Do your corporate documents protect you?

ByDavid M. Glaser, JD

During the last couple of years I have seen a significant uptick in disputes within physician groups. In many of the disputes, a departing physician expects to receive more than the remaining physicians expect to pay. Such a dispute typically focuses on the value of stock or accounts receivable. In other cases, the dispute relate to a departing physician’s plan to compete with the group, including whether the departing physician is entitled to patient lists and other information.

There also have been disputes about how to divide income. Should ancillary revenue be divided evenly, based on professional production, or using some other methodology? Should a partner who rarely uses a particular ancillary still be entitled to receive any of its revenue? The division of ancillary revenue is impacted by state and federal laws, and will be the topic of an upcoming blog entry. Another question may documents don’t address is who is entitled to a departing physicians EHR payments?

Parties’ intent

In many of the cases, the dispute might have been avoided had the clinic’s documents accurately recorded the parties’ intent. Sometimes the documents were ambiguous. In other cases, the participants did not anticipate a particular development and the documents did not address it. Finally, in some cases the documents are clear, but the parties’ expectations were radically different from the documents. These disputes often became expensive and emotionally taxing. Therefore, I encourage you to consider whether your documents are carefully drafted, and to make sure everyone in the group understands the content of the documents. No one can foresee every potential problem. My colleagues and I are continually finding ways to improve our forms. However, there is definitely an advantage to having the forms reviewed by a lawyer who regularly works with physician practices.

Well-drafted documents have clear answers to questions. Does a departing physician receive his or her accounts receivable? If so, how is the amount calculated? Does the physician receive the actual collections or anticipated collections? What expenses are deducted from payments? How is the stock value determined? Does the market value of assets control or is it the book value? What is a stipulated value? In one of the recent disputes, the documents stated a departing physician was entitled to receive “then existing accounts receivable.” The drafter assumed the reader would be familiar with how medical practices work and would know the physician would receive the net accounts receivable actually collected. However, the departing physician asserted he was entitled to the full gross amount on the books, regardless of what was collected.

Debt, notification of patients

Debt can often be a source of tension. In one recent dispute, partners were angry at the perception that a physician was leaving shortly after the group borrowed a significant sum of money. The physicians believed the physician should be personally liable for his share of the debt. Each of the physicians had personally guaranteed the debt, but the physicians wanted the departing physician to pay a prorated share of the outstanding debt. The documents did not call for such a payment. The remaining physicians believed they had an agreement in principle, but without documents to support it, they were left frustrated.

When it is time for a physician to leave, I believe it is in everyone’s interest to mutually agree on a letter to notify patients. In many locations, Board rules or opinions give patients the right to know how to contact a physician. A neutral letter such as “Dr. X has left the practice and is going to Y” makes certain that patients are fully informed. The only major complication is if the new location is within a noncompete that the clinic believes is valid but the departing physician is challenging. However, there can even be fights over who should pay for such a letter. The more details you agree upon in advance, the better.

While you may wish to have a lawyer review your documents, it isn’t required that a lawyer draft or even review your agreements. The most important thing is that whoever drafts the agreements has a solid understanding of what you want, and the experience to write the agreement clearly, covering as many contingencies as possible.

Key agreements

I prefer having the board adopt some of the key agreements, rather than making them signed agreements between physician and clinic. For example, rather than recording your compensation formula in your employment agreement, I prefer to have the board approve it. This makes it much easier to modify the formula. If the formula is in the employment agreement, then you need to have every single physician sign a new agreement each time you make a minor revision to the formula. If the employment agreement permits the board to revise the formula, a well-drafted board resolution is all you need.

Spending a little effort to make certain your documents are clear and understandable can help avoid disputes that may cost tens of thousands of dollars in attorney’s fees.