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Cerini & Associates, Certified Public Accountants Bringing a unique understanding of key issues facing the healthcare industry.

Vol 11.

Improving Profitability in Your Medical Practice

How Useful is a Strong Restrictive Covenant?

New Stark Law Changes Physicians Sharing Office Space

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Wouldn’t it be great to go back to the good old days, where the practice of medicine made sense from a care perspective and a business perspective? Don’t you long for the days where you could actually spend time with each patient as opposed to feeling like you are speed dating from patient to patient, office to office? With managed care, patient directed services, and the need for quicker throughput which comes with it skyrocketing insurance costs. The practice of medicine has become much more complex.

It feels like you not only need your MD, but you also need your CPA …. That’s where we come in. We want to be your CPA. We can help you better understand your practice, create systems and efficiencies, help calculate profit margins, help with budgeting, develop salary structures, and evaluate managed care agreements. And what’s more … we even make house calls!

Take a look through this issue of Best Practices. If anything piques your interest, give us a call. We’ll spend the time necessary to help you feel better about your practice.

Thanks,

Tim McHale, CPA Partner

EditorTim McHale, CPACerini & Associates, LLPPartner

Associate Editor

Ken Cerini, CPA, CFP, D.A.B.F.A.Cerini & Associates, LLPManaging Partner

WritersMahnaz Abnoosi, CPACerini & Associates, LLPSenior Accountant

Andrew Blustein & Roy W. BreitenbachGarfunkel Wild, P.C.Partner/ Director

Chris KutnerRivkin Radler, LLPPartner

Page Layout & DesignKristina LainoCerini & Associates, LLP Marketing Assistant/Graphic Designer

From the Editor - Tim McHale

emorial Hwy, Bohemia, N.Y. 11716

3340 Veterans Memorial Hwy Bohemia, N.Y. 11716

631-582-1600 www.ceriniandassociates.com

Connected to your reimbursement... connected to your practice...

connected to your growth

Collect copays at the time of service:

Make patient’s aware of their responsibility for any copays or deductibles prior to their visit and collect payment at the time of service.

Develop a clear self-pay policy:

Have a clear policy for patient paying out of pocket. Make sure that the policy is clearly communicated to the patient, which will help the staff enforce the policy. Make patients aware of the charges prior to performing a service and collect as much up front as possible.

Bill accurately and effectively:

Billing insurance companies for claims in a timely manner allows for more accurate billing resulting in fewer denials and faster payment.

Follow-up on outstanding claims and denials:

Review outstanding claims regularly to determine why they haven’t been paid. In some cases the payer may be waiting for additional information and will not pay until it is provided. Inquire as to the reason for denials to find out if decision can be appealed or at the very least to prevent future issues.

Track your performance:

Develop tools to monitor your performance and create benchmarks to measure your progress towards your goals and compare it to industry standards.

Running a successful medical practice, whether small or large, goes far beyond giving patients a high level of care. Like any business, there are administrative, legal, financial, and technological needs that should be addressed. All of these take time and money, which is why we have come up with the following ways to boost your bottom line.

Manage staffing levels: Create a list of all the tasks that need to be performed, and the frequency they need to be performed. For example, upcoming appointments should be confirmed daily, however billing may be done on a weekly basis. This will help determine required staffing patterns and minimize employee down time. You may also consider partnering with a practice management company that will share the responsibility and free up your time to focus on the big picture rather than the minutia of the day to day activities.

Convert down time to billable time:

Maximize your billings by converting lost time due to cancellations and no-shows. Maybe you can offer additional services to your patients when time allows. You can also try to fill empty appointments with patients scheduled to come in within the next few days.

Establish patient eligibility prior to appointments:

Use payers’ online systems to confirm whether or not a patient’s insurance will cover the service and that you will be paid what you deserve.

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IntroductIon

If you ask private medical practice leaders to list the most controversial issues they confront when negotiating physician employment agreements with physicians, almost all likely will include restrictive covenant issues on their list. This should come as no surprise; the very mention of restrictive covenants provokes an almost visceral reaction among most health care practitioners, and their very validity is shrouded in confusion and controversy. The purpose of this article is to attempt to clear up this confusion and controversy by providing a straightforward explanation of when and how these covenants are enforceable.

First, there are two types of restrictive covenants: non-competition covenants and non-solicitation covenants. Non-competition covenants preclude a physician who leaves a practice from providing services in close proximity to his or her former practice for a set period of time. In their simplest form, they provide that “for a period of x years after leaving the practice, the physician may not provide any medical services within y miles of the practice’s offices.”

Non-solicitation covenants preclude a physician who leaves a practice from soliciting away patients he or she has treated at the former practice to the physician’s new practice. These covenants can also preclude a physician from soliciting his or her former practice’s referral sources or employees.

the PurPose of restrIctIve covenants

It cannot be disputed that restrictive covenants restrict a physician’s freedom by temporarily controlling how he or she can practice and how he or she can obtain new patients. While, at first blush, this seems contrary to American free enterprise principles, most courts have recognized that “reasonable” physician restrictive covenants serve an important purpose and, therefore are, for the most part, enforceable.

Specifically, a physician working for a practice necessarily gains access to large amounts of the practice’s confidential and competitively sensitive information. The physician also is encouraged to develop close relationships with the practice’s patients. The problem is, however, that when the physician leaves the practice, he or she can use this information – and the close relationship developed with the practice’s patients – to lure patients away from the practice. A narrowly tailored restrictive covenant is theoretically likely to protect the practice against this unfair competition by eliminating the departing physician’s ability to derive an immediate competitive advantage from the misappropriated information. Accordingly, physician restrictive covenants are enforceable in most states.

enforcIng a non-comPetItIon covenant

The states that are willing to enforce physician non-competition covenants typically will only do so if the covenant is reasonable in scope, in duration, and in

geographic area. The covenant also cannot unduly burden the general public or the individual physician.

A non-competition covenant is reasonable in scope if it is limited to the services that the physician actually provided while employed by the practice. For example, if a physician is board-certified in both internal medicine and radiology, but provided only radiology services at a particular practice, a covenant that prevents the departing physician from providing internal medicine services would be unreasonable in scope.

With regard to the reasonableness of duration requirement, the non-competition covenant should last only as long as is needed to ensure that the departing physician is competing on the basis of his or her own skill and efforts, and not on the basis of material that he or she had access to while employed by the former practice. A general rule of thumb is that the covenant should last either the same amount of time as the term of the contract containing the covenant or two-to-three years, whichever is shorter.

Turning to geographic reasonableness, the non-competition covenant should only prohibit a physician from continuing to provide services in the same general area as he or she provided services before leaving the old practice. A general rule of thumb, used in many states, is that the restricted area should be no larger than the area from which the old practice draws 80% of its patients.

The non-competition covenant also must not unduly harm the public. This would occur if there was a shortage of the physician’s specialty in the area where the physician practice. For example, if a physician was the only pulmonologist in an area, then a covenant that would prevent the physician from practicing pulmonary medicine in the area for a period time would likely be unenforceable.

Finally, the non-competition covenant must not unduly burden the physician subjected to it. Of course, in a general sense, any non-competition covenant burdens a physician subjected to it. The question really is whether circumstances have changed since the physician entered into the covenant such that enforcing it would impose a significant, unanticipated burden.

enforcIng a non-solIcItatIon covenant

The enforceability of a non-solicitation covenant primarily depends on the definition of solicitation.

Generally, solicitation means purposeful contact with patients in an attempt to convince the patients to receive services from the physician’s new practice. Typically, contact initiated by the patient does not constitute solicitation as long as the physician does not badmouth his or her former practice in response. Such conduct also could give rise to defamation claims.

Many courts also require, for a non-solicitation covenant to apply, that the physician have treated the patient while working at his or her former practice. Thus, the covenant cannot prevent the physician from soliciting patients he or she never treated at the old practice.

It is important to emphasize that most courts distinguish between covenants preventing a physician from soliciting former patients – which typically are enforceable – and covenants preventing a physician from treating former patients – which typically are not enforceable. Thus, regardless of the existence of a non-solicitation covenant, a physician almost always can treat former patients who came seeking his or her services unsolicited.

conclusIon

As is demonstrated above, the enforceability of physician restrictive covenants turns on a number of complex factors. It is vitally important to consult competent legal counsel when drafting, signing, or enforcing such covenants.

hoW useful Is a strong restrIctIve covenant?

About the Authors:

Andrew E. Blustein is a Partner/Director and Vice Chairman of Garfunkel Wild, P.C. He joined the firm in 1993 and is a member of the firm’s Health Care, Business, and Compliance and White Collar Defense practice groups. He is Co-Chair of the HIPAA Compliance Group and Chair of both the Health Care and Information Technology Practice Group and the Insurance Regulatory Practice Group.

Roy W. Breitenbach is a Partner/Director of Garfunkel Wild, P.C. He is a Co-Chair of the firm’s Litigation and Arbitration Group, and a member of the Appellate Litigation, Employment Law, Environmental Practice, and Personal Service and Estate Planning Groups. His practice predominantly focuses on representing health care providers, business entities, and individuals involved in antitrust or other disputes with competitors, “business divorces,” complex commercial and real estate disputes, healthcare reimbursement disputes, and will contests.

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the arrangement be between a physician and a hospital or physician organization of which the physician is not an owner, employee or contractor; the items covered by the arrangement be used predominantly for the provision of health evaluation and management services to patients; and the arrangement not involve the physician’s use of advanced imaging equipment, radiation therapy equipment or clinical or pathology laboratory equipment.

The new changes, in addition to adding the above exceptions, clarified some technical requirements under existing exceptions to the Stark Law. For example, the change clarified that a single written contract is not required, but the writing requirement may be satisfied through a collection of documents that describe the parties’ course of conduct. CMS also clarified that the exceptions to the Stark Law requiring that an arrangement have a term of at least one year (including the office lease exception, equipment lease exception, and personal services

Effective January 1, 2016, new changes to the Stark Law became effective and include an exception to existing law for office sharing arrangements that involve a physician’s use of another person or entity’s premises, equipment, personnel, items, supplies, or services. Physicians oftentimes require space, equipment, or services to treat patients for legitimate medical reasons. A formal or traditional lease arrangement should not be required.

The new exception for space sharing arrangements will allow physicians to use another’s space and equipment on a limited or “PRN” (as needed) basis without having to satisfy existing requirements under the current office or equipment lease exceptions tor the Stark Law.

Prior to the change, the law required, among other things, that a physician use the space or equipment exclusively during the defined leased term.

Compliance with the new exception requires, among other things, that:

exception) do not require a contract with an explicit provision identifying the one-year term. Rather, an arrangement may satisfy the one-year term requirement if the arrangement actually lasts for one year as a matter of fact.

The Final Rule also modified the current exception to the Stark Law that allows for holdovers of a previously compliant arrangement. Currently, the holdover exception permits compliant arrangements of at least one year to continue for a period of six months after the arrangement’s stated expiration date as long as the arrangement continues on the same terms and conditions. The change will allow for holdovers that exceed six months (and will also allow for indefinite holdovers), provided that certain additional safeguards are met. In order to satisfy the modified holdover exception, an arrangement must continue to satisfy an applicable exception to the Stark Law for the entire holdover period.

The recent change also clarified the amount of time that the parties have to comply with the signature requirement once the arrangement takes effect. The changes eliminated the distinction between an advertent and inadvertent failure to obtain a signature, and provided that in all cases the parties have 90 days after an arrangement takes effect to comply with the signature requirement.

Beginning January 1, 2016, health care entities and physicians will be able to take advantage of the new exception noted above for office sharing arrangements

so physicians

who desire to utilize office space, equipment and personnel on a part-time basis may do so without establishing an additional medical practice location.

An important question implicated by these changes is how CMS will handle enforcement of arrangements that violated the Stark Law prior to the effective date of the change but now satisfy the new exceptions to the law. Parties impacted by the law should also evaluate whether the new exceptions to the Stark Law and CMS’ clarifications of the current regulations implicate any of their current arrangements—as the Final Rule may indicate that an existing arrangement satisfies an exception to the Stark Law that otherwise may have been non-compliant.

While the changes evidence an awareness by CMS of the need to maintain the purpose and intent of the Stark Law current with healthcare delivery systems in 2016 and beyond, some may feel that additional changes to the Stark Law are essential to protect against the law impeding legitimate arrangements that may improve access to care. Arrangements between physicians on the one hand and hospitals or physician organizations on the other hand are usually brought about by a need to provide medically necessary services. In other words, if the need is present for a physician to enter an arrangement so that patients have better and easier access to medically necessary care, then changes to the law are warranted to allow this to happen without burdensome and expensive documentation requirements.

Nevertheless, the Final Rule suggests that CMS will continue to assess the elements of the Stark Law and its various exceptions on an ongoing basis, and hopefully continue to eliminate unnecessary and costly compliance burdens as it balances between the need to prevent Medicare program abuse and allow health care providers to arrange for better and broader

delivery of health care. About the Author: Chris Kutner is a Partner in Rivkin Radler, LLP’s

Health Service Group where he advises on structuring compliant

arrangements involving medical providers, managed care contracting

and future payment arrangements between providers and payers. He is a

former general counsel of a managed care organization and is experienced

in dealing with managed care payers on all issues.

New Stark Law ChaNgeSPhysicians Sharing Of f ice Space

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