Physicians: Start Preparing for 2016 Changes in Healthcare

By: Jeff Cohen

Stepping into 2016, physicians and medical practices must continue to be vigilant about the changing landscape in healthcare.  Those who adapt quickly and smartly will thrive, while those who don’t will lose.  What can they do?

Stabilize

Stability for medical practices requires two things:  clear analytics and fixes.  Smart medical practices will examine threats outside the practice and within it.  As far as external threats go, the key area to focus on is competition.  Do you know what competitors are doing and how they’re different than you?

Internal threats are general revealed in the form of (a) employees that need better training and communication, (b) employees that just need to go, and (c) creating a succession plan for the practice.  If the practice is top heavy with older physicians, what plan is in place to ensure that “new blood” is brought in?  What recruitment strategies are in place?  Can the practice go it alone or does it need a recruitment arrangement with a hospital that can demonstrate a community need?  How will the older physicians phase out?  Is there a plan in the corporate documents to make sure phase out is slow and planned?  What do departing physicians get?  What about billing and collection?  When was the last time that was analyzed?  And finally, coding analysis.  Is money being left on the table?  Far too many practices actually undercode visits and services out of fear of payer audit.  Apart from constituting a False Claims Act violation (though regulators are not fast to indict providers who are underpaid), the differential can mean the difference between a good year and a bad one.

Finally, in light of the fact that regulatory and recoupment activity has never been higher, practices would do well to ensure compliance via a self-audit and compliance plan.  This is a different animal than a coding audit.  This one looks at all contractual relationships to ensure compliance and augments coding compliance.   Continue reading

More Than a Legal Look: The Business Implications of Recruitment Agreements

contractBy: Jackie Bain

Many lawyers have written extensively on the legal issues surrounding recruitment agreements, but there is an information gap out there between the discourse over the legal issues and how those issues make an impact on the actual business, the practice. When a practice decides to employ a new physician with the help of a hospital, the practice is essentially a business making a business decision. With that in mind, the practice must fully inform itself of the implications that a Recruitment Agreement will have on their bottom line. Continue reading

Hospital Physician Recruitment on the Rise Again

In an effort to stay competitive, hospital physician recruitment deals are on the rise.  These arrangements are permitted under applicable federal law (the Stark Law) and are a core tool in hospitals’ tool chest.  These arrangements generally involve the hospital “loaning” to the physician or to a practice employing the doctor the costs associated with that doctor joining.  Since the ramp up costs associated with hiring or a physician just relocating to a new community can be steep (especially as payer contracts can take many months to set in place), hospital financial assistance can be critical.  How do they work?  Simple—

1.The hospital guarantees, based in part on MGMA salary surveys and other cost data sources, that the physician will collect at least $X each month for a period of normally up to 12 months;

2.The doctor agrees to remain in the hospital’s service area for 2-3 years, during which time, the amount loaned by the hospital is forgiven.

Though it may sound too good to be true, there are drawbacks, including:

1.There are pretty severe limitations placed on noncompetes for hospital recruited physicians which can be daunting to practices hiring them;

2.Unless carefully worded and negotiated, recruited physicians may find themselves with high expectations and little delivered in terms of the marketing and other support required to create a successful practice.  Not being financially successful is no defense to the requirement of staying in the hospital community for several years to write off the loan;

3. Some hospitals offset their business risk by taking any excess earnings (the collections exceeding the guaranteed amount) for months after the 12 month guarantee period, a period when collections should be substantially higher than during the early phases of the recruitment.

Practices entering into a hospital recruitment arrangement need to be careful in their physician contracts to pass as much financial risk as possible to the recruited doctor.  A recruited doctor that decides he or she no longer likes the new community can leave the practice holding the bag for a huge amount of money which has not yet been forgiven.

Recruited physicians need to be careful about the risk passed off to them in their employment contracts if they are joining an existing practice, since the practices typically benefit by receiving enough money to cover all of the new physician’s salary, benefits and overhead.

Noncompetes Are Once Again Relevant For Recruited Doctors

When the Stark II (Phase III) regulations were released in August, 2007, they clarified that when a hospital recruits a physician to a medical practice, the employment agreement between the medical practice and the newly recruited physician may contain practice restrictions as long as they do not “unreasonably restrict the recruited physician’s ability to practice medicine within the recruiting hospital’s service area. This stymied many medical practices which were reluctant to hire a new physician without a noncompete and nonsolicitation provision. A 2011 CMS Advisory Opinion (No. CMS-AO-2011-01) changed this.

The Advisory Opinion involved a pediatric orthopedist who was recruited by a hospital to a medical practice. The medical practice wanted to hire the new doctor, but was not willing to do so without a noncompetition provision and other restrictive covenants. The practice asked CMS for guidance because the Stark regs suggested that perhaps a noncompete could not be contained in the employment agreement of a physician recruited by a hospital to join a local medical practice. In fact, a prior version of the Stark regs was clear that noncompetes were not permitted in the employment agreements of physicians recruited by hospitals.

Hospital recruitment transactions involve bringing a physician into a new area and funding the start up period (usually a year). The nice thing for a medical practice is that the dollars given by the hospital to the practice (the difference between salary and benefits and collections) can run into the hundreds of thousands of dollars! The down side was that the medical practice could not tie the recruited physician’s hands with a noncompete or other similar restriction. The Advisory Opinion is, however, a game changer because it allowed the medical practice to impose a noncompete on the recruited physician.

As mentioned, the practice would not hire the recruited physician without the noncompete. The noncompete had a 25 mile radius, and the Opinion cited the following relevant facts:

1. The recruited doctor would remain on one of five hospitals within the 25 mile zone;
2. The recruiting hospital’s service area extended beyond the 25 mile zone, in which there were at least three other hospitals within a one hour driving range;
3. The noncompete complied with applicable state law.

Based on these facts, the OIG permitted a one year noncompete because it did not “unreasonably restrict the doctor’s ability to practice in the recruiting hospital’s service area. Certainly, many other medical practices can be sure to follow suit.

Physicians interested in nocompetes must be familiar with state law. Getting to the bone of the issue, noncompetes are enforceable in Florida if:

1. The geographic zone in the noncompete is reasonable. This depends on where the practice draws its patients. If patients come to the practice from just down the street, a ten mile radius is probably overbroad;

2. The duration is two years or less (though it can be longer in some limited circumstances);

3. The employer has complied with all of the terms of the employment agreement. If the employer has breached the contract that contains the noncompete, most courts will reject a claim to enforce it;

4. The employer does the type of thing that the departing employee does. If the employee is the only person performing toe surgery for instance, and the practice will not provide toe surgery services once the employee leaves, the practice probably does not have a legitimate business interest to protect by enforcing the noncompete; and

5. Stopping the ex employee from practicing in the geographic zone does not create a healthcare crisis or shortage. This is tough. Very few practice areas are in such dire straits that the departure of one doctor will adversely affect the provision of such services in the area.

Physicians should also be familiar with the practical aspects involved in noncompetes.

Mistake #1 – Racing to litigation

Going to court is a crap shoot. Once litigation begins, it takes on a life of its own and costs can be nuts, sometimes in the hundreds of thousands of dollars. You may think it’s a simple noncompete case. There rarely is such a thing. And if you sue someone on a noncompete breach, they may turn around and sue you in the same lawsuit for something. And….insurance does not cover any such claims. That means you are paying out of pocket for a lawsuit, the certainty of which can never be guaranteed and which will seem endless once you run out of patience or money for the process. Often, the reality is that noncompete litigation involves the strategy or seeing which party can outspend the other one.

If you are an employer, ask yourself the following two questions before commencing litigation:
1. Does it make good economic sense to enforce the noncompete? Is the former employee a business threat?

2. Is there a way to work out a deal with the employee, short of litigation?

In some situations, it makes no business sense to pursue a noncompete. For instance, if the employee has been employed for several months and if the patients are all referred by the employer, then the employee may not be a competitive threat to the employer. The employer will find a replacement doctor at some point and refer the business to the new doctor. Case closed.

It is also possible to work out settlements before going to court. For instance, you might avoid litigation by lowering the geographic zone or the duration. You might also negotiate a buy out of the noncompete.

If you are an employee who wants out of the noncompete, sit down with the employer and see if you can agree on a way out, so that both of you can have peace and move on.

Mistake #2 – Doing it Yourself

Noncompetes are governed by state law. There are both statutes and cases that inform lawyers about what types of noncompetes are enforceable and which are not. Do not work off of an old contract to create a new noncompete, since the laws (and the cases that construe them) change often. Do not use a friend’s noncompete, since you will not be able to tell if it will be enforceable at this time or under the circumstances that apply to you. The enforceability of noncompetes is extremely fact specific. Since noncompetes are strictly construed by courts, drafting them requires a trained eye.

The Advisory Opinion marks a significant development in the area of noncompetes for physicians recruited to medical practices by hospitals. Though some states do not allow noncompetes to be applied to physicians, many states do, including Florida. Finding a way to satisfy both the federal and state authorities will be essential for ensuring an effective and enforceable noncompete.