Decosimo's Shannon Farr and Anderson Busby's Amanda Busby co-presented this PowerPoint at the 2012 Tennessee Bar Association's Health Law Primer on October 3, 2012 in Brentwood, TN.

1. ANDERSON BUSBY PLLC
www.decosimoadvisory.com | www.andersonbusby.com
LIFE CYCLE OF A PHYSICIAN PRACTICE
TN Bar Association | 2012 Health Law Primer
Amanda M. Busby, J.D./M.B.A. | Founding Member, Anderson Busby PLLC
Shannon Farr, CPA, ABV, CFF | Business Valuation Manager, Decosimo Advisory Services
Disclaimer: These materials are designed to provide general information. Although prepared by professionals, these materials should not be
utilized as a substitute for professional legal or accounting advice in specific situations. If legal or accounting advice or other expert assistance
is required, please consult with an attorney or certified public accountant.

2. Initial Practice Arrangement
 Group Practice Employment vs. Hospital
 Physician Buy-in to Group Medical Practice
 New Start-Up (with or without a hospital income
guarantee – only applies in certain communities)

3. Group Practice
vs.
Hospital Employment

4. Group Practice vs. Hospital
Employment
 Who May Employ a Physician?—Corporate Practice
of Medicine Doctrine
 Current Trends and Drivers
 Compensation within Group Practices
 Compensation by Hospitals
 Hospital Employment Advantages/Disadvantages
 Group Practice Employment/Ownership
Advantages/Disadvantages
 Elements of an Employment Agreement
 Physician Recruitment Agreements

5. Corporate Practice of Medicine
Doctrine
 General Rule: Prohibition against unlicensed
individuals or entities from providing professional
services or employing licensed professionals to
provide professional services
 Ex. medicine, optometry, dentistry, law, accounting,
engineering, etc.
 State ex rel. Loser v. National Optical Stores Co., 225
S.W.2d 263 (Tenn.1949)

6. Corporate Practice of Medicine
Doctrine
 Common Law Guidance
 Op. Tenn. Atty. Gen. 88-152 (8/25/88)(anesthesia
services)
 Op. Tenn. Atty. Gen. 94-009 (1/28/94)(physical
exams to employees)
 Op. Tenn. Atty. Gen. 94-53 (4/12/94)(nonprofit
hospitals & nonprofit public benefit corporations)
 Op. Tenn. Atty. Gen. 07-116 (8/2/2007)(ownership of
medical practices by non-physician practitioners)

7. Corporate Practice of Medicine
Doctrine
 Statutory Exceptions
 Medical professional corporations (Tenn. Code Ann.
§ 48-101-610)
 Qualified persons
 MDs, DOs, MPCs, MPLLCs, MD or DO general partnerships
 Optometrists & ophthalmologists
 Podiatrists & physicians other than radiologists, pathologists &
anesthesiologists (RPAs)
 Chiropractors & physicians other than RPAs
 Physician assistants (PAs)(not Advanced Practice RNs
(APRNs)) & physicians other than RPAs

8. Corporate Practice of Medicine
Doctrine
 Statutory Exceptions
 Medical professional limited liability companies
(MPLLCs)(Tenn. Code Ann. § 48-248-401)(Old PLLC
Act)
 Qualified persons
 MDs, DOs, MPCs, MPLLCs, MD or DO general partnerships
 Optometrists & ophthalmologists
 Podiatrists & physicians other than RPAs
 Chiropractors & physicians other than RPAs
 PAs (not APRNs) & physicians other than RPAs

9. Corporate Practice of Medicine
Doctrine
 Statutory Exceptions
 MPLLCs (Tenn. Code Ann. § 48-249-1109)
(New/Revised PLLC Act)
 Qualified persons
 MDs, DOs, MPCs, MPLLCs, MD or DO general
partnerships
 Optometrists & ophthalmologists
 Podiatrists & physicians other than RPAs
 Chiropractors & physicians other than RPAs
 PAs (not APRNs) & physicians other than RPAs
 APRNs & physicians other than RPAs

10. Corporate Practice of Medicine
Doctrine
 Statutory Exceptions
 Company doctors—Tenn. Code Ann. § 63-6-204(c)
 Community mental health centers—Tenn. Code Ann. § 63-6-
204(d)
 Federally qualified health centers—Tenn. Code Ann. § 63-6-
204(e)
 Hospitals & their affiliates—Tenn. Code Ann. § 63-6-204(f)
 Faculty practice plans—Tenn. Code Ann. § 63-6-204(f)(4)(b)(ii)
 Renal dialysis facilities—Tenn. Code Ann. § 63-6-204(g)
 Nursing homes and their affiliates—Tenn. Code Ann. § 63-6-
204(_) (new subsection effective July 1, 2012)

11. Group Practice vs. Hospital
Employment
 Current trends
 Increasing employment by hospitals or other hospital-
physician alignment models
 Increasing consolidation into larger groups
 Drivers
 Healthcare reform
 Accountable Care Organization (ACO) models
 Continuity of care initiatives
 Increasing IT investment / compliance measures
 HIPAA / HiTECH

12. Group Practice vs. Hospital Employment
Compensation within Group Physician Practices
Commonly seen models – within a spectrum
Eat Share &
What Share
You Kill Alike
Potential issues
 Sharing/splitting ancillary services collections and expenses
 ―Overpaid‖ compensation (production ≠ compensation)
 Treatment of hospital medical directorships, expert testimony
fees, honorariums, etc.
 Sharing or splitting physician assistant collections and expenses

13. Group Practice vs. Hospital Employment
Physician Compensation by Hospitals
 Commonly seen base models
 Salary Other
Arrangements
 wRVU-based arrangements (pay for
production)
On-call
 Commonly seen add-ons Medical
Coverage
 Medical directorships Directorships
 On-call coverage arrangements
 Clinical co-management arrangements Physician
 In university/teaching hospitals:
teaching component Base Pay
 Entire arrangement must meet
(Salary and/or
regulatory requirements; independent Production)
FMV determination may be warranted

14. Group Practice vs. Hospital Employment
Hospital Employment
Perceived Perceived
Benefits Increasing administrative Negatives
burdens (regulatory and If aspects of compensation
compliance) on physician are based on practice
practices handled by the financial results:
hospital
- Financial results no
Hospital handles billing
longer transparent
and collection (also a
- Two very different
con?)
business models
Risk of future
reimbursement rate cuts
Less autonomy
may transfer to the
hospital

15. Group Practice vs. Hospital Employment
Group Practice Employment/Ownership
Perceived Perceived
Benefits Negatives
Independence; more
Difficulty in recruiting new
control over patient
physicians
treatment
More control over financial
results: the practice or its
medical billing provider Shrinking profits
handles billing and
collection
High IT/management costs

16. Group Practice vs. Hospital
Employment
Elements of Employment Agreement
Whereas Services to be
Parties Term
clause provided
• Employer • Tells the story • Start date • Duties
• Employee • Not mandatory • Conditions • Work schedule
precedent— • On-call
• Not legally part receipt of state
of EA unless coverage
licensure, board
incorporated certification, • Outside
by reference hospital activities
• Should state privileges, etc. • Record keeping
the • Termination date • Patient &
consideration • Renewal terms— practice
for parties automatic relationships
(evergreen),
entering into notice
EA requirements, etc.

17. Group Practice vs. Hospital
Employment
Elements of Employment Agreement (cont.)
Compensation Model
Compensation Model
Compliance with Compliance with Compliance with
Incentivize specific
Stark Self-Referral Federal Anti- state self-referral
behavior
Prohibition Kickback Statute legislation
• What does • General • General • Disclosure of
practice want to prohibition (42 prohibition (42 ownership interests
reward? U.S.C. § U.S.C. § 1320a- to patients (Tenn.
Code Ann. § 63-6-
1395nn) 7b(b)) 501—63-6-503)
• Exceptions (42 • Safe harbors • Ban on referrals to
C.F.R. § (42 C.F.R. § self-owned facilities
411.357) 1001.952(i)) unless exception
applies (Tenn.
Code Ann. § 63-6-
601—63-6-608)

18. Group Practice vs. Hospital
Employment
Elements of Employment Agreement (cont.)
Benefits Restrictive covenants
• Moving expense reimbursement • Non-Solicitation—patients,
• Health insurance, disability employees, referral sources
insurance & other employee benefit • Non-Competition—Tenn. Code
plans Ann. § 63-1-148
• Vacation & sick leave • Resignation of Privileges
• Professional meetings • Confidentiality
• Expense reimbursement
• Malpractice insurance
• Occurrence based
• Claims-made policy
(need for tail-coverage)

19. Group Practice vs. Hospital
Employment
Elements of Employment Agreement (cont.)
Representations & warranties of
Patient records
employed physician
Ownership Miscellaneous
Termination
opportunity provisions

20. Group Practice vs. Hospital
Employment
Physician Recruitment Agreements
• Parties to recruitment agreement • Initial recruitment assistance
• Relocation of physician • Assistance period
• Term • Disclosure of information
• Physician & group requirements • Charitable purpose of hospital
• Licensure • Compliance
• Board certification • Assignment
• Medicare & TennCare • Applicable law & venue
participation • Waiver of breach
• Full-time practice • Independent contractor
• Active medical staff privileges • Medicare access to books & records
• Non-compete provisions • Right to audit
• Loan • Binding effect
• Forgiveness of loan • Attorneys’ fees
• Assignment of accounts receivable • Promissory note

21. Physician Buy-in to a
Group Medical Practice

22. Due Diligence
• Understand the Practice and what is (or isn’t)
driving value
• Basic financial information: balance sheets, profit
and loss statements, tax returns
• Real estate: owned or leased? If leased, physician-
owned or commercially-owned?
• Ancillary services?
• Employee-physicians or midlevel providers?
• Many other factors may affect value

23. Purchase Price and Purchase Agreement
• Is the purchase price supported by anticipated
future cash flows?
• Consider compensation package and purchase
price in tandem
• What are the obligations of the seller-physician and
the buyer-physician?
• How does the seller-physician plan to transfer
patients to the buyer-physician?
• Over what time period?

24. New Practice Start-up

25. New Start-Up
• Choice of Entity
• Sole proprietorship
• General partnership
• Professional corporation (for-profit)
• Professional limited liability company (for-profit)

26. Entity Type Tax Form Applicable Taxes Special Considerations
Sole Individual Ordinary federal income tax rates plus self- Not preferred, since other
proprietorship Income Tax employment (SE) taxes structures provide personal
Return liability protection from
(1040) creditors when properly used
General Return of None apply at the p’ship level; guaranteed Not preferred (see reason
partnership Partnership payments and any residual p’ship income above)
Income taxed at individual rates (ordinary + SE)
(1065)
Professional Corporation Net income taxed at maximum federal Important to zero out any net
corporation Income Tax corporate rate (currently 35%): lower tax income through
(PC) Return bracket rates do not apply to personal compensation to the
(1120) service businesses physician-shareholders
PC with S- Income Tax No income taxes apply at the entity level. A loophole exists whereby S
Corporation Return for The S Corp pays the employer portion of Corp dividends are not
election an S Corp Social Security and Medicare (FICA) taxes subject to FICA; must pay
(1120S) on wages. Wages and any flow-through ―reasonable‖ salary - ―red
residual income taxed at individual ordinary flag‖ for IRS scrutiny
federal rates.
Professional Form 1065 No income taxes at the partnership level; the Currently the most popular
limited liability PLLC pays the employer portion of FICA; choice for new entities
company any residual PLLC income flows through and
(PLLC) is taxed at individual rates

27. New Start-Up
• Ownership Agreement
• Control/decision making
• Transferability of ownership
• Employment & compensation of owners
• Restrictive covenants
• Practice cessation
• Steps to Form Business
• Entity registration
• Federal and state name registration
• Obtain Tax Identification Numbers
• Federal employer identification number (EIN)
• State identification or account number

28. New Start-Up: Insurance Needs
• Professional liability (malpractice)
• May want to consider coverage of theft, loss, or
accidental transmission of a patient’s PHI
• General liability and property insurance
• Directors & officers coverage
• Life & disability insurance
• Coverage for Employees
• Workers’ compensation
• Health/dental/vision insurance
• Employment liability

29. New Start-Up: Credentialing
• Must have a federal EIN and have obtained
malpractice insurance to begin process
• Many medical billing providers will also assist in
credentialing
• Medicare provider ID may take up to 60 days
• Managed care contracts may take up to 90 days
(some commercial insurers may take up to 6
months)
• Process includes applying for and obtaining
hospital privileges

30. Electronic Health Records (EHR)
Systems
• Practice efficiency (?)
• Integration with other important systems / functions
• Choose carefully
• Important for the physician to be directly involved
• Packages may be designed for specific specialties
• Get references from other users
• Plan for substantial installation time and effort
• Patient collections may be slower in first months after
implementation

31. Practice Cessation

32. Practice Cessation
• Employment Termination
• Sale of a Practice
• Physician Owner Disassociation
• Group Practice Dissolution & Closure

33. Employment Termination
• Employment agreement terms followed?
• Without cause
• For cause
• Continuing commitments
• Restrictive covenants
• Loan forgiveness completion if recruitment
arrangement
• Tail-coverage
• Personal guarantees

34. Sale of a Practice: Tax
Considerations
 Sales are typically ―asset‖ sales, not ―stock‖ sales
 The purchase price allocation can have a significant
effect on the after-tax cash of the seller:
• Long-term capital gains (2012 maximum federal rate = 15%)
rates generally apply to value associated with appreciated real
estate, and to value attributable to intangible assets (goodwill
and other intangibles)
• Ordinary income rates apply to value allocated to accounts
receivable; depreciation recapture, if fixed assets are valued
above the NBV reported for tax purposes (2012 maximum
federal rate = 35%)
• When a C corporation sells practice assets, a tax issue
of distinguishing personal goodwill of the physician vs.
business goodwill owned by the entity exists

35. Sale of a Practice: Other
Considerations
 Physicians need to be familiar with potential
limitations on purchase price and subsequent
employment arrangements posed by Medicare
regulations

36. Physician Owner
Disassociation
• Ownership agreement – are buy-out terms
specified?
• If so, documents control
• If not,
• PC & PLLC statutory requirements (Tenn. Code Ann. § 48-101-
613 (MPC)) & (Tenn. Code Ann. § 48-249-1111 (MPLLC)) are the
default rule
• Fair value appraisal may be necessary if parties cannot agree
• Tax considerations
• Ownership (of practice and/or real estate) may extend beyond
period of employment/service period
• Continuing commitments

37. Group Practice Dissolution &
Closure
• Closure considerations
• Plan for patient continuum of care
• Patient notification
• Patient records retention
• Payer contract termination steps
• Notification to hospitals where the physician has privileges
• Filing final returns (income tax, payroll tax, etc.)
• State department of revenue requirements
• Filing entity dissolution documents

38. Questions and Comments

39. Amanda Busby, J.D./M.B.A.
(865) 249-8011 | abusby@andersonbusby.com
Amanda M. Busby is a founding member of the Knoxville law firm
of Anderson Busby PLLC. Her primary areas of practice include
health care, corporate law, and business transactions and
litigation. Ms. Busby counsels physicians, physician groups,
pharmacies, and other health care providers on operational,
licensing and regulatory matters, including, but not limited to,
corporate formation, employment, contracting, mergers and
acquisitions, and compliance with Stark and anti-kickback
regulations. Ms. Busby received her J.D./M.B.A. from the
University of Tennessee College of Law in 1998 and her B.B.A.,
magna cum laude, in Marketing from Lambuth University in
Jackson, Tennessee in 1993. She is a member of the American,
Tennessee, and Knoxville Bar Associations. She serves on the
Knoxville Bar Association Board of Governors and on the
Tennessee Bar Association Health Law Section Executive Council.
She is also a member of the American Health Lawyers Association
and its Physician Organizations Practice Group Section.
ANDERSON BUSBY PLLC

40. Shannon Farr, CPA, ABV, CFF
Business Valuation Manager
(800) 782-8382 | shannonfarr@decosimo.com
Shannon Farr is a valuation manager in Decosimo’s
Chattanooga office with more than 15 years of accounting
experience. Her practice has focused on business valuation
and litigation since 2004. She is accredited in business
valuation (ABV) and also certified in financial forensics (CFF).
Shannon provides valuation services to clients in a wide
variety of industries, with a focus on healthcare entities. Her
specialized expertise in this area assists hospital and health
system clients in ensuring their acquisitions meet industry
regulations surrounding the concepts of fair market value and
commercial reasonableness. Her litigation support experience
has been used in numerous marital dissolution cases as well
as contract and shareholder disputes involving physicians.
Shannon provides expert witness testimony, as well as serving
the court as Special Master.