Making sure three’s not a crowd

Negotiating a contract gets a little trickier when it involves income guarantees, loan repayments and third parties.

By Roderick J. Holloman | Legal Matters | Spring 2014

 

Physicians have enough to think about when it comes to their contracts when joining a new practice. Those nuances are heightened when a hospital recruits a physician to establish their practice within the hospital’s community—not as a hospital employee, but as an employee of an established practice (with a salary guarantee, which the hospital subsidizes), or in particularly underserved areas as the founder and sole owner of the practice (which requires a set of business skills in addition to medical ones).

Instead of being a contract between just two parties, these kinds of recruitment arrangements involve three: the recruited physician, the employing practice, and the recruiting hospital.

These contracts are generally structured such that in exchange for compensation from a hospital, most commonly in the form of a salary subsidy, repayment of student loans, or a sign-on bonus, a physician agrees to maintain a full-time practice in the community for three years.

The compensation offered by a recruiting hospital is structured as a loan, which is incrementally forgiven monthly or annually due to the physician maintaining a full-time practice in the hospital’s community.

The recruiting hospital’s real incentive is to generate revenue by virtue of referrals from the physician’s practice within the community. Such treatments allow a recruiting hospital to generate additional revenue from outpatient procedures and inpatient stays.

For the recruited physician, it is important to consider the respective motivations of the employing practice and the recruiting hospital, as these motivations both align and divide.

The motivations behind recruitment arrangements

In this particular kind of recruitment arrangement, the hospital supplements the recruitment expenses commonly incurred by the employing practice. Additionally, the employing practice has the ability to evaluate whether the physician employee is a good fit without realizing the expenses usually incident to such evaluation (most notably, paying the physician a base salary).

The recruiting hospital’s benefit is much more indirect than the employer’s benefit. In theory, the hospital receives no direct benefit in exchange for its payments to the employing practice or recruited physician. However, in reality, hospitals often benefit handsomely in the form of facility fees generated from the treatment of the recruited physician’s patients (and those of his practice) when they’re treated in the hospital.

Key considerations for the physician

When you’re considering signing on to a recruiting contract, it’s important to consider these seven aspects.

1. Commitment to the geographic area

If you can’t, after an honest assessment, reasonably foresee remaining in the geographic area served by the recruiting hospital for the duration of the recruitment contract, you should seriously reconsider executing the recruitment agreement.

Once the recruitment agreement is signed, it becomes legally binding and enforceable, no matter any change of heart or desire to relocate. Therefore, if there are specific, legitimate and foreseeable events that could necessitate premature relocation, such as immigration concerns or the passing of an immediate family member, carve out exceptions to enforce the recruitment agreement in such instances.

2. Negotiable terms

Understand that the arrangement terms are negotiable and you have a degree of leverage. Physicians may believe the hospital recruitment agreement is entirely non-negotiable, but this is rarely the case.

Though it is true that the majority of the negotiable terms will be found in the employment contract, the recruitment contract is negotiable to a degree. Commonly negotiated provisions are: liability in the event employment with the initial practice terminates; hospital call coverage responsibilities; and whether the recruitment contract will preclude the employing practice from imposing a post-employment restrictive covenant prohibiting the physician from practicing within the hospital’s catchment area.

3. Compensation

Physician compensation is obviously a key consideration in any recruitment arrangement. Make sure you have a particularly keen understanding of the compensation calculation when the compensation is not fixed, but is instead based on productivity, such as a work relative value units (wRVUs) model.

4. Duties

The recruitment contract should specify what duties are to be performed in exchange for the hospital’s financial assistance. In addition to the requirement to maintain a full-time medical practice within the hospital’s service area, physician recruitment arrangements often also require that the physician participate in the hospital’s call coverage schedule.

5. Term

A physician recruitment contract will have two terms: a guaranteed income period, generally 24 months or less; and a period during which the physician commits to practice within his or her specialty on a full-time basis in the hospital’s service area (called the commitment period).

If the physician fails to maintain a full-time medical practice for the duration of the commitment period, the recruitment agreement would be breached and the hospital would be entitled to all or a portion of the sum it paid in association with the physician’s recruitment.

6. Reimbursement obligations

Essentially, the hospital’s payment to the employing practice is treated as a forgivable loan to both the recruited physician and the employing practice, repaid either in cash or forgiven on a pro rata basis via the physician’s full-time practice in the hospital’s service area.

In certain situations, for example due to immigration-related limitations, a physician does not have the option of self-employment.

Therefore, should employment with the initial employer end before the commitment period ends, the physician would be dependent on a subsequent employer to hire him or her, else the physician will be forced into a breach of the recruitment agreement, and consequently jointly liable with the practice to reimburse the hospital all or a portion of the sum paid in association with the physician’s recruitment.

7. Restrictive covenants

In the event the physician’s employment is terminated, the physician will likely remain bound by the terms of the recruitment agreement and must still remain in full-time medical practice in his or her specialty within the hospital’s service area.

Therefore, the recruitment agreement should expressly state that the employment contract cannot restrict you from practicing within the hospital’s service area should the employment contract terminate prior to the expiration of the recruitment contract.

If on the one hand the recruitment contract requires a physician to practice on a full-time basis through the commitment period, and on the other hand the employment contract requires the physician not to practice within the hospital’s service area and resign all medical staff privileges upon the termination of employment, a physician could be in the unenviable position of determining which contract to breach.

A physician contemplating a recruitment arrangement must fully understand the employment contract, the recruitment contract, and how each reconciles with the other.

An ounce of prevention is worth a pound of cure. The nominal fee to have your contracts reviewed by an attorney specializing in health care transactions will undoubtedly pale in comparison to the legal fees you will incur should you intentionally or unintentionally breach a covenant contained in the contracts you sign. l

Roderick J. Holloman (rjholloman@hollomanlawgroup.com) is the principal of The Holloman Law Group, PLLC (HLG) (hollomanlawgroup.com), a health care law firm with clients throughout the country.

 

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Hi Ho! Hi Ho! It’s off to work you go!

What Snow White’s Seven Dwarfs can teach us about achieving a work/life balance fit for a fairy tale.

By By Bruce D. Armon & Karilynn Bayus | Legal Matters | Winter 2014

 

No matter what your profession, it is increasingly challenging to find and maintain the perfect work/life balance. Physicians are no exception to this conundrum.

On the one hand, home/life pressure may come from a loving spouse, a naïve child or a doting parent who wants to make sure you’re happy and healthy.

On the other, every individual expects to be seen and treated by a physician for their malady in the most timely and comprehensive manner. A portion of the Hippocratic Oath states, “I will remember that I do not treat a fever chart, a cancerous growth, but a sick human being, whose illness may affect the person’s family and economic stability.” Physicians work with a sense of urgency and purpose and intense professional pressures.

We’re going to look at the key employment contract terms that can help physicians achieve the needed (but perhaps not perfect) work/life balance with the help of Snow White’s Seven Dwarfs: Grumpy, Happy, Sleepy, Bashful, Sneezy, Dopey and Doc.

Grumpy
The days of extremely long training hours in residency and fellowship have been moderated (a bit) by the change in ACGME Resident Duty Hour Guidelines. According to the ACGME standards, “Duty hours must be limited to 80 hours per week, averaged over a four-week period, inclusive of all in-house call activities and all moonlighting.” Working 80 hours in one week is a lot, let alone averaging that amount over a four-week period.

Once a physician’s training is complete, most physicians realize they need a break or they will be grumpy to everyone they encounter, including patients, their family and colleagues. If taken to extremes, this may have professional consequences, as the vast majority of hospitals have rules allowing them to discipline a physician for displaying disruptive behavior. Moreover, this could violate standards in a private practice’s employee handbook relating to boorish behavior.

A physician’s contract may state the minimum number of hours a physician is expected to work on a weekly basis. The contract may not, however, state the maximum number of hours or shifts that a physician will work in a given time period. It is important that physicians confirm the expected schedule prior to signing an employment contract, or they may find that the “break” they were anticipating after training did not come to fruition. Striking the balance between minimum and maximum is very important.

Happy
There are lots of different things that can make a person happy or content. One of the most obvious elements that must be addressed or negotiated in an employment contract is salary. Be wary of a salary that seems too good to be true.

Though many physicians carry significant debt upon completion of training, taking the job that pays the highest salary or that provides the largest bonus may not be the best job fit for a physician in either the short or the long term.

There may be reasons why a prospective employer has to “over pay” to recruit a physician. Bonuses built into a contract may be illusory because the suggested thresholds can’t be realistically attained. Or it might take an excessive number of hours worked or improper billing techniques to achieve these goals. For instance, a contract that offers a physician-employee 25 percent of all revenue generated by the physician-employee in excess of three times the physician’s base salary may not be realistic if no other physicians in the employment setting generate more than two times their income.

In addition, other employers may offer non-salary terms that will ultimately amount to more value to the physician than a contract that simply includes a higher salary. Such items may include comprehensive family health insurance, CME reimbursements, board expenses reimbursed, technology stipends or reimbursement, and other business expenses.

Though a physician may decide that he would not be happy if poor (or in debt), if you’re measuring happiness by your monthly bank statement or investment portfolio, you’re sure to be disappointed. There will always be someone who makes more money and seemingly works less to reach that status. An unhappy physician should give careful thought to changing employment as soon as possible.

Sleepy
No one works well when they are tired. A tired physician can have life-or-death consequences for a patient. In addition to including language in the employment contract that describes a “typical” workweek, a physician is well-served to include language that specifies call frequency.

There is a substantive difference in quality of life for someone who has call every seventh day versus someone who has call every other day. Seasoned physicians may suggest that when they started in practice, they took call every night or every other night, and this is the way they built their practice. The expectation is that every physician needs to fulfill this legacy to achieve success and “earn their stripes.”

Instead, make sure that your employment contract specifies call frequency and call distribution. Confirm whether call is a week off or a week on. Confirm how weekends are handled and how weekends are measured. Does call go from Friday night to Monday morning or something else? Confirm distribution of holiday call. If “extra” call is taken by a physician, is additional remuneration provided? Though all professionals are expected to work hard and be proficient, a disproportionate call responsibility can have terrible consequences for the physician and the physician’s patients.

Bashful
Physicians are trained to learn and diagnose a lot of different things. No physician can know everything. In an employment setting, it is just as important to recognize what is not known as it is to understand core competencies of sound medical practice. If a physician is not comfortable treating children or adolescents, the physician should not be bashful about stating what is in the patient’s best interest. If a physician is not comfortable performing a certain surgical procedure, a physician should not be bashful in asking for assistance.

No professional enjoys telling others about a potential weakness in a practice setting or procedure. However, to be the best physician, constant learning and innovation is required. A physician should make sure the employment contract provides adequate CME reimbursement and a CME time allowance to ensure maintenance and enhancement of skills. Many specialty boards require physicians to undergo maintenance of certification processes to ensure clinical competence and public confidence in skill sets. A physician should not be bashful or afraid to want to be the best at his or her craft. To reach that standard and maintain that excellence requires time and effort and the ability to know that improvement is possible.

Sneezy
The lessons that may be derived from Sneezy extend beyond the allergy practice setting. You can’t afford to sneeze at the progress being made in online communication tools.

The electronic era is upon us. Connectivity is key. Smart phones and tablets are common in medical practices. EHR and e-prescribing incentives are available, and the cost of technology makes going paperless a viable and affordable option for health care providers.

A physician should ensure that the practice setting he or she joins is focused on technological improvements and e-communications. Paper is quickly becoming a relic of the past. Sleek office space is replacing cluttered, dusty desks stacked with reference books and journals. Smart phone and tablet apps are prevalent and useful. Patients are also getting smarter as they have instantaneous online access to medical journals and diagnostic tools.

Many practices are considering outsourcing basic functions to maintain economies of scale, ensure the best patient experience and protect decreasing profit margins. A physician should stay ahead of the proverbial curve or at least not fall so far behind that it is virtually impossible to maintain relevancy and the confidence of colleagues and patients.

Dopey
The temptation can be overwhelming to simply say “yes” when offered an employment contract, especially if it’s your first. But don’t be foolish about it—make sure you understand what may and may not be negotiable in your employment contract.

Be sure to understand every term in the contract. If drafted properly, every paragraph, sentence and word is meaningful. If something should be changed, make every effort to have the change made before signing.

After years of training in medical school, residency and fellowship, you should be an advocate for yourself or seek professional assistance to accomplish needed contract objectives. This philosophy applies to your first job, the next job and every job thereafter. A properly drafted contract protects the employer and the employee. The contract sets expectations for daily responsibilities and opportunities for advancement and maps an exit strategy when things do not go as anticipated.

Doc
And finally, Doc. Of any work title for an individual, “doctor” probably has the most honor and prestige. In the television and the movies, a doctor is often the hero and the savior. The doctor is intelligent, driven, compassionate and confident.

However, maintaining a medical license is a privilege, not a right. A state medical board has the authority to punish a physician for an inappropriate action. A hospital, ambulatory surgery center and third party payor can each restrict or revoke a physician’s privileges.

A successful physician is one who finds and maintains the appropriate work/life balance. The balance is different for each individual.

It is important for a physician to: not be grumpy; not think that happiness can be bought; be too sleepy and have lapses in judgment; be bashful to recognize boundaries of knowledge; sneeze at the chance to embrace technological change and advancement; or act dopey and not look to protect his or her interests in each employment contract executed.

The Hippocratic Oath states, “If I do not violate this oath, may I enjoy life and art, respected while I live and remembered with affection thereafter. May I always act so as to preserve the finest traditions of my calling and may I long experience the joy of healing those who seek my help.” Working as a physician is not a fairy tale. It takes years of discipline and skill. Though it is unrealistic to think every physician will sing “Hi Ho! Hi Ho! It’s off to work I go!” in a blissful state each day, achieving and maintaining the “right” work/life balance will be music to a physician’s ears and bring added joy to a stressful professional life.

Bruce D. Armon (barmon@saul.com) is managing partner of Saul Ewing’s Philadelphia office.
Karilynn Bayus (kbayus@saul.com) is an associate in Saul Ewing LLP’s Health Practice.

 

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Managing your moonlighting

Before you embark, review all your contracts thoroughly.

By Bruce D. Armon | Legal Matters | Summer 2013

 

For physicians who “moonlight,” their lives may be anything but tranquil. Aside from the personal challenges when a physician moonlights, there are many professional issues that must be addressed before and during the moonlighting opportunity.

What is moonlighting?
Some people refer to moonlighting as the unsupervised practice of medicine by residents before the completion of residency. Approximately 10 years ago, the Accreditation Council for Graduate Medical Education (ACGME) enacted common duty hour standards for every accredited residency program, including the well-known requirement that a resident have a workweek no greater than 80 hours, averaged over a four-week period.

But there are many physicians—aside from residents and fellows—and other professionals who moonlight to supplement their professional experience and to make extra income.

What you must do before beginning to moonlight
There are several critical steps for any physician who wishes to moonlight.

First, review your current employment agreement (assuming you have one). The employment agreement may have a very direct prohibition, such as, “Employee may not provide any clinical services for any entity besides Employer regardless of whether Employee is paid for the same without the express written permission of Employer.”

If there is language like this in your employment agreement, do not moonlight because it may cost you your main job.

Even if there is not a direct prohibition in your employment agreement, there may be language in the employer’s policies and procedures governing moonlighting opportunities. Most employment agreements require the employee to abide by the employer’s policies and procedures. Before you engage in moonlighting, be sure to review the current copy of your employer’s policies and procedures. Look to see if there is a blanket moonlighting prohibition or some other level of restriction.

Second, review the restrictive covenant in the employment agreement for your primary employer. Many physicians assume the restrictive covenant only applies to opportunities once the current employment is complete. This may not be the case. A restrictive covenant that states, “During the term of Employee’s employment and for two years following the termination or expiration of this Agreement, Employee shall not…” applies during and after the employment is complete. In this situation, you should understand the radius and restrictions in the noncompete.

Radius is fairly straightforward: miles, zip codes, counties, city blocks, etc. in which the employee may not provide certain clinical services.

The scope of services covered by the noncompete is also relevant. For instance, assume you are an internist with a largely outpatient based practice. A moonlighting opportunity presents for you to provide hospitalist-only services for a local community hospital. If the restriction in your primary employment agreement prohibits you from providing any internal medicine services, you will be precluded from taking advantage of the hospitalist moonlighting opportunity. If the restriction applies only to outpatient services, however, you could engage in the hospitalist activity assuming there are no other restrictions in your employment agreement.

If you think there is a possibility you would like to engage in moonlighting, you must address the moonlighting language in your primary employment agreement before you execute the employment agreement.

What a physician must do as part of the moonlighting activity
When presented with a moonlighting opportunity, a physician should ask for and review the moonlighting employment agreement. While the contract may not be as detailed as the primary employment agreement, it should clarify certain key provisions: scheduling; term and termination; compensation; and professional liability coverage.

Moonlighting by definition is a second job. A physician must know when he or she will be scheduled for the moonlighting job and ensure it does not conflict with the physician’s primary schedule. No one can be in two places at once. If a physician is on call for the primary employment, it will difficult if not impossible to tend to duties for another employer at the same time.

Some moonlighting opportunities have a regular schedule (such as every third weekend) and others are scheduled on an ad hoc basis when mutually agreed.

In addition to knowing your work schedule, you should understand the proposed length of the engagement. As your primary job responsibilities change or you are presented with new employment, you need to make sure your moonlighting endeavors remain in compliance with your principal employer.

Most physicians take on a moonlighting opportunity for the chance to earn some extra dollars. Be sure to understand how much you are paid for your moonlighting. Are you paid an hourly wage? Are you paid a wage for each “shift” worked? If so, make sure the shift is clearly defined. Are you paid based upon collections received for your efforts? Are you entitled to any bonus, and if so, are there any defined criteria to achieve the bonus, and are these realistic?

Professional liability coverage may be the most important element in any moonlighting arrangement. It would be highly unusual for the primary employer to provide professional liability coverage in the event the physician is sued (rightly or wrongly) for something that occurred during the moonlighting hours.

A moonlighting physician needs to be sure:

• The moonlighting employer is paying for professional liability coverage for the moonlighting activities;

• The physician knows the amount of coverage being provided; and

• The moonlighting employer is paying for the tail professional liability policy if the insurance is not provided on an occurrence basis.

A physician should never be in the position of having to purchase a tail policy to provide insurance coverage for activities that are part of a moonlighting engagement.

Nonclinical moonlighting considerations
Not every moonlighting opportunity is necessarily a clinical engagement. Lecturing, teaching, writing articles or providing consulting services each use a physician’s clinical skills even though the activities are not clinical, per se. Similarly, developing electronic medical record software or creating a new medical device or other intellectual property activities may have tremendous economic value to the physician without being direct clinical endeavors.

In addition to understanding what is permissible or prohibited from a clinical standpoint with respect to moonlighting activities, a physician should understand who retains the right to intellectual property developed and remuneration obtained from clinically related activities.
Serving as an expert witness (for defendants or plaintiffs) could be a lucrative source of income for a limited amount of work. A physician’s primary employer may view these types of activities as prohibited if the physician is doing work adverse to a member of the physician’s primary employer (for example, working for plaintiff’s counsel as an expert in which the defendant includes an affiliate of the physician’s primary employer).

Likewise, if a physician writes an article or develops a new medical device exclusively during periods when the physician is not providing scheduled services for the physician’s primary employer and uses no resources of the employer to do the same, the physician’s primary employer may have grounds to ownership of such activity depending upon the language in the employment agreement or the employer’s policies and procedures. If contract language provides, “Any remuneration and ownership related to any clinically related activity shall be the property of the Employer if such item(s) is produced, developed or refined when Employee is employed by the Employer.”

If a physician is interested in working on clinical or clinically related matters while employed by another employer, the physician is advised to ensure these activities are specifically excluded from the purview of the employer now and in the future.

Moonlighting is part of the journey
Like the stars in the sky, there are no limits to the opportunities that an entrepreneurial physician may pursue. It is imperative for the physician to ensure that the primary employer will permit such opportunities and the moonlighting employer can protect the physician’s time, interests and efforts accordingly.

Bruce D. Armon (barmon@saul.com) is managing partner of Saul Ewing’s Philadelphia office and co-chair of the firm’s health law practice group.

 

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Uncle Sam and your job options

Considering your next career move? Consider the tax implications.

By Elizabeth A. Mullen and Bruce D. Armon | Legal Matters | Winter 2013

 

There are two certainties in life: death and taxes. While you can possibly prolong the former, the latter can’t be avoided—but it can be mitigated.

Whether you are just starting your career or considering a strategic move, there are tax implications that you should consider in addition to the many logistic and practice-oriented decisions that are inherent in any career move. Addressing the tax implications of these opportunities before you sign any employment contract or go too far down the path of business planning will protect you financially and may present additional opportunities for you and your practice.

Careful tax planning is imperative to good business practices. Though this article outlines certain potential tax issues for physicians to consider, the authors urge readers to consult an experienced tax advisor to discuss the tax implications of every business opportunity.

When presented with an opportunity to join an existing practice, work for a hospital or start your own practice, there are several tax issues that you should consider.

Moving expenses

The job of your dreams might be beyond your commuting radius. As a result, you may need to pack yourself and your family and move to another part of the state—or country—at a significant cost.

Some of the expenses you incur as part of your relocation may be deductible on your personal income tax return. In other instances, your new employer may offer to pay your moving expenses or reimburse you for certain costs incurred. Keep all receipts and invoices associated with your move.

Individuals are often permitted to deduct reasonable expenses of moving household goods and personal effects from their former residence to the new residence. This includes packing and crating charges, connecting or disconnecting utilities, transportation to the new residence from the former residence, and in-transit storage and insurance for the household goods and personal effects owned by the taxpayer. Individuals may also be permitted to deduct reasonable expenses of traveling (including lodging) from their former residence to the new place of residence. Note, this does not include expenses for meals during that transition.

Oftentimes, the employment contract may specify that moving expenses will be paid by your prospective employer. Alternatively, an employer may reimburse certain expenses, or up to a certain limit. These expenses should be excluded from your wages as a non-taxable fringe benefit, so long as the payments constitute qualified moving expense reimbursements for IRS purposes. There are certain items that the IRS does not consider approved moving expenses (e.g. certain storage charges, pre-move house hunting expenses, expenses of obtaining a new driver’s license, expenses of buying or selling a home or entering into or breaking a lease). Accordingly, if your prospective employer agrees to coordinate your relocation or to reimburse you for the costs you incur, you should ask how those costs or reimbursements will be accounted for or reported for tax purposes.

Income guarantee agreements

Income guarantee agreements are a common arrangement used by hospitals to attract you to the hospital’s service area in order to meet community health care needs. In conjunction with a private practice in the hospital’s service area that will offer you an employment agreement, these income guarantee agreements will contain many provisions that may be misunderstood.

Income guarantee agreements differ from one hospital to the next. Generally, the hospital will offer you a guaranteed salary and incremental practice expenses for a defined period of time, which will be offset by any revenue generated by your clinical efforts and include a maximum hospital contribution. In return, you agree to build and maintain your medical practice within the hospital’s service area for a certain period of time. After the guarantee period ends, you will agree to either repay the hospital (plus interest) for the amount you borrowed during the guarantee period, or the hospital may forgive repayment over time if you continue to work full time in the hospital’s service area and fulfill other requirements that may be imposed.

The tax implications of an income guarantee provision are often triggered as amounts are forgiven, although the specific tax consequences will differ based on the specific terms of the agreement.

In most cases, the income guarantee is structured as a loan and the hospital will be required to issue a Form 1099 each calendar year for the forgiven guaranteed amount—plus interest. The hospital will send a copy of the Form 1099 to you and to the IRS. You will be required to include the reported amount as income each year and pay federal and state income taxes thereon. Of course, paying taxes on the loan amount forgiven is preferable to paying back principal and interest to the loaning hospital. It is important that you and your tax advisor, on the one hand, and the hospital and their legal counsel, on the other hand, agree on the tax implications of the income guarantee agreement, the repayment and/or forgiveness of any funds advanced, and how the arrangement will be reported for tax purposes. The hospital will certainly work with experienced counsel to draft its income guarantee agreements; you, too, should have counsel who protects your interests.

Employee or independent contractor

When accepting a position with a hospital or a medical practice, you and your tax advisor and the organization with which you are negotiating a service contract should discuss your status as an employee or an independent contractor—not only for income tax purposes, but also for purposes of benefits, professional liability insurance, and any restrictive covenants. The IRS and each state taxing authority has its own unique rules and regulations that address the classification of workers for income tax purposes.
Based on an examination of cases and rulings, the IRS developed a 20-Factor Test that it often uses to determine whether an employee-employer relationship exists. More recently, those factors have been divided into three categories—behavioral control, financial control and relationship of the parties.

The most important point for physicians to remember is that your status as an independent contractor or employee will depend almost entirely on the specific facts of your business opportunity.

When dealing with physicians, the IRS considers factors such as the degree to which the physician has been integrated into the organization—whether a hospital or a medical practice; the substantial nature, regularity and continuity of the physician’s work for the organization involved; the authority reserved by the organization to require the physician to comply with its general policies; and the degree to which the physician has been afforded the rights and privileges generally established for physicians of the organization. The IRS and state taxing authorities will consider the degree of control that the organization has over a physician’s performance of his medical duties in addition to the physician’s financial investment in the business and the contractual nature of the relationship between the physician and the organization.

If you are treated as an employee of an organization, you will receive a Form W-2 from your employer and have payroll taxes—including wage withholding and FICA—withheld from your paycheck each pay period. If you are treated as an independent contractor, you will not receive a Form W-2 and will not have payroll taxes withheld from your compensation. An independent contractor can expect to receive a Form 1099 from the organization and to pay self-employment tax on compensation. You will have quarterly tax deposit obligations and you must budget cash flow accordingly.

The tax consequences and obligations differ significantly depending on how a physician is classified, and penalties for misclassifying a service provider can be significant.

Choice of entity

The prospect of starting your own medical practice or joining an existing practice can raise multiple issues—whether to affiliate other physicians, the optimal location, branding, funding or loan procurement and selecting the best vendors. Notwithstanding all of these important decisions, arguably the first issue you should address is the organizational form of the medical practice. For instance, if you choose to form a limited liability company, a partnership (if more than one physician is an “owner” of the entity), or a professional corporation, each structure has unique characteristics for federal and state tax purposes that affect the way the business of the practice is conducted and how the “owners” are taxed on earnings.

Owners of a limited liability company are called “members.” Partners form a partnership, and shareholders or stockholders own a professional corporation. Depending upon the state where you practice medicine, there may be restrictions relating to whether a non-physician can be your co-owner in the medical practice.

Most physicians will find it preferable to conduct business using a “pass through” entity that is not itself subject to income tax. Pass-through entities include partnerships and limited liability companies that are treated as partnerships (“LLCs”).

These entities do not pay federal income tax; rather, the income, deductions, gain, losses and credits of these entities “pass through” to the owners who pay any resulting income tax. Conversely, most corporations are subject to income tax. As a result, any income earned by such a corporation is subject to tax at the corporate income tax rates, and any dividend paid by the corporation to its shareholders is subject to tax at the shareholder level. Accordingly, a corporation may not be the optimal choice of entity for a medical practice.

In order to avoid this double taxation and to maximize the profits available for distribution to owner-physicians, a pass-through entity is often preferable. Partnerships and LLCs also offer physicians greater flexibility in terms of practice management, growth, and compensation/profit-sharing options.

Taxing issues

For most physicians, the opportunity for a job search will materialize numerous times throughout your career.

Each of the issues discussed  has its own complexities and needs to be assessed in light of the specific facts and circumstances. Uncle Sam will always be entitled to his fair tax share, but with careful tax planning and the assistance of experienced advisors, you can help ensure you are not taxed to death and can enjoy the success of your work effort.

Elizabeth A. Mullen (emullen@saul.com) is special counsel in Saul Ewing’s Washington, D.C., office and a member of the firm’s tax practice. Bruce D. Armon (barmon@saul.com) is managing partner of Saul Ewing’s Philadelphia office and co-chair of the firm’s health law practice group.

 

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Enough about call…What about vacation?

When it comes to your contract, don't forget to review the benefits package.

By Jon Appino | Fall 2012 | Legal Matters

 

Let’s face it: Physicians’ contracts are complicated! You can spend hours poring over your contract in an attempt to figure out compensation structures, call schedule, wRVU schedules, collection rates and overhead ratios.

In the midsts of sorting through the legal aspects of the contract, such as the non-compete clause, intellectual property rights and Stark Law provisions, physicians might overlook something very important‹the employment benefits in the contract.

More often than not, benefit packages are pretty vague. Items usually included in a benefit package are: medical, dental and vision insurance; life and disability insurance; retirement savings or investments; vacation and sick time; CME funds and time off; malpractice insurance; board certification fees and support; paternity/maternity leave policies and loan assistance, to name a few.

We’ll break down some of the more complicated aspects of your benefits so you know what to look for.

Malpractice insurance

Most employers provide medical malpractice insurance for physicians.

There are two main types of malpractice insurance that you need to know about: occurrence-based and claims-based.

“Occurrence based” policies are more expensive and less common. Occurrence malpractice insurance will cover you for whenever the claim occurred, not when it is filed. With occurrence malpractice insurance, you would still be covered even if you are no longer employed at the clinic where the claim occurred. Occurrence malpractice insurance does not require the purchase of an extended reporting endorsement, often called a “tail” policy.

“Claims made” insurance is the other main type of malpractice insurance. It is less expensive and therefore more common (we see around 75 percent claims-made policies). These types of policies will cover you if a claim is made during the policy. In order to be covered in the event that you leave your position where the claim occurred, you need to purchase “tail” insurance.

Tail insurance is priced specific to your specialty and history and can be quite expensive. We have seen neurosurgery tail policies of over $93,000 that are the sole responsibility of the physician. These amounts are not financed, and are usually due in full when the policy is purchased and employment terminated.

There are many clauses in a contract around malpractice insurance. The contract should clearly state which type of insurance is being provided, who is responsible to purchase “tail” if required, and the limits of the insurance policy.

Vacation time

Vacation time is important! When looking at your contract, pay attention to the way your vacation benefits are stated. Will you have specific days for vacation, illness and CME, or are you given a lump sum of PTO (paid time off)?

Will your vacation time be paid out on termination? Will it be rolled over to the next year if you don’t use it all? You may look at your paid time off differently if it’s a “use it or lose it” policy.

When reviewing your contract, request any specific vacation policies to which it refers. Certain policies may require specific notices by physicians when requesting days off or limit the number of consecutive days a physician can be absent from clinic.

Retirement savings

Many contracts lack any specific details around retirement saving plans. Often the contracts will refer to a retirement plan policy that you haven’t read.

Retirement benefits are a very important part of your future. If there is a plan offered by your future employer, you’ll need to know the specifics and details regarding contribution and match limits, vesting schedules, investment choices and potential tax implications.

Not fully understanding the retirement package your employer is offering could cost you in the long run. Physicians who do not understand vesting schedules may sign a five-year employment contract with a seven-year retirement vesting schedule. If you leave the position in five years, you may not be able to take all of your retirement savings with you.

It’s important that you know and understand the various retirement vehicles available to you so you can make informed decisions about your future.

As you can see, the benefits section of a contract is very important. There are many consequences to not fully understanding all the benefits being proposed by your potential future employer. Don’t simply look at the compensation and sign‹make sure the benefits section is up to par as well.

J. Appino is the founder of Contract Diagnostics (contractdiagnostics.com), a national company that specializes solely in physician contract reviews.

 

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Don’t let your next IT project crash your practice

By Evan J. Foster, Esquire, Bruce D. Armon, Esquire | Legal Matters | Summer 2012

 

Physicians and medical practices are at the vortex of the electronic health care delivery system. Droids, tablets, smart phones and other devices are changing the way society generally, and health care practitioners individually, gather, store and transmit useful (and sometimes not-so-useful) information.

Many physicians and their practices are moving quickly to implement electronic health record systems, e-prescribing functionality or to generally enhance their current technology to take advantage of the incentives offered to “meaningful users” of health information technology under the Health Information Technology for Economic and Clinical Health (HITECH) Act or because of their participation in an ACO.

Selecting the wrong vendor or the wrong technology, however, can be a big mistake and result in cost overruns, delayed billing or reimbursement, and lost time and productivity.

To help ensure the success of your next IT project, consider these dos and don’ts in evaluating and selecting the vendor and technology.

Do due diligence on the vendor and the technology.

Many physicians and practices do little, if any, due diligence on their vendor or the technology.

At a minimum, practices should talk to others using the same vendor and technology. These conversations should include practices that are in the implementation process, those that recently completed implementation, and those that have been using the technology for a significant period of time.

Talk to other practices of similar size, with a similar number of locations and within the same specialty, if applicable. Your vendor should be able to provide references.

If you are considering using specialized features or functionality, or have what you believe are a unique set of circumstances, you need to do additional homework and ask additional questions. You should also do some Internet research and review the vendor’s support forums. This information can help identify potential problems and let you better understand the vendor’s approach to handling customer concerns.

Don’t automatically take a solution offered by an existing vendor.

With the demands on your professional time, it is tempting to simply accept the proposal from your external practice consultants. Resist the urge.

Though there may be advantages and efficiencies to be gained from expanding your relationship with a current vendor, this can also backfire if the relationship turns sour.

Having all of your critical practice functions performed by one vendor makes you totally beholden to that vendor and creates a “single point of failure” should the vendor run into financial issues or otherwise goes dark. Transparency in understanding the financial relationship between your practice consultant and the product(s) they are suggesting is important. Use the same caution and perform the same level of due diligence as you would with every third-party vendor. You should insist that the IT component be severable from the remainder of the services provided to ensure you can transition a portion of the services you are receiving while keeping others in place.

Don’t skip acceptance testing.

As technology evolves and systems become more complex, the chance of something not working correctly increases dramatically. It also becomes harder to troubleshoot and correct problems once they arise, often involving multiple vendors and/or systems.

Engage in a formal testing and acceptance process. This is especially important when software must exchange data with other systems or must be compatible with existing software or hardware. To ensure the vendor stays committed to resolving all issues, consider holding back a portion of the payment until acceptance is achieved, or tie payment to achievement of certain milestones.

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Do demand financially backed service levels.

With many vendors now offering systems delivered as “software as a service” or from the “cloud,” performance issues are not confined to the walls of the practice.

Connectivity, bandwidth and load on the vendor’s systems can all impact the day-to-day operations of the practice, and continual poor performance can reduce buy-in and confidence in the system. To address these concerns, ask the vendor to commit to or guarantee certain levels of uptime, availability and performance of the technology or system. These are typically called service levels.

In addition, consider asking the vendor to provide service levels for support issues, such as time to return a phone call or email. In all cases, to ensure that the agreed service levels have “teeth” and are not just window dressings, practices should demand a credit of fees in the event a vendor fails to meet a service level, with multiple or repeated failures giving the practice the right to terminate.

Do have all agreements reviewed by your attorney.

When you purchase a product or service, you will need to sign various agreements, and you are responsible for all terms and provisions included in the documents.

In addition to the various vendor contract documents (such as software license, subscription or services agreement), there will likely be numerous exhibits, schedules and appendices. The devil is in the details of every single document.

Beware vendor proposals, quotations, statements of work or policies that include legal terms that you are told are standard. Don’t assume they don’t require legal review. Be on the lookout for “moving targets,” such as terms contained on a vendor’s website or vendor policies that are subject to change. Consider attaching the current version to the contract and requiring the vendor to seek your approval before it can be changed.

Regardless of what the sales team told you, if a provision is important or meaningful, get it in writing and make it part of the contract. Part of the reason to have your attorney review the documents is that you may not know what to ask for or expect as part of the agreement. When in doubt, err on the side of over inclusion.

Don’t assume pricing is all-inclusive.

It is imperative that you understand what the purchase price includes and excludes.

Get the total cost for the entire purchase. Understand the incremental costs if you add physicians or staff to the technology. Understand the costs if you need to delete a user because he or she is no longer employed by the group. Recognize there may be a cost if you are switching from paper to electronic. Who will pay these costs? Is there an annual maintenance fee? Will your fees automatically increase over a period of time? Are there any caps on fees?

Do plan for the worst case.

No one likes change, and most people do not welcome change. Changes in technology can be disruptive, frustrating and make one question the original decision. There can be installation delays, training delays, and other glitches.

You will get through the process, though it may take longer than anticipated. Be sure that everyone—from the most senior physician to the most junior staff person—receives meaningful and directed training from the vendor. Delineate in the agreements how much time and resources the vendor will devote to training and follow-up questions. If you are switching from one system to another, make sure both systems are operational for a short period of time to ensure no data is lost or changed.

Do schedule patients accordingly.

During the initial transition phase, it will take longer to enter the data from a patient visit. Leave ample time so physicians can accurately enter all data related to patient interactions. As the physician becomes more nimble with the system, there will be less down time between patients. Set realistic expectations accordingly for everyone to minimize angst and anger.

E-health care is here to stay. Getting there and staying technologically current in the most cost-efficient and least disruptive manner is a challenge and an opportunity to improve the performance and perception of the physicians and the medical practice as a whole.

Evan J. Foster, Esquire (efoster@saul.com) is an associate in Saul Ewing LLP’s Healthcare Technology Contracting group. He advises physicians, physician practices, hospitals and health systems regarding the acquisition of health information technology and related data privacy and security issues. Bruce D. Armon, Esquire (barmon@saul.com) is a partner in Saul Ewing LLP’s health care group. He assists physicians, physician groups, health care entrepreneurs and hospitals with regulatory, corporate and transactional matters

 

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Negotiate an employment contract with ease

By Kyle Claussen, JD, LLM | Legal Matters

 

>>Download this article as a PDF to print or share!

Negotiating an employment agreement can be a nervous and stressful time for many physicians. These agreements are worth hundreds of thousands of dollars and will define when and where you practice medicine. Here are a few tips that will reduce your anxiety.

Negotiations start immediately.
The moment you begin speaking to a recruiter, you are negotiating your position. It is important to be open and honest with an employer. You should not commit to any specifics regarding salary requirements or work schedule until you have evaluated the offer as a whole.

It is best to discuss compensation only after an official offer has been made and after you have evaluated the facilities, support staff and benefits package. Remember that even “standard” contracts that “every physician has signed” can be changed

Prioritize your needs.
Every physician has unique needs in their employment. A four-day work week may be the most important factor for a new mother. A resident with large amounts of student loan debt may need to maximize compensation.

Only you know what your needs are, and you should communicate to the employer which terms of the proposed agreement are truly “deal breakers” during your first round of negotiations.

Contract terms to consider include:
• Compensation
• Call schedule
• Malpractice tail coverage
• Equipment
• Non-competes

Know your value.
Underestimating your value can substantially reduce your compensation. It is rare that the first offer made is the best you can receive. Conversely, overestimating your value can lead to an offer being pulled and a relationship with the organization destroyed. To determine your value, consider geographic specific salary data, competing offers, length of time the position has been open, total revenue you will generate, and the number of candidates being considered for the position.

Keep “Plan B” alive.
As Yogi Berra said, “It’s not over ’til it’s over.” You should never turn down an offer until you have determined with 100% certainty that you will not be accepting the position. Negotiations can take many weeks and occasionally will turn sour. If this happens, you will need to have another option or two for consideration.

Get professional guidance.
Any contract (employment or otherwise) that is worth a significant amount of money should be analyzed by a professional. Attorneys specialize in practice areas just like physicians. You would not go to an orthopedic surgeon for a colonoscopy, and you should not go to your cousin (or brother, aunt, etc.) who practices family law to review your employment contract.

Find a health care attorney with experience reviewing physician employment agreements. As Benjamin Franklin stated, “an ounce of prevention is worth a pound of cure.”

Kyle Claussen, JD, LLM (kclaussen@ resolvephysicianagency.com) is vice president at Resolve Physician Agency, Inc.

 

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Protect your outside investments

If you're investing in an outside company, make sure you follow a proper respect for the process.

By Bruce D. Armon, Craig F. Zappetti | Legal Matters | Spring 2012

 

Throughout your career, you will likely be presented with opportunities to invest in businesses that are separate from your medical practice. These opportunities can present the chance to participate in a business as an investor while allowing you to maintain focus on patients and growing your practice. Though these opportunities can be lucrative building blocks for wealth generation, they can also present significant risks that, if realized, can be extremely costly and detrimental to your reputation.

These risks may be present even if the promoter of the investment opportunity is a relative or friend. For purposes of this article, we are not focusing on health care ventures. For those opportunities (such as an ambulatory surgery center, medical office building, etc.), in addition to the tips below, you must ensure compliance with all federal (e.g., Anti-kickback and Stark) and state health care fraud and abuse provisions. more »

 

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Post-residency job hunting for the IMG

Immigration issues for international medical graduates

By Bruce Armon and William Stock | Legal Matters

 

The search for post-training employment is often fraught with anxiety. For an international medical graduate, or IMG, there are extra levels of complexity to consider and negotiate when engaged in the job hunt and interview process.

Though many prospective employers are comfortable with the visa issues for an IMG, others are not. IMGs need to be advocates for themselves, but also recognize that there may be more limited professional opportunities for IMGs than for non-IMG colleagues.

An IMG and a prospective employer must each understand their respective rights and responsibilities and how they can—and should—effectively work together to ensure an IMG can start employment in the most timely way.

J-1 visa
There are two common temporary visas for IMGs: the J-1 and the H-1B. In general, the J-1 is specifically for training and the H-1B is for any form of professional-level employment (including as a resident).

Physicians already in J-1 status at the commencement of their residency will remain in J-1 status if they wish to participate in any fellowship training. The J-1 has an important benefit in that its duration is directly tied to the length of the training—thus a resident seeking to become a sub-specialist through a program of four or more years of post-residency training will be able to do so while on a J-1.

J-1 IMGs also have limitations. A J-1 cannot moonlight as a means to supplement income. The other principal limit is potentially more restrictive. Under the “two-year rule,” a physician who receives graduate medical education or training in J-1 status must reside in his or her home country for two years before obtaining H-1B status or a “green card,” unless the physician can find employment in the United States that qualifies for a waiver of that requirement.

Another J-1 limitation is that relatively few fellowship programs will accept IMGs as fellows until the individual has permanent residence (i.e., a green card).

more »

 

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Sharing your wealth

Changes in federal estate and gift taxes offer planning opportunities

By Bruce D. Armon, Esquire, and Bob Louis, Esquire | Legal Matters | Summer 2011

 

Benjamin Franklin said that nothing is certain in life but death and taxes. As someone said more recently, taxes are the only one of the two that you can postpone or reduce.

Though you can’t avoid the inevitable, you can and should take steps to protect those closest to you with careful estate planning. This applies whether you are a multimillionaire at the twilight of your career or a physician who recently finished or is about to finish training.

In the last few weeks of 2010, Congress and the president agreed to extend the so-called Bush tax cuts through 2012. The same law made several very favorable changes in federal estate and gift taxes, and these changes offer opportunities for significant tax savings.

Where we started

In 2001, the federal tax law was amended to increase the threshold exemption from federal estate taxes. Over a period of years, the exemption rose to $3.5 million per person, which meant that, with careful planning, a husband and wife could pass as much as $7 million to the next generation free of federal estate tax.

Then, in 2010, the federal estate tax expired for one year. Those who died during 2010, which included some very wealthy people, could avoid the estate tax altogether. Many people thought Congress would act long before the year of a no estate tax arrived, but stalemate in Washington, D.C., prevented any action from being taken.

The 2001 law provided that the estate tax was to spring back into existence in 2011, but at the rates and with the exemption that were in effect before the 2001 law. That meant that the estate tax rate could be as high as 55 percent, with an exemption of only $1 million. A reversion to that law would have “caught” many people in the federal estate tax, since the tax is imposed on, among other assets, retirement accounts, certain life insurance and homes owned.  more »

 

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