Steps To Take When Closing Your Practice

Steps To Take When Closing Your Practice Oklahoma State Medical Association Cori H. Loomis, JD Winter 2017

Overview of Relocating and Closing an Office Possible Issues During Relocation or Close What to do with medical records Collecting on accounts receivable Patient and agency notification Disposal of unused drugs Relocation-Specific Issues Making sure patients knows about move. Moving out-of-area is similar to closing. Closing-Specific Issues A planned closing has fewer problems. A sudden closing has more problems. 2

Preservation of Medical Records 3

Preservation of Medical Records Patient records are important, confidential, and must be carefully preserved. HIPAA applies. Need to maintain records for statute of limitations on negligence cases. Medical records of patients belong to the practice as a whole; not individual physician. 4

Preservation of Medical Records Patients should be advised of their right to send medical records to physician of choice**. Notification can be made by: Sign in reception area Note on billing statement Advertisement in local newspaper Direct letter to patient (expensive, but most effective) **It is not advisable to turn the original record over to the patient. It should be transmitted to another physician, if possible. 5

Preservation of Medical Records Patients have the right to obtain a copy of their original medical records. Oklahoma law 1 allows a medical office to charge for copies: $1.00 for the first page 50 for each page thereafter Maximum of $5.00 for each image Considered less professional to charge another treating physician for a copy. 1 See 2016 Okla. American Statutes, Medical Association. Title All 76, rights Section reserved. 19. 6

Preservation of Medical Records If a deceased/disabled physician was in solo practice (i.e. no surviving partner to keep records): Original record of a patient not seen in past 7 years can be given to patient. This is the one major exception to the rule of not giving original to patient. If patient was seen in last 7 years, then handle as normal. Not necessary to send financial data; but legal to do so. 7

Preservation of Medical Records Patients under current care require special attention in notification efforts if the physician is suddenly deceased/disabled: Advise patient the physician is no longer available, and it s necessary to make immediate arrangements. Patients scheduled within 14 days should receive a call. Otherwise, notice by direct mail is recommended. 8

Preservation of Medical Records No law setting specific amount of time medical records should be preserved. Length of time to keep records depends on type of practice. Factors to consider: Existence of duplicate records elsewhere Potential for litigation against the physician Type of practice (i.e., high professional liability risk type) Legal authorities in Oklahoma recommend: Keep records for a minimum of 10 years from the last time the patient was seen (applies to adult or minor). Minor-aged patient records should be preserved until patient s 20 th birthday or 10 years the after last time they were seen, whichever is longer. 9

Preservation of Medical Records After medical records have been forwarded to physicians or patients, the location of remaining records should be made known, in writing, to the following: Oklahoma State Board of Medical Licensure and Supervision Oklahoma State Medical Association Included in the physician s membership record County medical societies Other physicians, hospital administrators, hospital medical record departments, clinic and office managers as applicable. 10

Preservation of Other Records Federal/state laws call for preservation of financial records. General rule: Financial records may be destroyed after 7 years. Minutes and other financial books of practice must be retained indefinitely. Destruction of any record should only be done with the advice of legal counsel. 11

HIPAA/HITECH Compliance 12

HIPAA Compliance HIPAA requires steps to preserve the privacy of information stored on computers when closing a practice. For data stored on computers, it s recommended the hard drives are removed and destroyed. Erasing a hard drive is not sufficient as data can be recovered. Only way to prevent this is to break-up the disks inside the hard drive. Make arrangements with EMR vendor. 13

Accounts Receivable 14

Accounts Receivable Option 1: Allow bookkeeper/accountant to collect on A/R for a period of time after closing. Option 2: If physician was in a partnership and the practice is remaining open, remaining partner can continue collecting. Option 3: If the physician is deceased, the estate may recommend the accounts be sold to a collection agency at a discount. This procedure is not recommended for medical accounts. 15

Accounts Receivable AMA s Ethical and Judicial Council stated: The physician may not sell delinquent accounts to a collection agency and may not enter into any arrangement under which the physician would lose complete control of the delinquent account or the method of its collection. If the medical accounts are sold, all control is lost and may subject patients to the tactics and methods of aggressive collection. 16

Insurance 17

Insurance In case of death, collect all insurance policy info and notify companies first. If physician s office is closing, he/she may no longer need certain liability policies. Definitely need tail liability/medical negligence policy. 18

Final Paperwork 19

Final Paperwork If office closes suddenly, search general work area and mail for unfinished paperwork requiring a signature. Such as: Unsigned death certificates; Insurance physical forms, etc. Paperwork should be returned with a note stating the physician s signature is no longer available. A voluntary closure shouldn t have as much of an issue with unfinished paperwork. 20

Final Paperwork Tax records and organization documents should be kept for 6 years. Leases on assets should be reviewed and compiled. Software license agreements should be terminated or transferred. Personally granted contracts must be released by the company to which the guarantee was given. 21

Disposal of Equipment 22

Disposal of Equipment Number of options available when disposing of medical equipment, such as: Selling the practice intact to another physician. Placing a notice on bulletin boards in local hospitals. Placing an ad in medical publications. Consign with medical supply companies. Donate the equipment to a charitable organization (results in a tax deduction). 23

Journals and Advertising Mail 24

Journals and Advertising Mail Takes up to 1 year for information to reach all mailing lists after closing. No central clearing office to remove names from lists. AMA, if requested, will notify users of its mailing list to remove a name. Can write deceased-return to sender or no longer in practice, on mail and send back. 25

Medical Society Dues 26

Medical Society Dues Medical societies provision for due refunds in death of a member or moving out of area. Example: OSMA Bylaws specify: When a dues-paid member of the association leaves the state or otherwise changes his membership classification during the first six months of the year, January 1 to July 1, he may request and receive a refund of one-half of the dues paid to the state association. No refund if physician leaves during the second half of the year. Many physicians prefer not to ask for dues refunds. 27

Agencies to Notify 28

Agencies to Notify Certain agencies need to be notified when a physician dies or changes address ASAP. Oklahoma Board of Medical Licensure and Supervision. DEA for termination or issuance of a DEA number. OBNDD for receipt or termination of OBNDD number. OSMA and county societies would like to be notified ASAP. AMA (even if not a member) as they maintain several lists. 29

Agencies to Notify OK law requires a physician to register their medical license with County Clerk. Physician must re-register if changing counties. Medicare, Medicaid, Oklahoma Blue Shield, and other health insurance companies (including HMOs). Administrators of various hospitals where physician had privileges should be notified. Assures coverage of patients and minimizes confusion 30

Controlled Substances Act 31

Controlled Substances Act Controlled Substances Act requires all unused order forms for schedules I & II drugs to be returned to the nearest DEA office. All controlled dangerous substances records and inventories must be maintained for at least 2 years. If necessary to dispose of controlled substances, a non-registered person must submit to the DEA regional director a letter stating the disposers name, address, name and quantity of each substance disposed of, and the registration number of the person who possessed the substance prior to the applicant. The director shall authorize and instruct the applicant to dispose of the substance in one of the following ways: Transfer to a person registered under the act; By delivery to an agent of the bureau; By destruction in the presence of an agent; Or by other means deemed necessary. 32

Volunteering Your Professional Time 33

Volunteering Your Professional Time Even after retirement, many physicians keep medical license and volunteer their time. OK Legislature acknowledged contributions by creating a special volunteer medical license issued by the OSBMLS. License issued by Medical Board without any fee or CME requirement Renewable annually, upon approval. Applying physician must document previous US licensure without being the subject of disciplinary action. Physician must acknowledge no payment or compensation to be received while under the volunteer license. 34

Title of next section goes here. 35

Structure of Transaction for Sale of Practice Transaction is typically structured as stock purchase or asset purchase. Both arrangements have advantages and disadvantages. Stock Purchase Transaction where buyer purchases shares of stock of physician practice. All assets, receivables and liabilities are transferred to buyer. Uninterrupted cash flow because contracts with third party payors remain intact. Can assume existing provider numbers, licenses and contracts in most cases. Buyer could be held responsible for future malpractice suits and other complaints not yet filed at the time of sale. 36

Structure of Transaction for Sale of Practice Asset Purchase Transaction. Transaction where buyer purchases certain designated assets of practice. Liabilities can be excluded from transaction. Purchase can include both tangible and intangible assets. Buyer will have to obtain new provider number in most cases which may not be available on closing date. Need permission to assign existing agreements of seller. Buyer will not be responsible for any liabilities or overpayments due back to any payor due to buyer s new provider number. 37

Purchase of Assets More common to purchase assets rather than stock of physician practice. Assets purchased in accordance with Asset Purchase Agreement. Asset Purchase Agreement should address: Acquired Assets Excluded Assets Purchased Price Representations and Warranties of Buyer and Seller Malpractice and Other Insurance Consents Financial Statements Accounts Receivable 39

Purchase of Assets Contracts Litigation Title to Assets Taxes Licenses and Permits Compliance with Laws Patient Records Labor and Employment Matters Environmental Indemnification Limitation on Liability Costs Governing Law 40

Purchase Assets Asset Purchase Agreement should address both tangible and intangible assets being purchased (i.e. goodwill, medical records, trade name) Valuation should be done by qualified independent third party appraiser to reflect fair market value. 41

Restrictive Covenants Buyer may require seller to have restrictive covenant not to compete with buyer in certain defined restricted area. Non-compete covenant must be reasonable in length of time and geographic scope. Buyer may want liquidated damages clause that provides that any seller in violation of the non-compete covenant shall immediately pay to buyer certain amount of money. If a practice has current employees, then review should be done of enforceability of any existing non-compete. 42

Employment Buyer may purchase practice and employ seller (usually occurs in hospital purchase of physician practice) Written employment agreement should set out terms of employment (i.e. restrictive covenant, benefits, compensation, productivity incentives) Employment of physician by buyer should meet Anti-Kickback Safe Harbor and Stark Law employment exception or fair market value exception. 43

Employment Asset purchase agreement should also address various practice employment issues: Continuation of employment ERISA Benefits Paid time off Vacation Seniority Drug Testing Termination of certain employees 44

Fraud and Abuse Purchase should comply with fraud and abuse laws. Purchase of physician practice should be fair market value (FMV) IRS defines FMV as: the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buyer and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. 45

Fraud and Abuse Stark law defines FMV as: The value in arms length transactions, consistent with the general market value means the price that the assets would bring as the result of a bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, on the date of the acquisition of the assets. Usually the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantitiy in a particular market at the time of the acquision, where the price has not been determined in any manner that takes into account the volume or value of anticipated or actual Medicare/Medicaid Designated Health Services referrals (as defined below) by physicians of the Practice to the entity that employs them or to other related entities. 46

Fraud and Abuse Anti-Kickback Statue defines FMV as: where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. FMV should be a value that is commercially reasonable. Arm s length transaction Anti-Kickback concerns: Seller purchasing practice as a source of referrals which can increase costs. Purchase of intangible assets (i.e. goodwill, noncompete, patient list, patient records) may be payment for referrals. 47

In Conclusion: Closing Your Practice Checklist 48

Closing Your Practice Checklist (60 90 Days Prior Close) Staff Organize a staff meeting to notify employees of practice closure. Prepare to hire temporary staff if current employees leave prior to closing date. Patients Prepare and send notification to patients listing the closing date and reason for closing. Include an authorization form to transfer medical records to your patients new providers. Place a dated copy of the notification in each patient s medical record. 49

Closing Your Practice Checklist (60 90 Days Prior Close) The Public Publish local newspaper ads with details about the closing. Post signage in your office to notify visitors of your last day of business. Professional Associations Notify your state medical board, licensing board, credentialing organizations, professional memberships, etc. Drug Enforcement Agency (DEA) Inform the DEA of your wishes to either continue or surrender your DEA registration. 50

Closing Your Practice Checklist (60 90 Days Prior Close) Health Insurance Companies Inform all contracted payers of your intent to close your practice. Provide payers with a forwarding address to send payments that resolve after the office closes. Hospitals Notify the hospitals where you have privileges of your intention to close your practice. Ancillary Services Contact ancillary services such as labs, MRI facilities, etc. that you refer patients to. 51

Closing Your Practice Checklist (60 90 Days Prior Close) Suppliers/Service Contracts Inform medical suppliers, office suppliers, collection agencies, laundry services, housekeeping services, hazardous waste disposal services, magazine subscriptions, etc. Request final statements from these vendors to close your accounts with them. Other Physicians Let the colleagues that you work with, or refer to, know of your decision to close. Utilities Notify all utility service providers of the day you wish to discontinue service. 52

Closing Your Practice Checklist (30 60 Days Prior Close) Patient Scheduling No new patients should be accepted once the closing date is announced. Start restricting nonemergent appointments as much as possible. Patients who need continual follow-up and care should be referred to another provider. Accounts Receivable Process your accounts receivable, as much as possible, to collect money owed to you. Consider employing a collection agency or staff member to reconcile accounts after the practice has closed. 53

Closing Your Practice Checklist (30 60 Days Prior Close) Insurance Policies Review you and your employees insurance policies and update or cancel where appropriate: i.e., liability, health, life, disability, workers compensation, etc. Obtain tail coverage extended liability insurance if necessary, which provides coverage against claims reported after the liability policy expires. Phone Service Consider using an answering service or prepare messaging for office phone calls after the closing date. Mail Service Contact the U.S. Postal Service to coordinate mail forwarding details. 54

Closing Your Practice Checklist (30 60 Days Prior Close) Medical Records Arrange for safe storage for both paper and electronic medical records. Notify your state medical board of the storage location. Determine the correct amount of time your medical records should be stored, as defined by your state law. Make sure the storage facility has experience handling confidential patient information and HIPAA agreements. Establish a mailing address or PO Box for medical record requests after closing. 55

Closing Your Practice Checklist (30 60 Days Prior Close) Medications Follow the federal guidelines for disposing of prescription drugs and medications. Contact drug representatives to determine what to do with unused samples, if applicable. Destroy all prescription pads. Clinic Documents & Equipment Arrange for storage of personnel records according to your state law. Organize the disposal or proper storage of clinic documents such as financial records, patient education materials, brochures, etc. Plan to sell or lease office and medical equipment, if appropriate. 56

Q & A / Thank You Cori H. Loomis, J.D. The Parkway Building 3401 NW 63 rd Street, Suite 600 Oklahoma City, Oklahoma 73116 (405) 232-2020 Cori@Christensenlawgroup.com www.christensenlawgroup.com 57