Understanding How to Respond to a Visit From an Investigator

By Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Introduction:

As the government and private payors continue to invest resources into combatting fraud and abuse in the healthcare system, many practices are being faced with unexpected visits from state and federal government and private investigators, including but not limited to investigators from the Office of the Inspector General (OIG), Medicare and Office of the Medicaid Inspector General (OMIG), Internal Revenue Services (IRS), Office of Civil Rights (OCR), and Occupational Safety and Health Administration (OSHA).  In the event one of these investigators decides to make a visit to your office, it is imperative to understand how you and your staff should respond to these visits in order to ensure that your interests are protected and that your exposure is limited. 

Proper ID: 

If you, or one of your staff members, receive a knock at the door from an investigator, the first thing you, or your staff member, should do is check the investigator’s identification and credentials.  It is important to keep a copy of this information containing such individual’s name, title, agency and contact information including phone, fax, address and email (ie in the form of a business card), as well as the date and time the investigator arrived at the office.  This information should be kept in a safe place for future reference.  

Limit Communication:

Physicians must remember to live by the golden rule — NEVER speak to, or allow anyone in your office to speak to, any investigator!  Although these investigators are often friendly, it is important to remember that their intention is to obtain as much information from you and your staff as possible with respect to your practice.  Other tactics often used by investigators are intimidation and promises of leniency.  It is especially important to never speak with an investigator without counsel as anything that is said to the investigator can and will be used against you. Unfortunately many physicians and their staff speak freely and recklessly with investigators without counsel, and they often share information which is detrimental to the practice. Even if counsel is retained after the discussions, the information initially shared will always remain in the record.

You and your staff are not obligated to speak with anyone without counsel, and therefore you should explain to any visiting investigator that you would be more than happy to speak with the investigator, however, he/she needs to speak with your attorney first.  It is important to note that government investigators do not possess subpoena power or have other legal authority by which to compel you to speak with them.  Once counsel is obtained, you, the investigator and your attorney can set up a mutually convenient time to speak. Prior to such meeting, the attorney can often ascertain information from the investigator as to why your practice is under investigation and the specific areas of concern.  This can often help in formulating an appropriate response at the meeting. Furthermore, you will be able to make certain that there is no disruption in the continuity of patient care and office operations generally.

Request for Records/Documents:

In most instances, visiting investigators will make a request to obtain a copy of medical records and other documents involving the practice, including contracts and corporate documents.  Your staff should be informed that they should not release any records without first speaking with you.  Furthermore, it is recommended that you not provide the investigator with the requested records immediately upon request.  Instead, it is recommended that you or your attorney request that all such requested information be provided in writing so that you and your attorney can ensure that the requested records are within the appropriate scope and that the investigator is entitled to such records. Furthermore, by providing the records directly to the agency, you are in control of what is provided and you can ensure that complete copies of the records are provided.  Unfortunately, when investigators make copies upon an initial visit, often times the investigators do not make complete copies of the records, or they copy additional information that may not be part of the initial request.  As such, it is best to either provide the records directly, or set up a time for the investigator to come back after hours to make the copies.  In addition to controlling the information disclosed, this will limit disruptions to your office.

Prior to turning over such information, specifically medical records, you also need to confirm that such disclosure is compliant with HIPAA and state privacy rules and regulations, and that the appropriate authorizations have been obtained. 

Conclusion:

A visit from an investigator can be an overwhelming and daunting experience.  As such, even the most informal, initial contact by an investigator should prompt an immediate and well-coordinated reaction.  It is therefore important to be prepared and to inform your staff ahead of time of the practice’s protocols with respect to responding to a visit from an investigator. As such, it is recommended to have a written policy in place outlining the specific steps that your staff should take in such instances, including contacting legal counsel and providing medical records.  These protocols are extremely important, and can often mitigate an agency’s findings.  As noted above, physicians need to ensure that they protect their interests and limit their exposure while cooperating with investigators, as the results of an investigation can be detrimental to a practice. 

About the Authors:

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@app-60705ed4c1ac183264fb7857.closte.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.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.

Understanding Physician Advertising

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Overview:

Marketing has taken on a more prominent role in medical practices as a way to attract new patients.  As such, physicians need to ensure that their marketing initiatives are in compliance with all of the applicable rules and regulations governing physician advertising, including the New York State Education Law.  Otherwise the physician may be subject to disciplinary action including but not limited to loss of license.  When physicians utilize websites and other forms of social media, they must take extra precautions in order to protect patient privacy.  Unfortunately many physicians are unaware of these requirements, which can have grave consequences for the physicians and their practices.

Rules and Regulations:

From a federal perspective, advertisements by physicians are legal under the Federal Trade Commission Act, provided such advertisements are not false, deceptive or misleading.  However, New York’s rules and regulations set forth more stringent guidelines with respect to physician advertising.  Specifically, the rules and regulations identify instances where advertising or soliciting is not in the public interest, and therefore is prohibited. 

Under New York Education Law § 6530(27), advertising or soliciting not in the public interest includes, but is not be limited to, advertising or soliciting that:

  • is false, fraudulent, deceptive, misleading, sensational, or flamboyant;
  • uses testimonials
  • guarantees any service;
  • makes any claim relating to professional services or products or the costs or price therefore which cannot be substantiated by the licensee, who shall have the burden of proof;
  • makes claims of professional superiority which cannot be substantiated by the licensee, who shall have the burden of proof; or
  • offers bonuses or inducements in any form other than a discount or reduction in an established fee or price for a professional service or product.

Even if consent is obtained from the patient and there is anonymity, physicians must not include testimonials in their marketing materials as it is strictly prohibited[1]. Furthermore, all information presented in any marketing campaign must be accurate and not imply any misrepresentation.  All factual information needs to be substantiated, and all credentials of providers must be listed accurately, including board certification. In the event information is misrepresented, even if unintentional, the physician will still be ultimately responsible.  Physicians also need to be careful about making statements regarding their superiority as well as guarantees regarding services provided.  For example, instead of stating that a type of procedure always cures a certain condition, physicians may need to clearly indicate that the procedures offered may cure a patient, and that results vary. As noted above, physicians are prohibited from offering inducements to patients.  Although many physicians offer incentives for patients to utilize the physicians’ services, including offering free exams and transportation, this is clearly prohibited and the continuance of such incentive plans can have serious repercussions for physicians.

Telemedicine

Specifically, NY Education Law §6530 (24) prohibits the practice or offering to practice medicine beyond the scope permitted by law, or accepting and performing professional responsibilities which the licensee knows or has reason to know that he/she is not competent to perform, or performing, without adequate supervision, professional services which the licensee is authorized to perform only under the supervision of a licensed professional.  As such, physicians need to ensure that they are not practicing in states in which they are not licensed, and that the information being dispersed via their marketing materials is not construed as treatment.  It is therefore recommended that all marketing materials contain a disclaimer indicating that the information provided is only for general information and education purposes amongst other things. 

Patient Confidentiality

With the passage of the HITECH Act[2], physicians need to be especially concerned with complying with the rules and regulations involving patient confidentiality, specifically when they utilize websites, social media and e-mail to communicate with their patients.  Specific areas of concern include the inadvertent disclosure of patients’ protected health information (“PHI”), and the inability to confirm who PHI is being transferred to.  It is therefore recommended that physicians not utilize these methods to communicate with their patients unless such communications are encrypted, and their patients sign a waiver in which they agree to certain terms and conditions with respect to such communications. 

Copyright Infringement

Many physicians utilize pictures and make references to articles and videos in their marketing materials.  Prior to using such materials, physicians must obtain proper authorizations and appropriately reference the source, as otherwise the physicians utilizing such information may be in violation of copyright laws and may be faced with civil liability.  In the event that the appropriate consents have not been obtained, such information should be removed immediately.

Conclusion:

Although advertising can be very profitable for physicians, advertising that is not compliant can have a detrimental effect on physicians’ practices. As such, prior to physician’s engaging in any marketing initiative, including but not limited to print media and websites, it is in the best interest of the physician to have such marketing initiatives reviewed to ensure that they will be effective, as well as compliant. Furthermore, physicians must remember that in the event that they make any changes to their marketing initiative, they must maintain an exact copy of any promulgated version for a period of at least one year after its last appearance.

About the Authors:

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@app-60705ed4c1ac183264fb7857.closte.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.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.


[1] NY State does allow chiropractors and physical therapists to utilize patient testimonials in their marketing initiatives.  In that case, the testimonials cannot be misleading or misrepresentative. Furthermore, consent would have to be obtained from the patient (preferably written which should be part of the patient’s medical record), and there would have to be a disclaimer following the testimonials indicating that the experiences and results can vary among patients. 

[2] The Health Information Technology for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009, was signed into law on February 17, 2009, to promote the adoption and meaningful use of health information technology.  The HITECH Act imposes stricter HIPAA requirements and stiffer penalties for violations.

Understanding Succession Planning

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Introduction:

Dr. Smith has been practicing as a solo practitioner in New York for many years – although he currently has a very successful practice, due to personal circumstances, Dr. Smith is ready to retire.  As retirement approaches for Dr. Smith, what are his options with respect to his medical practice?  Dr. Smith has essentially 2 options: he can either sell his practice or just close shop[1].   Although Dr. Smith would ideally like to sell his practice, the unfortunate reality is that his practice will not be worth as much to a potential buyer since the potential buyer does not know Dr. Smith’s patients and there will likely be attrition with respect to patients of the practice.  Unfortunately many physicians find themselves in a similar situation; however, this can be avoided by planning ahead.

Succession Planning – Overview:

In sum, the best way for a physician to maximize the purchase price for his/her practice is to have a physician who is already associated with the practice purchase the practice.  Since the physician associated with the practice is familiar with the specialty, patients and location, your practice will ultimately be most valuable to that individual.  As such, in the event you are currently a solo practitioner, the best advice is to hire a physician who will ultimately buy-in as an owner of the practice, and who will then buy your interest in the practice when you are ready to retire.  Although this process is certainly doable, it takes time and therefore physicians must start planning at least 10 years in advance.  

In addition to hiring a physician with the intent that one day that physician will purchase your share of the practice, it is imperative that physicians take steps in order to ensure that their practice is valuable in order to guarantee a higher purchase price.  Essentially the most important assets of a practice are the space (lease), equipment, employees and patients.  As such, physicians need to make sure that they secure a good lease which is long term, and which has the ability to be assigned.  This also applies to equipment, as well as an EMR system.  Furthermore, with respect to patients, physicians should continue to treat their patients until they are ready to retire.  When a physician “winds down”, he/she decreases his/her patient base, which may ultimately decrease the value of the practice.

Forming an Entity:

Although many physicians operate their practices as solo practitioners using their own personal tax id numbers, it is recommended that physicians form a business entity.  Forming a business entity is not only recommended as it relates to succession planning, but also with respect to general asset protection as the individual physician’s liability and exposure is minimized.  Specifically, in the event a physician operates his/her medical practice through a business entity, the physician’s creditors would only be able to go after the business entity and not the individual physician.   With respect to a business entity, in New York State, a physician must conduct his/her practice through a professional entity including for instance a professional service corporation (“PC”); a professional limited liability partnership (“LLP”); or a professional limited liability company (“PLLC”).  All of these professional business entities offer protection from a legal perspective, however, each of these entities has different tax implications. Therefore, it is advisable that you speak with your healthcare accountant with respect to which entity is most conductive to your medical practice. 

Hiring a Physician:

As noted above, in order to maximize your succession plan it is recommended that you hire a physician with the goal that one day that physician will become an owner of the practice.  Prior to hiring a physician you want to make sure to check all references in order to ensure that such individual will be a good fit with the practice as this individual will have access to the practice’s confidential information and will have direct contact with patients of the practice.  As such, it is crucial that a solid employment agreement be in place which outlines the relationship of the parties, and protects the practice with respect to its confidential information and patients.  For instance, it is recommended that the employment agreement contain a restrictive covenant provision and non solicitation provision which prevents the employee from opening a competing practice in the same vicinity as the practice, as well as soliciting patients, employees and referral sources in the event employment is terminated.

The Buy/Sell Agreement:

In the event the physician employee is a good fit with the practice, you may consider offering the physician an opportunity to become a shareholder/partner/member (depending on the type of entity) of the practice.  Prior to offering the physician employee this opportunity, you must consider what the physician’s buy-in will be, which is based upon the value of the practice.  It is recommended that you speak with a certified healthcare accountant or appraiser with respect to such valuation.   As noted above, in the event your practice is lucrative and has a high valuation, the physician employee may be more willing to pay top dollar in order to have an ownership interest in the practice.  In the event the practice is not financially sound and is not valuable, a physician employee will not want to pay a high amount for ownership.  In the event the physician employee accepts the offer for an ownership interest in the practice, you need to make sure that you enter into an agreement with the physician (ie a Partnership Agreement, Shareholders’ Agreement or Operating Agreement depending on what type of entity the physicians render services through) which outlines the terms of your relationship as owners of the practice, including but not limited to what the buy-out would be in the event one of the physician owners retires, withdraws, becomes disabled or dies for instance.   As such, you have the ability to structure the arrangement whereby the buy-out for retirement may be significant and higher than if the practice was sold to a physician not associated with the practice.  Furthermore, you would have the option to structure the arrangement whereby you would have the ability to work part-time upon retirement if you so desire.

Asset Planning:

Also, when planning for retirement, and in general, it is recommended that you have a will identifying how your assets will be distributed upon death.  Furthermore, it is advisable that you have a living will which expresses your desires with regard to health care treatment if you become mentally incapable and/or physically incapable of expressing those desires, as well as health care proxy which allows you to designate a person to make health care decisions for you if you cannot make them for yourself. 

Conclusion:

Retirement can be a very exciting and scary time for physicians as there are many decisions that need to be made. To that end, it is in the best interest of the physician to retain a team of professionals specializing in health care – attorneys and accountants– to help prepare for the future.  As noted above, this process takes time and you must plan ahead in order to capitalize on retirement.    

About the Authors:

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@app-60705ed4c1ac183264fb7857.closte.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 the event a physician chooses to close his/her practice, New York State has many requirements that must be adhered to.  For instance, the physician must transfer his/her records to another physician who will serve as the custodian of records.  Furthermore, the physician must notify his/her patients that he is closing the practice amongst other things in order to avoid being charged with abandonment. 

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.

Understanding Prepayment Audit Reviews

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Overview:

The unfortunate reality is that the cost of running a medical practice is increasing while reimbursement from third party payers is decreasing.  In order to survive, it is crucial that physicians get paid for the services rendered to their patients in a timely manner.  In today’s climate, insurance companies are engaging in several tactics in order to make it more difficult for physicians to receive proper reimbursement.  In addition to overpayment demands[1], insurance carriers are delaying and making it more difficult for physicians to get paid through prepayment audits.  Being placed on prepayment audit review is extremely frustrating for a physician, and can ultimately have a devastating impact on the operation of a practice.  We have outlined a few key concepts that every physician should understand in order to avoid and be removed from a prepayment audit if applicable.

What is prepayment audit review?

When a physician has been placed on prepayment audit review, each time the physician submits a claim, the claim is denied by the insurance carrier and there is a request that the physician submit a copy of his/her medical records in order to support the claim[2].  Once the insurance carrier receives the medical records, the records are reviewed in order to determine whether the claim should ultimately be paid or not.  Even if the claim is eventually paid, payment would not be made until approximately 90-120 days after the claim is submitted, as opposed to 30 or 45 days in the event the physician was not on prepayment review.  This process can be very costly for a physician –  in addition to the physician’s staff spending countless hours preparing the medical records to be submitted to the insurance carrier, the delay in payment can have a significant impact on cash flow as many physicians rely on reimbursement from insurance carriers in order to pay their employees and run their practices.  

How does this happen:

Insurance carriers, including Medicare, are investing heavily in billing software programs.  These sophisticated billing software programs are able to compare a physician’s billing habits with those of his/her peers in his/her specialty and geographic location.  To the extent that a physician’s billing pattern differs from the insurance carrier’s predetermined norms, the insurance carrier may place the physician on prepayment audit review so that the carrier can justify payment based upon a review of the medical records.

How to be removed from prepayment audit review:

In order to ensure removal from prepayment audit review, it is imperative that the physician have his/her medical records reviewed and analyzed so that it can be determined whether the physician’s documentation supports the code submitted.  In the event that a physician’s documentation does not justify the codes submitted, the physician must rectify such billing deficiencies going forward.  Once the records have been reviewed, the physician’s healthcare team, including attorneys and coding experts, will contact and negotiate with the insurance carrier.   In order to be removed form prepayment audit review, the physician must be in compliance with the insurance carrier’s requirements regarding coding and documentation.  If a physician is placed on prepayment audit review, it is recommended that the physician begin the removal process immediately in order to avoid being placed on prepayment audit review by other carriers.  Since the insurance carriers often enter into arrangements with third party contractors (who have relationships with the other carriers) to review records, if a physician is on one carrier’s radar, there is a good chance that the physician will be hit with multiple audits from other carriers.

How to avoid being placed on prepayment review:

Physicians must recognize that today’s billing and coding systems dictate the need for specialized assistance.  As such, physicians must ensure that their current billing practices are in compliance with the carrier’s policies, and that their documentation adequately supports their billing claims.  From simple pre-printed forms, through digital transcription to an electronic medical record, ample resources exist that can document the level of services rendered, confirm the medical necessity for those services and bar prepayment audit reviews. Furthermore, an annual review conducted by a certified coder can provide valuable insight into what areas are currently under scrutiny, what trends are developing with one’s peers and/or what can be done to keep the practice in the mainstream. Advice from any billing resource should be provided verbally (any written reports could be discoverable in any future proceedings) and should be provided directly to the physicians involved.  Physicians who are willing to recognize that billing and coding in today’s medical practice management environment is very complex, and who obtain ongoing advice from specialists, will have taken an enormous first step in avoiding coming under review and the potentially devastating impact of a prepayment audit review.

Conclusion:

Being placed on prepayment audit review can be very frustrating for a physician since payments are delayed and there are additional administrative burdens placed on the physician’s staff.  To that end, in the event that a physician is placed on prepayment audit review, it is in the best interest of the physician to retain a team of professionals specializing in health care – attorneys and coding experts– to ensure that the claims submitted to the insurance carriers are substantiated by the documentation in the medical records and that the physician’s billing is in compliance with the insurance carrier’s guidelines.  Although it can be a trying process which may take several months to resolve, resolution does not have to be expensive for physicians.  Physicians must recognize that there is hope and that there is light at the end of the tunnel with respect to prepayment audit reviews. 

About the Authors:

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@app-60705ed4c1ac183264fb7857.closte.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.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.


[1] Overpayment demands involve insurance carriers conducting an audit and review of a physician’s medical records in order to determine whether the amount that was previously paid to the physician was substantiated by the records.  Often times the insurance carriers determine that the records do not substantiate the services billed, and the insurance carriers then demand that the physician refund the amount of paid that is in excess of the appropriate payment as determined by the carrier.  The refund demand does not only take into account the amount involved in the audit, rather the carriers extrapolate the amount to extend over a randomly selected number of past years. 

[2] An insurance carrier may place a physician on prepayment audit review in connection with all claims submitted by the physician, or on in connection with claims involving specific services.

Understanding IPAs

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Overview:

As the healthcare industry evolves and reimbursement rates from third party payors decrease, many physicians are quickly realizing that they must ban together in order to survive. In addition to joining or forming large group practices, many physicians are being drawn to offers to join or form independent practice associations (IPAs) and similar organizations. The formation and participation in IPAs and similar organization is growing rapidly as physicians recognize that they can take advantage of having more leverage with respect to negotiating reimbursement rates with third party payers, while being able to continue to operate their medical practices independently.  Physicians must recognize that there are a number of legal issues associated with the formation of IPAs, and failure to address and resolve these issues can jeopardize an IPA’s success.  We have addressed a few issues that must be addressed when forming an IPA below.

Formation:

When evaluating what type of entity to form for the IPA, physicians must consider several factors including whether all of the owners of the IPA will be physicians and whether the IPA will render professional services, as well as tax and liability considerations. In the event that an IPA will provide or arrange for professional services, the IPA must be set up as a professional entity (ie a PC or PLLC).  However, in the event the IPA is set up as a messenger model where professional services will not be rendered, the IPA can be formed as a lay entity (ie an Inc or LLC).  It is generally not recommended that an IPA be formed as a general partnership as there would be increased general liability.  Physicians must also take into consideration issues involving pension plans (ie will the IPA be considered “affiliated” as per the Internal Revenue Code), and requirements under the securities law (specifically if the IPA will have a lot of members and will issue securities). 

Once an IPA determines what type of entity to form, either a Certificate of Incorporation or Articles of Organization would have to be drafted. The IPA would also have to draft either a Shareholders’ Agreement or Operating Agreement dictating the terms of the relationship between the owners.  Physicians should note that not all of the members of an IPA have to be owners.  The relationship between the members and the IPA would be memorialized in a Members’ Agreement.  As such, it is often recommended that ownership be limited to fewer individuals. Prior to the entity being formed, the IPA would have to get consent from the Department of Health, Education Department and the Division for Financial Services (formerly known as the Insurance Department) which can take several months. 

Anti-trust:

Since physicians participating in an IPA are essentially competitors, it is imperative that the IPA be in compliance with the applicable anti-trust rules and regulations in order to ensure that the physicians do not engage in “anticompetitive behavior”[1]. As per the Federal Trade Commission (FTC), in order to avoid anti-trust violations the IPA would have to be integrated, either through financial risk sharing or clinical integration between the physicians. Examples of financial risk include accepting a capitated rate (per member/per month fee based upon the number of patients assigned to a physician), agreement to provide certain services for a pre-determined percentage of revenue, use of financial incentives (ie a financial withhold), and a significant investment subject to risk of loss. 

Clinical integration on the other hand involves the establishment of systems and procedures that encourage greater interdependence and joint responsibility in managing the cost and quality of care rendered by the IPA’s physicians. Elements of clinical integration include physicians establishing goals, standards and protocols to govern treatment and utilization of services by the physicians, both individually and as a group.  Furthermore, physicians would be required to actively review performance and take corrective action if necessary.  Becoming clinically integrated is a very involved process which may require significant time and money.

Physicians should also consider adding additional safeguards to the IPA to withstand antitrust scrutiny including making the arrangement nonexclusive, creating mechanisms so that competitors are not using the IPA as a means of price fixing through communication of  their price structures, and ensuring that the IPA offers a product that is different from what the physicians can offer individually.  Furthermore, when discussing the formation of an IPA, physicians should avoid engaging in conversations which can be perceived as anticompetitive. 

Illegal Remuneration:

Physicians must also be aware of the Federal and state laws which prohibit remuneration in exchange for referrals.  As such, any cross-referrals which occur through the IPA need to be analyzed in order to ensure compliance with applicable rules and regulations governing this area.

Insurance Regulations:

Physicians must also ensure that the IPA is compliant with applicable state insurance regulations.  Depending on how the IPA is structured, the IPA may be deemed to be an insurer or HMO, and the IPA would therefore have to comply with additional rules and regulations.

Compensation:

Prior to entering into arrangements with third party payers, it is imperative that physicians understand and address the risks associated with the different financial arrangements including capitation. Credentialing, quality assurance, utilization management and use of data can often times help IPA’s mitigate risk. 

Governance:

Prior to forming IPAs, physicians must also consider how the IPA will be governed and managed.  For instance, physicians must discuss who will manage the IPA and how will that person be compensated.  Additionally, it is imperative that physicians discuss how the IPA will make decisions, as well as how members can be added or terminated.  Furthermore, physicians need to determine upfront what the annual fees will be for physician members, as well as how distributions will be made to the members of the IPA.

Conclusion:

Forming an IPA can be a very exciting prospect; however, there are many issues that need to be evaluated both from a business and legal standpoint.  To that end, it is in the best interest of the physician to retain a team of professionals specializing in health care to help address the issues raised with respect to the formation of an IPA.   

About the Authors:

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@app-60705ed4c1ac183264fb7857.closte.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.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.


[1] Certain activities including price fixing, group boycotts, and division of markets are considered “per se” violations of antitrust as they constitute anti-competitive behavior.