National College of Physicians
National College of Physicians
physicians

The 10 Biggest Legal Mistakes Physicians Make In Closing Or Leaving A Medical Practice

Every year, thousands of physicians retire, sell or move their practices, or they quit their jobs for more lucrative opportunities. In doing so, they usually focus on the new position that seems more exciting or satisfying. However, it is a mistake to neglect the details of closing the existing practice or otherwise exiting the old position. Many physicians make serious mistakes when closing practices or leaving jobs, mistakes that can affect them for years to come.

By Staff

Every year, thousands of physicians retire, sell or move their practices, or they quit their jobs for more lucrative opportunities. In doing so, they usually focus on the new position that seems more exciting or satisfying. However, it is a mistake to neglect the details of closing the existing practice or otherwise exiting the old position. Many physicians make serious mistakes when closing practices or leaving jobs, mistakes that can affect them for years to come.

Mistake 1 Abandoning Patients

Once a physician has established a physician-patient relationship, the physician must not “abandon” the patient. Abandonment is a problem when a physician terminates a relationship with an individual patient, but can also be a problem when a physician closes a practice, thereby terminating all relationships with all patients. Abandonment is a particular problem if a physician abruptly closes a medical practice without prior notice to patients, or fails to properly notify some segment of the patient population (e.g., where a physician closes the practice but fails to notify nursing home patients).

Abandonment is often defined as “the unilateral severance of the professional relationship…without reasonable notice at a time when there is still the necessity of continuing medical attention” [Lee v Dewbre, 362 SW2d 900, 902 (Tex. Civ. App.‑Amarillo 1962, no writ)]. To prove abandonment, a physician must fail to provide “an adequate medical attendant” and also fail to give adequate notice. Finally, as in any negligence action, the plaintiff must prove he or she suffered injuries or damages that were caused by the physician’s conduct.

Action Step Physicians should give the entire active patient load reasonable notice before closing the office doors and leaving the area. The length of notice depends on the types of patients in the practice, their aggregate need for continuing care, and the difficulty of finding replacement care. A surgeon, whose typical involvement with patients is of fairly short duration, might find a short notice period acceptable, whereas a family physician or a physician in another specialty in which physician-patient relationships are of long duration might not consider a short notice period acceptable. A hospital-based physician might have an easier time with the notice period if another physician, such as a radiologist, is ready to begin work the day after the physician departs.

In addition, physicians should check the laws of their particular state. Texas, for example, has a rule requiring physicians to post a sign in their offices, publish a notice in two newspapers, send letters to all patients seen within the last two years, and furnish evidence thereof to the medical board.

Mistake 2 Violating Noncompete Clauses

A noncompetition clause (also called a “covenant not to compete”) prohibits the departing physician from competing with either an existing practice or the purchaser of a practice, for a specific time and in a specific area. Physicians often overlook these clauses when they leave jobs with other practices, and sometimes find themselves on the receiving end of injunctions and lawsuits.

Action Step Physicians should consult counsel. In some states, judicial doctrines prohibit enforcement as between persons of a “common calling” in an employment setting. Most states require that noncompetition clauses have reasonable limitations as to time, geographical area, and the scope of activity to be restrained. It may well be that the physician has signed a contract containing an arguably unenforceable clause because it is not reasonable. Some states require that noncompetition clauses have mandatory buyout provisions. Texas law, for example, requires that physicians not be denied access to a list of patients who they had seen or had treated within one year of termination and that they be given access to the medical records of their patients upon authorization of those patients. On the other hand, noncompetition clauses are most typically enforced strictly where the sale of a business is concerned, so competing with the buyer of a medical practice is a bad idea.

Mistake 3 Insisting on Accounts Receivable When There Is No Right to Them

Insisting on accounts receivable when there is no right to them occurs often in separation from employment situations. If there are services rendered but not billed, or billed but not yet collected as of separation, it is tempting to lay claim to them if they are substantial. However, when one is an employee, the payment of salary is usually full compensation for services rendered.

Action Step Physicians should read the employment contract carefully. Some contracts are contradictory, having the usual provision that employees are not entitled to accounts receivable, but are entitled to them if they are also a member or a shareholder, and this provision may provide some leverage. If there is a dispute over whether one has become a member or a shareholder, however, laying a strong claim is doubtful. Making an aggressive claim in which legal entitlement is shaky is a great way to “burn bridges behind you.”

Mistake 4 Not Understanding the Tail Coverage Obligation

Departing physicians generally want their former employers to pay for extended reporting, or “tail coverage,” when they leave a practice.

Action Step Again, physicians must read the employment contract carefully. The obligation to pay tail coverage, if any, must be clearly spelled out in the employment contract if a physician wants to make a strong claim for it. Often the employer’s obligation to pay is conditioned on the employee’s having fulfilled certain conditions, such as giving notice of intent to depart for a certain period. However, physicians should not let coverage lapse because of a dispute over payment.

Mistake 5 Failing to Make Proper Arrangements for Medical Records

When a physician relocates a practice to a new area, it is tempting to leave the records with another physician under some kind of informal agreement. This can backfire. What happens if the other physician discards the records because the patients don’t like him or her? Or what happens if the other physician gets tired of storing the records? Or what happens if the other physician closes his or her practice and access cannot be gained?

Action Step Physicians should have a very clear understanding of what it means to be a medical records custodian. Even if no money changes hands, they should have a contract that clearly delineates responsibilities to store records (including protection from destruction), release them in response to subpoenas, retain them for required periods, and provide access in case there is a need to respond to a suit, audit, complaint, or so forth.

Mistake 6 Failing to Provide Adequate Contact Information

When physicians leave a practice situation they are dissatisfied with, there is a temptation to make it difficult for that practice to contact them, such as by leaving a forwarding address that is a post office box, a telephone number that is an answering service, and so forth.

Action Step Even when leaving a position under less-than-ideal circumstances, physicians should leave adequate forwarding information. Patients may need to contact them. Payors may need to contact them as well, especially where audits and adjustments are concerned that are the responsibility of the departing physician. If the practice has to say that it doesn’t know where the departing physician is, complaints to the medical board are a certainty. And a physician doesn’t want a complaint when he or she is trying to get licensed in another state.

Mistake 7 Violating Fraud Laws When Selling a Practice

The federal government believes that some practice sales are the source of illegal kickbacks. It could work like this: The selling doctor is in a position to make referrals of Medicare and Medicaid patients to the buyer, and the purchase price of the practice could be considered a payment for those referrals. This is a particularly sensitive issue where a physician sells his or her practice to a hospital, then goes to work there as an employee, or where an ophthalmologist purchases the practice of an optometrist to ensure a steady referral stream.

Action Step There is a safe harbor to protect practice sales from allegations of illegal kickbacks so long as the sale has been completed no more than one year from the date of the agreement pertaining to the sale, and the selling physician will not be in a position to make Medicare or Medicaid referrals to, or otherwise generate business for, the purchasing physician after one year from the date of the agreement pertaining to the sale. This means that the payout of the purchase price must last no more than one year, which could be a problem depending on the valuation method used. It should be noted that a percentage of revenue over the one year is not a prohibited means of payment.

Mistake 8 Not Notifying Appropriate Third Parties

Sometimes physicians are so anxious to retire or leave a job that they don’t make appropriate notifications beyond their patients. This can lead to problems after retirement, often not major, but annoying nonetheless, and usually entirely preventable.

Action Step Hospital medical staff bylaws may have an honorary membership classification if a certain notice period is observed. Payer contracts typically have voluntary no-fault termination provisions; again, if a certain notice period is observed. A notification of retired status (or change of office address) is required for federal Drug Enforcement Administration registration. And it may be advantageous to time the retirement date with the renewal date for professional liability insurance, so that the physician would pay only for a tail policy. If a practice is closed due to catastrophic illness, surviving family members may not be aware of all that needs to be done, especially if they have not been involved in the management, so physicians should seek competent assistance.

Mistake 9 Prescribing for Family after Retirement

When physicians retire but keep their license active, there is always the temptation to prescribe drugs for themselves and family members. Doing so can lead to allegations of failing to keep adequate medical records, nontherapeutic prescribing, and worse. Medical boards are afraid that retired physicians will try to rely too much on their experience and not keep up with new drug information.

Action Step Treating one’s own family members is a bad idea when one is in active practice. After retirement is no better.

Mistake 10 Assuming All Legal Obligations End on Retirement

Many physicians assume that, because they have retired, they no longer need to respond to subpoenas, answer complaints filed with the medical board, or do the other things they had to do while practicing. For example, if a retired physician receives a subpoena for medical records, the physician must respond to it, for there is no “retired person” exception to the rules of discovery in lawsuits.

Action Step Physicians should consult counsel. They should know how long they have to keep medical records if they choose to keep the records after they retire. Physicians who are likely to get subpoenas should consider having a third party respond for them under a medical records custodianship agreement. They should also consider putting their medical license on “retired” or “inactive” status, or consider letting it lapse altogether. The medical board doesn’t have jurisdiction over nonlicensees; however, a plaintiff can still sue a retired physician, so physicians should maintain tail coverage.

Physicians contemplating retirement, selling, or leaving a medical practice for any reason should carefully plan their actions to avoid these mistakes. Ideally, competent assistance should be sought before making a firm decision to sell or make a move. In the case of a sudden, unforeseen event, such as a catastrophic illness, counsel should be consulted as soon as possible after medical conditions are stabilized, because the stress of the illness can lead to bad decisions. In any event, hasty decisions and actions, while expeditious at the time, can lead to problems later that can be avoided with proper planning.