Mergers and acquisitions pose legal challenges for physician-sellers


Practice mergers with physician groups and larger health systems are becoming commonplace as more doctors trade in their shingles for fewer business burdens and more stability. But as with all transactions, selling or merging a medical practice comes with legal risks.

"There are numerous complex issues, legal and otherwise, that the seller of a medical practice needs to consider, both in preparations for the sale and during the transaction," wrote health law attorney David N. Vozza in a recent article for Kern Augustine Conroy & Schoppmann, a health care litigation firm with offices in the East Coast.

One of the most significant legal considerations pertains to the correct transfer of medical records during sales and mergers, Mr. Vozza said in an interview. To meet privacy requirements, all current patients must be advised that the practice is being transferred and they must have the opportunity to obtain their original records if they desire a new physician, he said. Records also must not be released to third parties without the patient’s express authorization. In addition, physicians run the risk of an "abandonment" lawsuit, if patient care is compromised because of the sale or merger.

"If you know a patient has a pressing care or treatment need, that can’t be delayed because you’re in the middle of a sale," Mr. Vozza said. "It can’t get lost in the shuffle of the transaction."

Another key consideration when merging practices is the assessment of liability cases, said Mathew J. Levy, a health law attorney and principal at Kern Augustine Conroy & Schoppmann and a coauthor of the risk management article. Physicians combining practices should be aware of any pending malpractice cases or audits of their potential partners.

"When merging with a larger group, you should be concerned with how they are doing internally," Mr. Levy said. "Are they under any audits or investigations? Have they been disciplined by the state licensure board? You have to make sure you’re not accountable for" their debts or malpractice issues.

Physicians should also consider the effect their merger may have on their malpractice insurance, Mr. Levy adds. Coverage for prior actions can become challenging in the event that a physician has a claims-made policy, which offers protection only while the policy is in effect. If a claims-made policy is discontinued, the doctor must obtain "tail" coverage to cover past actions. While the physician likely will have new coverage from the hospital or health system, many hospitals are self-insured and do not provide incoming physicians with prior act or so-called nose coverage.

Along with discussing tail coverage during a merger, doctors should also be wary of "anti-compete" clauses in contracts with larger hospitals and health systems. Such clauses prohibit physicians from working for a competitor and/or in close proximity to the hospital. Mr. Levy encourages physicians to include an exception to the non-compete clause in their contracts and discuss options in case the relationship fails.

"If not, you would be stuck and be prohibited from working in a nearby location and generating patients for your career," he said. "That’s a significant issue."

Antitrust requirements should also be high on physicians’ radar long before a transaction proceeds.

The Federal Trade Commission in January revised the thresholds that determine whether health care providers must notify federal antitrust authorities about pending transactions under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act. The HSR Act requires companies to notify government agencies if the size of the parties at issue and the value of a transaction exceed the filing thresholds. The 2014 FTC revision raised the threshold for reporting proposed mergers and acquisitions from $70.9 million to $75.9 million.

"If notification is required and "you proceed to complete a transaction without filing the required notification, than you’re in violation of the antitrust law," said Christine White, chair of the American Health Lawyers Association’s Antitrust Practice Group and a staff attorney in the FTC’s Northeast Regional Office.

Potential antitrust violations can result in government investigations, fines, legal settlements, or other discipline. Ms. White suggests that physicians review guidance on the FTC’s website for more information about the HSR Act and other antitrust requirements, such as when it’s acceptable to share confidential information with competitors.

"Not every sale of a physician practice will raise significant antitrust concerns. In fact, the vast majority of physician practice group consolidations do not raise major antitrust concerns. But, in certain circumstances, such as if a practice group is selling to a direct competitor or a potential competitor, the antitrust concerns may merit serious consideration," she said.

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