Editor’s Note: As part of the focus this month on multi-discipline practice, Chiropractic Economics’ Legal Q&A columnist Deborah Green answers some of the most commonly asked questions about this specialized type of practice. Green strongly recommends you use the services of a qualified health-care attorney when creating a multi-discipline practice. It is a complicated area of the law, and not the type of law most attorneys deal with regularly. Once established, the multi-discipline practice must comply with various federal and state law requirements. For instance, Florida is a relatively simple state in which to form a multi-discipline practice, but health-care laws that apply to the practice once it is established are very strict. You need to be aware of the various laws and regulations that apply to you and your practice.
Q What is a multi-discipline practice?
A multi-discipline practice is simply a group medical practice that offers the health-care consumer “one-stop shopping” by making available different types of health-care specialists under one roof. In all instances, there is a medical director who is either a licensed medical or osteopathic physician. He or she makes all medical decisions. The medical director is employed by either the medical practice or a general business corporation. The choice depends on the laws of the state where the practice is located. Additionally, the practice may employ chiropractors, physical therapists, acupuncturists, phlebotomists, nurse practitioners, physician assistants, and various other types of health-care providers.
Q Why would I form a multi-discipline practice?
Many doctors form multi-discipline practices to help avoid delays that occur when a patient needs to go to various locations to see various doctors. You have probably had cases in which a patient you were treating required medical treatment in addition to chiropractic care. Appropriately, you referred the patient to a medical doctor. In some instances, the patient returned to you, and in other instances, the patient was lost for good. In all cases, the patient experienced the inconvenience of having to make an additional appointment at another location for treatment. You and the medical doctor likely lost valuable time and energy playing telephone tag. Worse, the patient may have lost days waiting for the new appointment, when he or she could have spent that time recovering.
Q Do I need to form a multi-discipline practice and give up ownership of my chiropractic practice in order to hire a medical doctor?
Many states have prohibitions against the corporate practice of medicine that prevent a general business corporation from hiring medical doctors. That type of policy is known as a “prohibition against the corporate practice of medicine” doctrine. In states that do not have this type of doctrine, the medical director may be employed by a general business corporation. Regardless of where your practice is located, if you are not a medical doctor, you may not interfere with the professional judgment of the medical doctor.
In all cases, a chiropractor may not hire a medical doctor because the scope of the chiropractic license is more circumscribed than the scope of the medical license. If you want to offer a greater variety of services to your patients, depending upon the state in which you practice, you must operate under either a general corporation or a medical professional corporation that has at least one medical doctor/osteopath as a shareholder.
Q How do I start a multi-discipline practice in a state that does not have a prohibition against the corporate practice of medicine?
Establishing a multi-discipline practice owned by a chiropractor in those states is quite simple. A single corporation is established that is owned by the chiropractor. The corporation enters into employment agreements with its employees such as the MD, chiropractor, physical therapist, nurse practitioner, physician assistant, and any other individuals who render health-care services to patients. Care must be taken that each of these health-care practitioners renders services in accordance with the scope of his or her license in the particular state.
Q How do I start a multi-discipline practices in those states that have a prohibition against the corporate practice of medicine?
Three corporations should be formed: a funding company, a management company, and a group medical practice.
Q What is the function of the funding company?
The funding company makes a loan to the medical practice so the practice has capital to pay for start-up costs such as the purchase of equipment, salaries, lease payments, management fees, taxes, and for the purchase of the assets of the chiropractic practice.
In order to secure the loan, the practice gives the funding company a demand promissory note and a lien on all accounts receivable and other assets of the practice. Additionally, the physician shareholder gives the funding company a “hypothecation” agreement. The hypothecation agreement pledges the physician shareholder’s stock in the practice in case of a default under the terms of the loan. The physician shareholder is not personally liable to the funding company except to the extent of his or her ownership interest in the practice’s shares.
The interest on the loan made to the practice is repaid to the funding company monthly. The principal amount is due on demand. If the practice pays off the amount due under the note, the loan is satisfied and the funding company no longer has an interest in the practice’s assets. On the other hand, if the practice is unable to repay the loan when demand for repayment is made, the funding company may “call” the loan and take the shares in the practice in satisfaction of the loan amount due. The funding company may then sell the shares to another MD/DO.
This situation is similar to a bank lending you money so that you may purchase a home. If you can make the payments, everything proceeds normally. If you cannot afford to make the payments when due, the bank may, at its option, foreclose on your home and take your home instead of the money owed. The bank is then free to resell your home to someone else.
Q Where does the funding company get its money?
The funding company is funded by you personally or by other investors.
Q What is the function of the management company?
The management company provides all non-medical services to the practice. It charges a fee for every act and/or service that it performs on behalf of the practice. Such services may include clerical duties, advertising, equipment rental, lease rental and other activities. The charges must be assessed at a set fee. The services and fees are set forth in a management agreement between the management company and the practice and must be for a period of no less than one year. The fees should be for an amount commonly charged in your geographic area for the specific services rendered. Under no circumstances should you charge a percentage. Many states consider the payment of a percentage to the management company by the practice to be fee-splitting. Additionally, a percentage payment could be construed as a kick-back under federal law. The fee must be payable regardless of whether the practice is actually paid for its services. Your accountant can help you determine the fair-market value applicable to your area.
Q May I offer the MD/DO shares in the management company?
It makes good sense to offer an equity position in the management company to the MD/DO. Such an interest would give the MD/DO a greater incentive to develop the potential of the practice.
Q Should I offer the MD/DO shares in the funding company?
No. You are lending money and the value of your patient base to the practice. You should be compensated for same. The only way you can protect the loan made to the practice is by maintaining a lien against the accounts receivable generated by the practice, until such time that the monies owed to the funding company are repaid. Offering an equity position in the funding company to the MD/DO would dilute your interest in the funding company and weaken your position in the event that the funding company had to call the loan made to the practice.
Q What is the corporate structure of the medical practice?
The shares of the medical practice (or professional association as it is known in some states) are owned by the MD/DO (and where permitted, also by the chiropractor). The chiropractor may be named as secretary of the practice for purposes of administrative convenience only. Under no circumstances may the chiropractor exercise control over any medical issues that are left strictly to the MD/DO’s judgment.
The group practice may employ various licensed health-care professionals such as physicians, physical therapists, chiropractors, nurse practitioners, physician assistants, etc., to render services to the practice’s patients. Each health-care professional must enter into a written employment agreement for a term of no less than one year with the practice. Payment to each health-care professional should be based on a “fair-market value” rate. Fair market value is determined by the going rate for such health-care professionals in your community.
The practice may provide bonuses for professional employees, but the bonuses may not be based on the volume or value of referrals. The bonus may be based on productivity of the particular employee.
The practice is responsible for paying its professional staff for services rendered to patients; malpractice insurance if required by employment agreements with professional staff; taxes; payments to the management company; and interest payments on the loan to the funding company. It is also responsible for repayment to the funding company of the principal amount of the loan when due.
Q What are “group practice” requirements under federal law?
There are certain requirements that must be met in order to be considered a group for the purpose of satisfying the Stark (Medicare and Medi-caid) self-referral prohibitions and also the numerous state “mini-Stark” self-referral prohibitions.
The Stark law prohibits you from referring Medicare (and Medicaid) patients to the following type of designated health services in which either the owner of the practice or a close family member have a financial interest: clinical laboratory; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans and ultrasound services; radiation therapy services; durable medical equipment; parenteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. State “mini-Stark” laws generally include some or all of the same designated services.
With certain exceptions, these services may only be rendered if they are rendered in a “group practice” setting or as an in-office ancillary service.
A “group practice” is one of the exceptions to both the federal Stark law and the state mini-Stark laws. In order to have a group practice, the following criteria must be met:
- There must be a group of two or more doctors providing services.
- The group members must share office space, facilities, equipment, and personnel in providing substantially the full range of services (at least 75%) that each member routinely provides.
- Substantially all of the services of the doctors must be provided through the group, billed under the group’s billing number, and amounts received for the services must be treated as receipts of the group.
- The overhead expenses of, and the income from the practice must be distributed by a predetermined formula.
- Group members must personally conduct at least 75% of the physician-patient encounters of the group practice.
- The compensation of any group member may not be based directly or indirectly on the volume or value of referrals by the physician, except that a group member may be paid a share of overall profits of the group, or a productivity bonus based on services personally performed or services incident to such personally performed services, as long as the share or bonus is not determined in any manner that is directly related to the volume or value of referrals by the physician.
These requirements define a group practice primarily in terms of physician participation and financial arrangements. For example, a group practice exists only if “substantially all” the services of the physicians involved are billed under the group’s billing number and receipts from the services are treated as receipts of the group. The Stark I regulations define “substantially all” as requiring 75% of the “total patient care time” of the group’s physicians to be spent providing services through the group over a 12-month period. Under this regulation, the “patient care time” of the physicians is averaged to determine an aggregate rate. The regulations also define “group member” broadly to include physician owners, full-time employees and part-time employees.
The time requirements are determined as follows:
Assume Dr. Jones works 40 hours per week. He devotes 20 hours to Practice A and 20 hours to Practice B. This means he is giving Practice A 50% of his time.
Assume Dr. Smith works 30 hours per week and devotes all his time to Practice A; this means he gives 100% of his time to Practice A.
Dr. James devotes eight hours of a 40-hour week to Practice A, which represents 20% of his time.
In order to determine whether the doctors satisfy the group practice requirements, add 50%, 100% and 20% together for a total of 170%; divide that amount by three ( because there are three doctors) and the result is an aggregate amount of time devoted to Practice A of approximately 56%.
This amount does not fulfill the group practice time requirement. If, however, Dr. James were an independent contractor, his time would not be included in determining the aggregate amount. The time devoted by Dr. Jones and Smith would equal 150%, which, divided by two (only two doctors are now part of the group), equals 75%. The group practice would now be compliant with “group practice” rules, and there would be no issue concerning self-referrals.
Q What are “group practice” requirements under state law?
The following states do not have state self-referral laws. If your practice has no Medicare/Medicaid patients, you need not be concerned with satisfying group practice requirements:
- District of Columbia
- New Mexico
- Rhode Island
If you are not located in one of the above-referenced states, you must check your state’s self-referral statutes to determine “group practice” requirements. Many states have their own mini- “Patient Self-Referral Acts.” Many of these acts list health-care services that are considered to be designated health services. You must comply with all the “group” requirements in order to refer patients requiring such services within the group. Failure to abide by such requirements may put you in a position of having to pay back money for services rendered, in addition to paying fines and penalties.
Q How is billing performed at a multi-discipline practice?
If you are employed at a multi- discipline practice and the MD/DO is not on the premises when you are treating a patient, the treatment must be billed as having been performed by you, and your name and PIN number go on the HCFA form. If, however, you are treating the patient “incident-to” the MD/DO’s treatment of the patient, the MD/DO’s name appears on the HCFA form as if the MD/DO had performed the service.
Certain rules must be followed in order to be able to bill for “incident-to” services. The services (and supplies, including drugs and biologicals which cannot be self-administered) must meet the following requirements:
- They must be an “integral” though “incidental” part of the MD/DO’s diagnosis or treatment.
- They must be provided under the “direct supervision” of the MD/DO.
- The service must be performed by an employee of the MD/ DO providing the supervision.
- The service (and supplies) provided must be customarily performed in an MD/DO’s office, commonly rendered without charge or included in the MD/DO’s bill.
The MD/DO must perform the initial service and subsequent services with sufficient frequency to reflect his or her active participation in, and management of, the patient’s course of treatment.
Q Do I need to hire a consultant?
The proper management of a multi-discipline practice is substantially more sophisticated than that of a chiropractic practice. The initial learning curve can be quite steep and this is the time when you would need the most help. I recommend that multi-discipline practices get consulting help for at least one year. Make certain your consultant has experience working with multi-discipline practices.
Look for a consultant who has an in-house attorney. This field is very legal-intensive.
Ask the consultant about Medicare. If the consultant recommends you stay away from Medicare; stay away from the consultant. Your consultant should be able to teach you how to manage a practice that is Medicare-compliant. If your consultant cannot do that, he or she is not teaching you how to manage a practice that is in compliance with state and federal laws.
Q May I still maintain my own chiropractic practice while owning or managing a multi-discipline practice?
I do not recommend maintaining a separate chiropractic practice. You should dissolve your existing chiropractic practice and sell the assets to the medical practice or management company as appropriate. Maintaining a separate chiropractic practice can result in possible self-referral violations, unlawful kick-backs or “ping-ponging” of patients for insurance purposes.
Q What are the initial steps that I should take before creating a multi-discipline practice?
Review your lease with respect to prohibitions against sub-letting. Many leases contain clauses that prevent an existing tenant from sub-letting its space to another entity. In such a case, an addendum to your existing lease will have to be negotiated with your landlord. Your landlord may require additional security, a personal guaranty or a lump-sum payment to permit you to sublet the premises to the management company (which will then further sublet to the practice). Make sure you obtain the landlord’s permission for successive sub-lets in writing. You will also need to get written permission from your landlord to make any appropriate structural changes if necessary.
If you maintain a home office, you need to determine whether you are permitted to sublet to a third party.
You may wish to sell your patient list to the practice and your equipment to the management company. In that event, you will need to obtain a fair market value appraisal of both your patient list and equipment.
Q What documentation is necessary in order to integrate a practice?
The various corporations must have certain agreements that describe the duties and obligations of each company to the other. The basic documents that an attorney should prepare for a multi-discipline practice are:
- Physician-Shareholder Employment Agreement
- Hypothecation of Shares and Security Agreement
- Power to Pledge
- Resignation of Sole Director and Officer
- Transfer of Capital Stock Agreement
- Corporate Resolution
- Revolving Loan and Security Agreement
- Promissory Note
- UCC-1 and Rider
- Management Agreement
- Equipment Lease
- Medical Office Lease
- Corporate Document Book (management corporation)
- Corporate Document Book (professional medical corporation)
- Corporate Document Book (funding corporation)
- Other state-specific documents as required
Additional documents that may be applicable:
- Shareholder’s Agreement: This type of agreement may be required when there is more than one shareholder of the management company, funding company and or multi-discipline practice.
- Purchase and Sale Agreement, plus appropriate additional documentation in the event that you and/or the MD sell your equipment and/or patient list to the multi-discipline practice.
Q What do I need to do to properly maintain the corporations?
In order to enjoy the benefits of corporate ownership, such as limited personal liability and certain tax benefits, you must comply with some basic rules of corporate law.
You must strictly separate corporate and personal matters. Never mix corporate and personal funds, assets or accounts. Do not use corporate funds or assets for personal use or for the use of another corporation’s purposes. Business should be done only in the corporate name. Avoid any indication that you are dealing in a personal capacity. The corporate name should be used on telephone listings, advertisements, letterheads, cards, signs, etc.
When signing documents, make sure it is clear that you are acting on behalf of the corporation. For instance, never sign a document “Mary Smith.” Sign it: “Mary Smith, Secretary of ABC Corporation.”
Properly held meetings of shareholders and directors are evidence of the formal operation of corporations. Check with your attorney for proper procedure. The courts consider observance of the formalities as important proof in deciding whether a corporation has been operated as a separate entity. The formalities are often the source of authority for those who act on behalf of the corporation. Officers, directors and employees who act without authority (that is, without the proper approval of the shareholders or the directors, properly made and recorded in the corporate minutes) may be personally liable for their acts.
If you have questions regarding multi-discipline practice or any other legal health-care issues, please fax your questions to the Law Office of Deborah A. Green, 914-666-9266. The office is at 16 Caren Court, Mt. Kisco, NY 10549; phone: 914-666-9264; e-mail: dgreen3686@ aol.com. Questions that are of interest to the broadest audience will be answered.
Ms. Green has been a practicing attorney since 1977. She is admitted to the practice of law in New York and Florida. She has formed numerous integrated practices throughout the country and acts as counsel to a number of multi-discipline practice consulting firms.
Because this column is being presented to you by an attorney, it would not be complete without a legal disclaimer. This column is provided subject to and governed expressly by the terms of this disclaimer. This column is provided for educational purposes only. The accuracy or timeliness of the information presented herein is not warranted. The information presented herein is not intended to be advice as to a specific fact pattern with which you may be presented. Accordingly, please note that the information contained herein is not being presented as legal advice with respect to any matter and that no attorney-client relationship is hereby established.