Dan
Welcome to sound business insights. I’m Dan Watkins. This episode is about medical practices and healthcare businesses. This podcast is not intended to provide legal advice.
Neil
Dan, what’s it like to be an attorney who represents medical practices and healthcare businesses.
Dan
It’s wonderful. It’s complicated, and it is completely involved. Unlike any other law. We do. Uh, we’ve been doing this since the 1980s, representing doctors and doctors are the smartest people on the planet and they operate in laws that are the most complicated for any business I’ve ever heard of. How’d you get into working with doctors? Dan, when I first, uh, my first job I, I went in, he started working for, uh, an attorney named Chris Popov who’s with me today. And that’s what his practice was, was forming, selling and buying healthcare providers, companies, forming, uh, medical corporations, uh, PT clinics, MRI centers, psychiatric groups that operated in multiple states, all kinds of complex, uh, medical rules and regulations. And it, it took me many, many years to learn this stuff. I’m still learning.
Neil
Dan, you’ve been doing this for more than 35 years. How’s this changed?
Dan
it’s changed a lot actually to do this job. We had to do, you know, some history. We’ve learned some, uh, some roots of where healthcare came from back in the 18 hundreds, all the way to here. I mean, Louie pastor and Napoleon creating the pasteurized wine to, uh, germ theory to people in, in the world, believing there were actual germs out there to the point where we’re at now in a pandemic, you it’s all evolved. And people don’t realize that during the great depression we created Medicare. And then after that, Congress really wanted insurance companies to get involved in healthcare. They didn’t want to, they were all in fire and life insurance. They had no interest in doing healthcare. It wasn’t certain enough, but they did. And they created a Medicare system that they’ve changed every year or every five years, every 10 years they’ve added parts to it.
And it has created a billing process. That’s very, laborious, it’s created a complicated business process. It’s created purse strings for the federal government to go into every state, because if anyone, treats a patient that has Medicare, then they have to comply with all of the Medicare laws of the federal government. Every state has special rules and regulations. So you can imagine with all this history and all of these different parties, everybody putting something in new all the time, how complicated it is for, doctors and healthcare providers to work together, to own clinics, to own anything in the healthcare industry and also to compete, eat, or fight off or work with large corporations or investors to who want to come over and take over their companies or who want to pay them a lot of money and buy their companies. You can imagine how complicated it is and after doing it for all these years, uh, we find it really enjoyable.
Everyone here, all the, all the people that buy and sell all the medical practices we sell and merge and form every year we find it fascinating because there’s just so many laws that apply such a long checklist of things to look at. And, we’re one of the few, few law firms in town that can do it.
Neil
What are the unique benefits of a California professional corporation for a healthcare business?
Dan
I don’t know if any of my doctor clients would call it benefits. I would call it a requirement again, when you are in the healthcare field and you have your different types of licenses and you want to incorporate, you have to designate with the secretary state, what type of corporation you are and what you’re doing so that they can class you correctly and impose all the regulations they can think of on you.
Neil
What can a doctor or professional healthcare provider do with a Professional Corporation?
Dan
That’s their only business vehicle. Uh, healthcare providers can’t be limited liability companies. They can’t be these other types of entities. They can be general partners, which is severe liability, or they can be professional healthcare corporations, which shields them from personal liability. To some extent, although a licensed doctor, a licensed lawyer, the one who’s doing the work is always going to be personally liable. That’s why they have to spend so much money on a malpractice insurance, but it also is a vehicle where you can bring in other shareholders who qualify. And there are a list of exceptions. Usually most of the owners of a professional corporation providing healthcare have to be licensed healthcare personnel, but there’s a list of exceptions to that law, but it is what doctors use to do business. They have these complicated shareholder agreements they can enter into managed service agreements are called MSOs. They can, uh, enter into agreements with other corporations or other service providers. They can buy their own ancillary service providers as long as they comply with all the requirements for that too. So a sole medical practice through their medical corporation can branch out into other forms of business if they, uh, know how to do it. And if they can find an experienced lawyer, they can write it up so that they’re in compliance with Medicare and also their licensed rules and regulations for the state they’re in.
Neil
Right? And the Watkins firm is also able to help them with their professional contracts and their employment agreements?
Dan
that’s right. Employment agreements for doctors are different in every state. So, and lots of times doctors go from one state to another state and there’ll be clauses in there that they want to have reviewed. They’ll be, uh, certain types of practices they’re going to want to be in. They’re going to want to hear from a lawyer, that’s been doing this for a long time. So like, if you’re an eye doctor and you come to our firm, we’re going to say, well, we’ve bought and sold over 70 eye doctor practices. So, if you’re a certain type of, provider or healthcare worker, you’re going to want a lawyer like our firm or other firms that has experienced in putting these types of deals together and allowing some of these wonderful doctors and healthcare providers to retire and sell their practice.
Neil
So, Dan, one of the questions we offer in our asked is about stark. What is stark and what does it matter to a healthcare business?
Dan
Well, when they created all these, uh, insurance and Medicare and Medicaid, um, they also passed a bunch of laws to stop doctors and ancillary service providers like physical therapist or MRI centers, x-ray centers from, uh, kicking back or, uh, overprescribing things that would run up the bill. So they come up with a stark statute that applies to physicians who refer or Medicaid and Medicare patients for these ancillary services.
Neil
So basically you can’t set up a deal where I would refer things to, let’s say, Bob’s practice and Bob’s practice would refer things back to me.
Dan
That is true. You’re, that’s a general way of saying it, but there are so many exceptions that you actually can, as long as you comply with all of the exceptions to stark, and there are dozens of them.
Neil
Can you gimme some bizarre examples?
Dan
Well, here’s a good one: in the eighties, orthopedic surgeons they’d have a practice and then they’d also get together and they’d buy a physical therapy center and they would refer patients to the physical therapy center. Well, they’re always changing the law, but the, the rule now is that if you want to do that, then you have to have the physical therapy center within the same building and on the same floor, in some cases, as your offices for your orthopedic surgery practice. But it doesn’t really make sense. It doesn’t mean that you’re not over referring or under referring. It’s just different laws that are passed, that all these doctors and healthcare providers have to comply with
Neil
Dan, there are a lot of things in the press right now relating to anti-kickback issues. What’s that all about?
Dan
It’s sort of like stark, but it’s a criminal law that says, if you are a doctor and you’re paying another doctor, or if you’re a healthcare provider and you’re paying a doctor for a referrals fee splitting or whatever you want to call it, that’s a crime. And so when a doctor refers to another group and gets money back and they can get in trouble. And so when you have these agreements, we provide and they’re sometimes quite complex, but to make sure that we don’t put any of our doctors or any, any of the parties involved in any situation where they’re going to be accused of violating anti-kickback statutes.
Neil
So what are some of the laws affecting the sale of medical practices?
Dan
Great question. The medical practice act, business and professions code section 2052 and the California business and professions code section 2400, generally cover a lot of what you can and can’t do. And one of the things you have to understand is who and can’t own a healthcare practice and what types of procedures you can use to facilitate the sale of a healthcare practice, to other licensed professionals. And also, how can we involve other business entities that aren’t licensed professionals in such a transaction?
Neil
So what are some of the steps for getting a practice ready for sale?
Dan
Well, first of all, all you want to know what you’re selling and you want to break it down into different categories like Goodwill versus the accounts receivable versus the accounts payable, and also any firm hard assets you have, and then you want to have it valued. You want to know what the market will bear for your type of practice. And you want to talk to a lawyer that does this because you, you may believe you can’t sell your practice, but there are ways to rank the agreement and to structure it. That’ll let you sell your practice to a wider audience. And finally, when you do sell the practice, you have to go through something called due diligence. Buyers are going to want due diligence. And they’re going to ask you for a whole bunch of schedules, if they’re your smart buyers, or maybe they just know your business and they don’t need them, but they’re going to want schedules that covered various categories of how you run your practice. And now your business operations are. So if you’re accounting procedures or in order, which they usually are for healthcare practices, you should have that all analyzed. And this is all be part of the evaluation process.
Neil
Dan, what are some of the hazards of working with a third party when you’re trying to sell your practice?
Dan
Well, most of the time I would say brokers, you know, business brokers, but in the healthcare industry, a lot of these specific areas of practice will have groups of companies with in-house personnel. That’ll go out to different practices all around the United States and say, would you like to sell your company? We have a program for you. And so when you do that, make sure you hire a lawyer that’s independent of that group who can help you, uh, answer some of the important questions and analyze whether what they’re offering is a good deal, because they can come up with form agreements that might not be to your benefit or structural situations where you won’t be getting as much money as you think you’re going to be getting. And here in California, noncompete is a pretty controversial subject, but it really does apply to the medical industry.
Neil
How do you discuss issues of non-compete with your healthcare clients?
Dan
Well, that’s what’s good about having your own healthcare corporation. You will own shares in that corporation, and you’ll be an owner. Being an owner, allows you to have a non-compete clause when you sell your company, uh, California hates non-compete clauses, but when you sell your practice, if you are an owner, you can enforce a non-compete on the buyer of your practice. I mean, or, or the seller you buy a practice, the seller comes in, he gives you his practice. And then two years later, he opens up another practice next door and goes to stealing all your clients. You want to have a lawyer write it up. So they can’t do that.
Neil
Governance and compliance is a challenging concept for any corporate entity, but in the healthcare environment, it’s crucially important.
Dan
Yeah, that’s true. For example, HIPAA you’re, you’re a doctor. You’ve got to make sure you keep your, patients information, away from the public, especially from insurance companies who might want to use that to deny people coverage in the future, you have all of these employment laws that are specific to healthcare practices, where your average employer wouldn’t have to comply with them.
You have lawsuits constantly being filed by employees. You have the need for a good employee handbook. That’s read and initialed. I can’t tell you how many times they’ve been to trial. And I pulled out the employee handbook that the employee signed. And it says, “right here, you initialed here.” Well, you promised to do this if any type of incident happened. And instead you went and found a lawyer and filed a lawsuit and we’ve won because of that. So having a good employment handbook is, is wonderful. Having an HR person that is constantly training your staff is important. If you don’t have HR person, you can use ours, but in continuing education, there’s a requirement as employers in the state of California, we have to continually educate our employees and our managers have to have double the education that the employees have to do every year.
So all of these things combined make it really important to, uh, pay attention to governance and do your work ahead of time and avoid a lawsuit.
Neil
Dan, we also do a lot of work with surgery centers.
Dan
That’s right. Um, we’ve been representing surgery centers for over 25 years, and there’s more and more types of surgery centers. There’s centers for LASIK, there’s centers for general orthopedic surgery, for cosmetic surgery, surgery centers. When a group of doctors get together and they buy into their own surgery center that is certified by the state and inspected as being healthy, sanitary and safe, or the types of surgeries as they’re rated to be performed there. So you get your knee scoped or you’ll get your shoulder worked on, or you’ll get eye surgery. You don’t need to spend the night in hospital. You go to a surgery center, it’s more cost effective, and doctors can own them under certain guidelines and they can form their own surgery centers.
They can buy into groups, they can sell their ownerships in those surgery centers. And as long as everyone complies with all the laws, they get a good piece of the profit. If it’s profitable in the long run. And instead of giving it a way to a hospital, which is more expensive than surgery centers, the healthcare business is just fraught with danger for professionals, from a regulatory point of view.
Neil
That’s why they need an experienced firm Like the Watkins Firm –
Dan
There’s just so much to keep up with there’s not just regulatory, we’re talking about their market. They, when they have their own practices, when they’re not just working at a large medical healthcare provider, that’s one thing. But when they have their own practices and their own careers and they want to do things, if they don’t comply with the law and if they don’t have everything analyzed and reviewed, they can end up giving away years and years of hard work in a few days.
So yeah, we review and sell over $50 million or merge over $50 million a year in, healthcare practices. And our team of experienced lawyers loves what they do. It really meticulous, but, it’s really nice to know that you’re working somewhat in the healthcare field.
Neil
Dan, what services do we offer to doctors who want us to review their contract?
Dan
A lot of doctors go from other states to California and California has much different laws than other states. They have laws on non-compete agreements. They have laws on forcing you or not forcing you to stay in a certain situation for a long time. It’s a more liberal state, it’s more employee friendly, but we always find something in those contracts that we simply ask to have removed. And most of the time the healthcare employers, they just remove them or they’ll amend them. So when you get a form contract and you’re a doctor, if you call a lawyer, he’ll look through things. And he’ll say, ask him to take this out and add that. And 99% of the time, the employer just complies.
Neil
Thanks, Dan.
Dan
Sure.
You can learn more about the Watkins firm at watkinsfirm.com or call our office at (858) 535-1511.