practice, the owner of the selling practice (the “Selling Practice”) may desire to structure the transaction as what some refer to as a “handshake deal” – using minimal documentation and providing minimal diligence for review. Although this may be advantageous for the Selling Practice and its owner (depending on the documentation), this is generally quite risky for the purchaser (the “Purchaser”) – as the Purchaser may purchase unwanted liabilities or pay for assets that the Selling Practice cannot transfer.

On the other hand, typically the Purchaser wants to structure the transaction as an asset purchase (an “asset deal”), as opposed to acquiring ownership of the Selling Practice entity (a “stock deal”), so that the Purchaser can pick and choose which assets to purchase and which liabilities to assume (as opposed to taking everything in a stock deal). Regardless of the transaction structure, it is critical for the Purchaser to perform due diligence.

Provided below are a few examples of due diligence items that should be reviewed by the Purchaser (in the context of an asset deal):

Corporate / Organizational – Even in asset deals, a Selling Practice’s governing documents should be reviewed to confirm which owners must approve (and what actions are needed to approve) the transaction, and who can sign on behalf of the Selling Practice. It is important to confirm that the governing documents do not provide any third parties a prior right to purchase the Selling Practice or its assets.
Liens / Litigation – UCC searches should be conducted to ensure no third party has a security interest, lien, or other encumbrance on the assets. Litigation searches should be conducted to ensure no assets are the subject of any pending litigation.
Contracts – Each contract should be reviewed to determine which, if any, contracts the Purchaser wants to assume, to confirm the federal Stark Law, federal Anti-Kickback Statute, and related state statutes are not violated, and to determine which contracts can be assigned. If the Purchaser wants to assume a contract under which assignment is restricted, consent to assignment will need to be obtained prior to closing. The Selling Practice will be left with any contracts the Purchaser does not assume.
Governmental / Regulatory Matters – It should be confirmed the Selling Practice has all required licenses, provider numbers, permits, registrations and accreditations to conduct its business. Depending on the circumstances and the applicable legal framework, the Purchaser may obtain new licenses, provider numbers, permits and registrations.
Employees / Independent Contractors – All employee and confidentiality agreements, non-compete and non-solicitation provisions, disciplinary actions, immigration status, garnishment actions, paid time off and benefit policies should be reviewed. The Purchaser will need to analyze which employees it wants to hire and whether it wants to honor any “paid time off” and, if so, how much time will be honored (typically resulting in a corresponding reduction to the purchase price).

The above items are only a few of many examples. Other critical items such as real estate ownership/leases must also be reviewed.

Anthony Romano is a partner with Burr & Forman LLP practicing in the firm’s Health Care Industry Group. Burr & Forman LLP is an official preferred partner with the Medical Association of the State of Alabama.

Tags: deal, diligence, due, handshake, practice, purchase, sell

Posted in: Legal Watch

Looking Forward to Retirement? Solo Practitioners Can Still be HIPAA Compliant as You Close the Doors

Posted by admin on July 27, 2018

Maybe you’ve been planning for retirement for some time or perhaps you’ve had a bad month and have decided that you’re better suited for life on the lake. In either circumstance, when you get ready to leave your practice and wind down your affairs, don’t forget that you still have responsibilities pursuant to state and federal laws and regulations and those obligations don’t cease just because you won’t be returning to the office.

The Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health Act (HITECH) require providers ensure the confidentiality, integrity and availability of their patient’s protected health information (PHI). Thus, providers are tasked with preventing unauthorized access to PHI, ensuring that their records are not inappropriately altered or destroyed, and assuring that the records are available to the patient or other authorized individuals or entities.

Patient Notification

Pursuant to Alabama law, “When a physician retires, terminates employment or otherwise leaves a medical practice, he or she is responsible for ensuring that active patients receive reasonable notification and are given the opportunity to arrange for the transfer of their medical records.”[1] The law does not specifically define how much time is considered “reasonable,” thus; the type of practice or scope of services provided should be considered in determining reasonable notice. In all instances, notification should be provided in a manner that allows the patient adequate time to act upon the notification and either obtain a copy of their records or find a new physician.

Patient notification should be provided via U.S. mail and should include the following:

The date that the practice intends to close;
How the individual may obtain a copy of their medical record or have their records transferred to another physician; and
Contact information for the new physician if the patient records are being transferred to another physician without the patient’s consent. (Note: The retiring physician should enter into a Business Associate Agreement (BAA) with the purchasing physician to permit the purchasing physician to obtain and maintain the aforementioned patient records. By virtue of that agreement, the purchasing physician is acting as a custodian of records and is required to ensure the confidentiality, integrity and availability of those patient records regardless of whether the patient decides to utilize the purchasing physician for their treatment services. Pursuant to HIPAA, the purchasing physician cannot utilize those patient records unless and until the patient consents.) Alternatively, if the records are not being transferred to another physician, the notice should inform the patient of where the records will be located after closure, how long they will be retained, and contact information to make record requests.

Tip #1: While not required, it is suggested that patient notification be sent via certified mail, return receipt requested to the patient’s last known address. This allows the retiring physician to place those receipts in the patient files to demonstrate the attempt to notify the patient of the retirement or closure.

Tip #2: Don’t forget about the patient’s right to confidential or alternative communications when performing the mail-out. If your practice has agreed to a reasonable request of a patient to receive communications by alternative means, you must ensure that you have considered that request. For example, if they have requested that you use a particular P.O. box, instead of their home address.

Malpractice Carrier Notification

At the top of your list for entities to notify should include your medical malpractice carrier. Your medical malpractice carrier can give you a tremendous amount of guidance and many offer a checklist that you can use to ensure that you are covering all of the steps that will keep you eligible for coverage at the time of closure and beyond. Be sure to ask them about any extended malpractice coverage that can be considered for any allegations of medical malpractice that may arise after closure.

Sell v. Closure

When a practice is sold to another physician, the aforementioned BAA between the retiring physician and the purchasing physician may be utilized for the appropriate maintenance and availability of records. But when a practice closes, it is often necessary for the retiring physician to contract with an outside entity to maintain the records and ensure their future availability in accordance with HIPAA and state laws. Finding the right record management company is essential in this circumstance, in addition to entering into the required BAA.

Whether you enter into a BAA with a purchasing physician or record management company, ensure that the agreement includes provisions relating to record retention and disposal applicable to the types of records your practice utilizes. For example, there are special rules for mental health, substance abuse, and notifiable disease records. As the BAA is being drafted, attorneys and compliance experts should be consulted to ensure that appropriate provisions are included.

Closing Won’t Allow You to Escape HIPAA Fines

On Feb. 13, 2018, the Department of Health and Human Services announced a settlement with Filefax, Inc. for $100,000. It was determined that Filefax was a medical record storage company which inappropriately handled the medical records of approximately 2,150 patients by not ensuring that the records were secure. “The careless handling of PHI is never acceptable,” said OCR Director Roger Severino. “Covered entities and business associates need to be aware that OCR is committed to enforcing HIPAA regardless of whether a covered entity is opening its doors or closing them. HIPAA still applies.” Though Filefax closed its business, HHS was able to secure settlement proceeds via an appointed receiver which “liquidated its assets for distribution to creditors and others.”

Whether you are currently facing the prospect of retirement or whether it is still on the horizon, it’s never too early to speak with a health care compliance professional about the appropriate steps to take to ensure compliance with state and federal laws.

[1] Alabama Board of Medical Examiners Rule 540-X-9-.10(3)

Article contributed by Samarria Dunson, J.D., CHC, CHPC, attorney/principal of Dunson Group, LLC, a health care compliance consulting and law firm in Montgomery, Alabama. Find more of Ms. Dunson’s contributions on her partnership page.

Tags: close, fine, HIPAA, malpractice, retire, sell

Posted in: HIPAA

Three Common Mistakes in Transferring Ownership of a Medical Practice

Posted by admin on February 2, 2018

Physicians spend their careers building top-quality practices, but many devote too little attention to the architecture and terms by which the practices will be transferred at their retirement, death or disability. In our experience, there are three areas, which if neglected, will lead to problems at the crucial point when the ownership of this valuable asset changes hands.

Determining Value

Our clients are most concerned with the value of their practice. While some practitioners underestimate the value of their practice, many overestimate the amount which can be captured in the sale of the practice interest they own. A common mistake is to use a value that was read or heard about from a transaction elsewhere. That transaction price might have been determined by a purchaser who was limited in the amount they could pay, such as a hospital. The transaction might have occurred in a state with a higher managed care payer mix than your practice, or in a state with different non-compete laws regarding health care professionals. Practice valuations vary widely and for many reasons. Two practices in the same city and same specialty could have much different values. The terms of the transaction are another powerful force on sales prices and are rarely publicized. Even if you get the value accurately determined, there are still ways to create problems in the monetization of your practice value.

Clear Conversations

The documents relative to the transfer of a group practice ownership percentage should reflect the plan to sell at a future date, and the design of the manner by which the price will be determined. Even for valuable practice interests absent a clear design, potential buyers may feel tricked by a plan to transfer your share of the practice if it is developed late in your career. The time for this understanding is when younger doctors are brought in to the ownership. Buy-sell agreements and cross-purchase agreements serve to clarify expectations at the time of their drafting but should be reviewed every few years for relevance to the current situation, and any needed changes made. The greater the price desired for a practice, the more the need for clear design, pricing and terms. With a good legal architecture and a fairly determined price, your practice liquidation is almost ready for your time to sell, except for one additional issue.

The Fine Print

The legal obligation to pay the fairly determined price is often accomplished by the purchase of life and/or disability insurance on the selling practitioner. That can become a problem if the policies are never obtained, or the premiums payments are halted. In this situation, the buyer has a responsibility to pay a price agreed but with no funds to pay it. No one will be pleased with the outcome of this situation. Compound this problem with the common mistake of letting the practice price be set by the amount of life insurance proceeds, which could be afforded when the transfer architecture was designed, and you have a purchaser obligated to pay too much and with nothing but after-tax dollars from their future earnings. The CEO, chief emotional officer, at home will not respond well to this deal.

If you have a valuable practice, and you negotiate a fair price and terms for its sale, this can be a valuable way to exit your professional career and move to your next endeavor of success. It takes a little planning and periodic monitoring to gain top value.

Article contributed by Warren Averett CPAs and Advisors, official Gold Partner with the Medical Association.

Tags: death, disability, owner, practice, Price, retire, sale, sell, transfer, value

Posted in: Management