Legal Issues Affecting the Business of Medicine
By: Eric C. Boughman, Esq., ForsterBoughman
As a lawyer, counselor, and professional advisor, I strongly believe in the value of good advice and that those giving advice should “stay in their lane” and avoid giving advice about subject on which they have little or no expertise. Just as no one would expect a lawyer to give medical advice, healthcare professionals should rely on lawyers for legal advice. But a general understanding of legal issues and trends affecting the business of medicine is healthy. Below, in no particular order, are five things medical professionals should understand about law affecting their industry.
Telehealth – The “Modern-Day House Call” is Here to Stay
The concept of Telehealth has been around in some form for several years but the specifics of what is permissible and which modalities of delivery are acceptable are still being ironed out.
Florida’s relatively new telehealth statute resides at section 456.47 of the Florida Statutes. The statute permits healthcare providers to serve patients from remote settings through “synchronous” or “asynchronous” communications. Synchronous communications occur in “real time” and generally include some form of face-to-face video conferencing. Asynchronous communications refer to the “relay of information with lag time.” Think of reviewing x-ray or MRI photos or some other mechanism of store-and-forward communications. As new technologies are developed, the contours of what is permissible are still being worked out. The telehealth statute is explicit, however, in disallowing audio-only telephone calls, emails, or facsimiles (although we have seen limited exceptions in the Covid era).
Telehealth is a permissible form or service for several healthcare professions. A key element in the delivery of telehealth services is to be sure to follow proper communication protocols. Using the proper communications tools, providers may evaluate, diagnose, and treat patients without conducting a physical exam so long as they follow regular standards of practice. Before engaging in a telehealth practice, providers should check both the state law, including the telehealth statute and their own standards of practice, and the payment standards of the payer in cases covered by insurance to ensure their practices are legal and compensable.
Non-Compete Agreements
Non-compete covenants tend to elicit very strong reactions. Florida law starts with the premise that ‘agreements in restraint of trade’ are unlawful. The rationale is simple: public policy abhors economic restriction and anti-competitive practices. Certain non-competes that serve a legitimate public policy – evidenced by meeting specific legal requirements – can be enforceable in certain contexts. Restrictive covenants designed to protect a “legitimate business interest” may be enforceable within a certain duration of time and geographic scope – provided the restriction does not otherwise violate public policy.
In the context of healthcare, public policy concerns arise when patients’ access to medical services is limited or medical costs are increased. In connection with physician employment agreements, legal battles have been waged over whether restrictive covenants for certain medical specialties – particularly those in low supply – violate public policy by limiting access to affordable healthcare. Recent amendments to Florida statutes address this issue head-on.
Recently enacted section 542.336 of the Florida Statutes pertains to medical and osteopathic physicians who practice a medical specialty in a county where only one entity employs (or contracts with) all such specialists. The law essentially bars restrictive covenants in those situations on the basis that the restriction serves no legitimate business interest. In other words, an employer who holds a county-wide monopoly in a medical specialty cannot lock up all specialists with non-compete covenants.
Florida remains one of the strongest states in enforcing non-compete agreements, but the recent addition of section 542.336 follows a nationwide trend toward legislative action to reduce the anti-competitive effect of restrictive covenants. Other states have implemented changes such as limiting restrictions for employees who earn below a certain wage or salary and “garden” provisions which require an employer to pay a former employee during the post-employment time while an employee is sidelined. Coupled with specific public policy interests affecting healthcare generally, this is an area that requires continuous monitoring.
Business Partnership Issues – Avoiding Deadlock
In over 15 years practicing law in Florida, perhaps the single biggest cause of failure that I have seen for medical businesses stems from partnership disputes and deadlocks. Although deadlocks are sometimes unavoidable, they need not lead to the end of an otherwise successful healthcare practice. Many deadlocks can be avoided with a clear definition of parties’ rights outlined in an operating agreement (for LLCs), shareholder agreement or bylaws (for corporations), partnership agreement, or similar governing document.
An effective governing document defines the company’s management structure, describes the allocation and distribution of profits and losses, establishes voting rights, and may set out other agreements among the company’s owners and managers. Several strategies to avoid deadlock can be written into a governing document. Some options include: (i) allocating tie-breaking authority to one partner or alternating among partners; (ii) escalation clauses where tie-breaking authority rolls up from managers or directors to equity holders or from a subsidiary to a parent company; (iii) appointing an outside third-party individual or panel as a swing vote; (iv) alternative dispute resolution procedures, such as mediation or arbitration; or (v) through buy-sell procedures triggered by a deadlock.
The most common buy-sell provisions generally allow one party to declare a deadlock and set a value upon which that owner will buy or sell his or her interest. The other partner then has the first option to buy or sell at the price set by the first partner. The specific mechanics can be customized for the owners’ preference. The most important factor, however, is to put such antidote in place before small disagreements lead to malignant problems.
Asset Protection Basics
The purpose of asset protection is to create a structure that reduces exposure of personal and business assets to creditor claims. Effective asset protection planning utilizes existing law to insulate businesses, owners, and properties from risk. Properly established, asset protection will create not only a barrier to collection but also hesitation by a potential plaintiff (or plaintiff’s counsel) considering investment in a lawsuit.
More sophisticated strategies, such as multi-level corporate structuring and self-settled trusts, should not be attempted without legal counsel knowledgeable in this area. There are, however, certain tactics that healthcare professionals can implement to help protect themselves without the need for an attorney. It is also useful for non-lawyers to understand what may be available to seek out the right advice.
The first tactic is limited to married couples. Florida is one of several states that allows married couples to title assets as tenants by entirety (“TBE”). The concept is that the marital unit is considered separate from each spouse and, as such, property held as husband and wife, together as TBE is generally not available to satisfy claims of either spouse’s individual creditors under state law or in bankruptcy. TBE ownership is predicated upon 6 elements: (i) each spouse must have identical interests; (ii) joint possession ownership and control; (iii) legal title that derives from the same instrument; (iv) interests that began at the same time; (v) rights of survivorship such that when one spouse dies the other retains full title; and, of course, (vi) they must be married at the time TBE title is acquired and remain married for TBE to be effective.
TBE ownership can be used for real estate, stocks and other investments, bank accounts, and other property. It can be a particularly powerful tool in marriages where one spouse is a professional with a high risk of legal liability (e.g., a surgeon) and the other is a homemaker. Review ownership and title documents for real estate and personal financial accounts to determine the form of ownership. If your assets are not titled as TBE, it is advisable to seek guidance because the process of changing title is fraught with traps for the unwary. For instance, bank accounts not presently titled as TBE cannot be converted to TBE by simply changing the title. You must close the account and open a new one. The key takeaway is to understand the distinct benefits offered by TBE over other forms of ownership.
Another tactic that all healthcare professionals should employ to protect assets is to maximize the freebies provided by state law. Florida recognizes several statutory exemptions and protections for certain assets as a matter of public policy. These include certain head-of-household wages, retirement plans, annuities, 529 plans (for education), health savings accounts, disability insurance payments, life insurance, and of course, the constitutionally protected Florida homestead.
If you are at risk of being sued (who in healthcare is not?), you would be wise to consider utilizing these statutory protections for a certain portion of assets – especially if you have not engaged counsel to implement a more sophisticated asset protection structure.
Finally, healthcare professionals should at least understand the fundamentals of corporate insulation and limited liability. Of course, professionals cannot avoid liability for professional negligence by operating through an LLC or other limited liability vehicle, but ancillary liabilities can be reduced. Investment properties (including the physical plant where you operate a medical practice) can and should be insulated through separate corporate identity and ownership. And never – ever – operate a medical practice through the same entity that owns the building in which you practice. For reasons beyond the scope of this article, in most circumstances, the LLC is superior to corporations and other forms of entity ownership.
With any form of asset protection, timing is critical – this cannot be overstated. An effective plan must be implemented before clouds begin to form. Existing and expected liabilities are generally not avoidable with restructuring. Reactionary transfers – made to avoid liability – may be reversed and could entwine others in litigation. It is best to start acting now and create your umbrella before the clouds start to form.
Billing Audits and Disputes – Personal Liability
Finally, anyone working in the healthcare industry must understand the dynamic between payers, patients, and providers. Most healthcare providers want to perform the best possible service for their patients without having to worry about being paid for the service. Managed care organizations and other third-party payers are interested in ensuring that only medically necessary services are paid.
Recently in our practice we have seen an uptick in audits by Medicaid providers and private insurance companies. It is imperative when responding to audits that providers follow the proper procedures and timeframes as outlined in contracts and provider manuals. Documentation is also key. Make sure you are responding to every single item requested in an audit letter. You should document both the request and the contents and timing of your response.
Healthcare companies should understand their rights when a payment dispute arises in an audit. The first place to look is in your enrollment contract. The contract will contain dispute resolution procedures which may include requirements for pre-suit negotiation, mediation, and/or arbitration (which may be binding or non-binding). For Florida Medicaid, there is a state-run dispute resolution process that a provider can initiate to resolve several types of payment disputes with payers. The process details are well beyond the scope of this article, but it is important for healthcare providers to understand that remedies offered by such dispute resolution procedures exist. Providers should also understand that the time for exercising rights under those provisions and programs is limited.
Whenever an audit-related payment or recoupment issue arises, look to your agreement and provider manual for your rights and potential remedies. Determine the applicable law. And make sure you understand both before responding.
Conclusion
I do not rely on anyone other than my doctor and other select healthcare providers to give me medical advice. That does not mean that I should not have a general idea of steps I can take to maintain good health. Similarly, I hope that being aware of the issues discussed above will help healthcare professionals take steps to reduce their legal exposure and better understand their rights in common situations where the business of healthcare and law intersect.