Super Groups: Legal Issues Associated with the Formation of

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Super Groups: Legal Issues Associated with the Formation of

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Multi-site Medical Groups a presentation for the Middlesex County Medical Society at Due Mari Restaurant, New Brunswick, N.J. by: Michael F. Schaff, Esq. –

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Title: Super Groups: Legal Issues Associated with the Formation of

1
Super Groups Legal Issues Associated with the
Formation of Large Multi-site Medical Groups

a presentation
for the
Middlesex County Medical Society
at Due Mari Restaurant, New Brunswick, N.J.
by
Michael F. Schaff, Esq.
WILENTZ, GOLDMAN SPITZER, P.A.
90 Woodbridge Center Drive
Woodbridge, NJ 07095
732-855-6047
MSchaff_at_Wilentz.com
October 17, 2012

2
I. Overview

Changes in the Health Care Environment
Physician Associations
Are Super Groups the Answer?
Traps for the Unwary Assessing prospective
Groups
Questions Answers

3
II. Changes in the Health Care Environment

Managed Care
market penetration
provider panels
reduced fees
consolidation
Greater Efficiency forced by Market
reduced fees
reduced staff
reduced overhead
greater patient volume

4
II. Changes in the Health Care Environment

Regulatory change uncertainty
Accountable Care Organizations
Medicare/Medicaid will change
Reimbursement Changes

5
III. Physician Associations OPTIONS

Employment in private practice no ownership
Employment by hospital or other entity
Solo practice
Group Practice
small 2-5 Drs.
medium 6-15 Drs.
large 16- 25 Drs.
Super Groups 26 Drs.

6
III. Physician AssociationsYour CURRENT SITUATION

What do you want?
personal needs
financial needs
career needs
Current Likes Dislikes
Characteristics
age
culture
personality

7
III. Physician AssociationsWHAT ALTERNATIVES
EXIST?

Alls Fine
Sell Practice Retire
Sell Practice Work
Contract Away Administration
Management Service Organization (MSO)
Physician Practice management Company (PPMC)
Join Hospital
Merge or Combine Practice
Into existing Super Group?
Start a new Super Group?

8
III. Physician AssociationsMAJOR CONSIDERATIONS

Compensation
How much will you make?
Group Practice
Rights Obligations
Control?
Centralized Management
Benefits
Costs

9
IV. Traps for the UnwaryAssessing Prospective
GroupsWhy Form or Join a Group Practice?

Significant Benefits
Improved Negotiating
Increased Revenue Sources Ancillary Revenue
Economies of Scale
Shared duties info.
Coverage
Practice risks
Retirement

10
IV. Traps for the UnwaryAssessing Prospective
GroupsWhy Form or Join a Group Practice?

Significant Disadvantages
Reduced Control
medical
financial
Possible change in compensation structure
Increased Costs- Higher Overhead
Culture shock

11
IV. Traps for the UnwaryAssessing Prospective
GroupsCulture Shock

Different styles
Demographics
age
specialties
culture/ethnicity
Decision Making
Support staff
Office Policies
Integration of Information Systems
Practice management systems
Electronic Health Records (EHR)

12
IV. Traps for the UnwaryAssessing Prospective
GroupsBusiness Issues

Administrator Management
Staff Satisfaction
Advisors
legal
accounting
consultants
Quality of Payer Contracts

13
IV. Traps for the UnwaryAssessing Prospective
GroupsHoneymoon Period

May ease transition
Disassociation planning
Cost/profit center accounting

14
IV. Traps for the Unwary Challenges in Combining
GroupsLegal Hurdles

Anti-trust laws
limits mergers that reduce competition
limited exemption for health care professional
coalitions
Concerns about the use of pseudo-merger to
engage in illegal price fixing
Must do an analysis of increased market power vs.
benefits of integration
There is a PULL between integration requirement
vs. desire for independence
control (decision making)
sharing of profits and losses
clinical, operational and marketing integration

15
IV. Traps for the Unwary Challenges in Combining
GroupsLegal Hurdles

Self-referral law group practice requirements
centralized billing management
single taxpayer ID
general sharing of overhead
Pension plan rules require coordination of plans
Taxability of transaction be careful structure
may have significant tax ramifications

16
IV. Traps for the UnwaryAssessing Prospective
GroupsLevel of Integration

Partially Integrated Medical Group PIMG
cost/profit centers
Fully Integrated Medical Group FIMG

17
IV. Traps for the Unwary Combination Models

Top to Bottom Merger is a complete merger.
Division Model is a way to allow existing groups
to retain control over various existing elements
of their practice, such as staff and billing.
Leasing Assets vs. Merger or Contributions
tax issues

18
IV. Traps for the Unwary Division Model

Operation as a single legal entity with a single
billing number and payroll (referred to as the
LLC)
Several divisions (one for each existing group)
that are not separate legal entities.
Operational control over each division by
governance at the division level
each division determining their own method of
division-level governance
but subject to the LLC final approval

19
IV. Traps for the Unwary Division Model (cont)

Billing and collection is done in the name of the
LLC
Buy/sell terms and obligations at
Division-level (for Division Assets) and
Centralized Level (Common Asset Level)

20
IV. Traps for the Unwary Division Model (cont)

Cash distributions
allocated to divisions based on agreed upon
mechanism
allocation of division-specific costs and
revenues to the division
concerns STARK LAWS distribution of DHS Revenue
unless division has gt5 members
allocation of common overhead costs to all
divisions based on agreed upon formula
per capita vs. per division vs.per owner vs. per
FTE vs. revenue vs. of staff
allocation of distributions at the division level
determined by division-level governance

21
IV. Traps for the Unwary Division Model (cont)

Joint exposure to liability
malpractice
overpayment
billing fraud, etc..
Assets may be kept in existing entities owned by
members of a division and leased to the LLC
lease payments will be allocated to the division
(should be a wash for the Members of the
division)
unwind provision allows for termination of leases
during honeymoon period or beyond
bank loans secured by an exiting groups
guarantees continue to be secured by those
members guarantees

22
IV. Traps for the Unwary Payor Contracting

In general, payor contracts would be at the LLC
level
While existing contracts with third party payors
must be reviewed in the due diligence process, if
the combination of the groups is accomplished by
creating the LLC as a new entity (and not by
merging the existing entities into the LLC), the
pre-combination contracts should not apply to
services provided through the LLC.

23
IV. Traps for the UnwaryAssessing Prospective
GroupsDetermination of Ownership