By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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For many physicians, the idea of opening a medical practice is very appealing.  You can be your own boss, control your hours and vacation time, make your own decisions regarding patient care, as well as control the business operations of the practice.  However, before a physician goes forward with opening a medical practice, there are numerous complex issues, legal and otherwise, that a physician needs to consider.  This article is intended to help physicians recognize these issues with the goal of making the transition run more smoothly and to limit potential exposure relating to opening a medical practice.

Corporate Formation:

Among the first decisions a physician must make is to determine the type of business entity through which the medical practice will be conducted.  This is a very critical decision that should be made on the advice of competent counsel because the choice of entity has a major impact on several aspects of the medical practice including the physician’s liability exposure, and tax treatment.  In New York State, a physician must conduct his/her practice through professional entity including for instance a professional service corporation (“PC”); a professional limited liability partnership (“LLP”); or a professional limited liability company (“PLLC”)[1].  Once a physician selects the type of entity and name of the entity, the appropriate paperwork must be filed with the New York State Secretary of State and New York State Department of Education in order to begin the corporate formation process.  Once the entity is formed, the entity will have to obtain a tax identification number, hold meetings, and have the appropriate governing agreements drafted (ie an operating agreement/partnership agreement/shareholder agreement).  In the event that a physician decides to “partner” with another physician(s), these agreements will govern the relationship between the physicians.  Furthermore, as per New York State law, it is imperative that these entities keep correct and complete books. As such, physicians must ensure that they hold annual meetings, conduct elections for managers/officers/directors, and review and update any agreements relating to the entity.  Failure to comply with these requirements may result in one of the entity’s creditors being able to “pierce the corporate veil” and therefore collect from the entity’s owners. 

Personnel/Staff:

When starting a medical practice, it is especially important to have trustworthy and reliable staff, including clerical staff (ie billers, receptionists) and professional staff (ie other physicians, physician assistants and nurses).  Prior to hiring these individuals, it is important to check all references and ensure that those individuals are a good fit with the practice as these individuals will have access to the practice’s confidential information and will have direct contact with the patients of the practice.  Employment agreements must also be drafted (or independent contractor agreements if applicable) for these individuals as well.  Furthermore, when hiring staff, physicians need to consider obtaining health insurance, workers compensation insurance, unemployment insurance, disability insurance, and of course malpractice insurance.   In order to further protect the practice, it is recommended that all practices have a comprehensive employee manual in place that clearly articulates expectations, as well as the practice’s policies including consequences for violating these policies.

Practice Location/Equipment and Supplies/Technology:

Identifying your office location is also an important aspect of starting a practice.  Things to consider when looking at office space are as follows: square footage, price per square foot, local referral sources, competition, accessibility, parking, expansion opportunities, and local demographics.  Furthermore, physicians need to consider whether they want to rent the office space or purchase the property.  Either way, the medical practice will have to negotiate a good real estate agreement which protects the practice.

Your practice will also need to obtain equipment and supplies. A physician can often rent large equipment, which may be more practical.  In this case, it’s important to have the equipment lease reviewed in order to ensure that liability is limited.

Technology is another area that is often overlooked although a practice’s IT infrastructure is often vital to the success of a practice.  In addition to the decision of whether or not to invest in an Electronic Medical Records (EMR) System, physicians need to consider having phone lines, computer systems and appropriate computer networks in place.

Insurance Panels:

For many physicians, it is vital to be on insurance panels in order to get referrals from those panels.  In the event that a physician wants to be an in-network provider, he/she needs to determine which health insurance plans to participate with.   The physician then needs to go forward with becoming credentialed with the plans-this is not an overnight process and requires advanced planning.  Once approved, the physician will then need to sign a participation agreement which needs to be reviewed as well.  The physicians will also need to obtain a National Provider Identifier (“NPI”) for the medical practice, as well as for each physician practicing at the practice.

Compliance:

As you are aware, there are many healthcare rules and regulations that a physician is expected to comply with-HIPAA, Stark and Anti-Kickback to name a few.  Due to recent initiatives by Medicare, the Office of Inspector General, Medicaid, the Office of the Medicaid Inspective and Third Party Payors to uncover fraud, waste and abuse in the healthcare system, it is inevitable that almost all physicians will be involved in an audit in the future.   In order to decrease the chance of audit and mitigate and potential audit results, it is advisable that all practices implement a compliance plan.  These compliance plans outline reasonable standards and procedures that your practice should comply with that are in compliance with the myriad of healthcare rules and regulations.  For instance, your practice should have appropriate HIPAA policies in place, as well as other safeguards to ensure against inappropriate relationships and billing practices.  Before implementing a compliance plan, you should consult with legal counsel regarding steps your practice should take to ensure compliance.    

Conclusion:

Staring your own practice can be very exciting; however, it is a big task as there are many issues that need to be taken into account.  To that end, it is in the best interest of the physician to retain a team of professionals specializing in health care – attorneys, accountants, IT professionals, etc. – to assure that the new practice has limited exposure and increased profitability.  Opening a medical practice takes time, and it is advisable for physicians to begin planning in advance.

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@weisszarett.com.

Stacey Lipitz Marder is an associate at Weiss Zarett Brofman Sonnenklar & Levy, PC., with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling.  Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.


[1] In New York State, physicians are not precluded from practicing as sole proprietors or in a general partnership.  However, these arrangements are not advisable from a liability perspective.