Navigating Troubled Waters: Five Tips for Physician Practice Breakups and Departures

to-sign-a-contract-2-1221951-m.jpgMedical practice breakups and physician departures are inevitable. Some are the result of professional or personal disputes, and others are simply the result of practical or economic realities or life events (disability, death, retirement, etc.). Whatever the circumstances, failing to carefully execute a plan for the breakup can quickly result in financial, legal, and emotional complications. All physicians and physician practices should anticipate the inevitable conclusion of any professional relationship.

1. Have a Good Contract

When a business relationship fails or otherwise ends, not having a properly done contract that fairly, accurately and precisely sets forth the parties’ respective rights and obligations will be a painful mistake, financially and otherwise. At the beginning of the marriage (or at least during the period that it is happy), the parties should carefully and thoughtfully construct a written agreement that states their meeting of the minds. That contract should also specifically set forth in reasonable detail a road map for the parties to separate when it is time for the relationship to conclude.

2. Carefully Document the Termination of the Relationship

Whether or not the practice had proper preparation before a breakup or departure, both parties should carefully document the final resolution in writing. This is especially the case if the resulting departures necessitate any post-employment obligations such as unfinished payments, restrictive covenants, confidentiality agreements, etc. Important practice contracts and documents should be marshalled and carefully reviewed to determine what the parties’ respective rights and obligations will be in concluding the relationship, including:

  • The organizational documents of the medical practice (e.g., articles of incorporation, shareholder/owner agreements, employment agreements, non-compete and confidentiality agreements)
  • Third-party contracts (e.g., property and equipment leases, bank loans, practice credit cards, electronic medical record agreements, life and health insurance, hospital recruitment agreements)
  • Financial documents (e.g., financial statements, billing and collection reports, accounts receivable)

3. Be Loyal to the Practice

Unlike employment in other industries where a departing employee may be able to simply give two weeks’ notice and walk out the door, physicians departing a medical practice have fiduciary obligations to the practice and other owners that they must fulfill. Whether the physician held an office or role or was simply an employee of the practice, she still has a duty of loyalty towards the medical practice. The nature of the duty of loyalty is for the employee to not act in a manner contrary to the employer’s interests while they are still employed with them. Physicians are restricted in what they can and cannot do to make preparations for departure from a medical practice. For example, a physician may breach her duty of loyalty by soliciting patients while still employed, thus deliberately diverting revenue from the practice, or by soliciting employees of the practice to depart the practice.

4. Reach an Understanding Regarding Debt

One of the biggest financial risks that arise during practice breakups is the liability involved with an office lease and bank debt. Usually, multiple physicians of the practice personally guarantee the lease of office space and when one physician leaves it potentially upsets the terms of that lease. In a medical practice breakup, all physicians – both departing and remaining – are concerned with their financial outlook. The financial obligations of the medical practice must of course be properly addressed to protect all of the dissolving partners’ financial interests. Working with the medical practice’s landlord in navigating a guarantor’s departure, creating new leases for the remaining physicians, and negotiating a smaller amount of office space does not have to become a tangled mess, but it can. In the same way, bank debts and loans are subject to the personal guarantees of the physicians as well. Negotiations over the liability of the individual guarantors, any collateral for the loan, and how the debts will be allocated among the physicians are complicated matters that must be sorted out carefully.

5. Protect Patients

The collateral affect that a medical practice breakup or physician departure has on its patients should never be overlooked. Although specifics may vary from state to state, the regulations that govern physicians usually require that they notify their patients of any changes that occur within the medical practice. Patients should not (at least in theory) have to endure negative consequences in their care due to changes in the practice. Indeed, under the American Medical Association Code of Medical Ethics, physicians are obligated to ensure that the continuity and quality of their patients’ care is not disrupted. Patients’ medical records must be handled with the same amount of care and compliance with HIPAA no matter if the practice is in full working order, the treating physician is departing, or if the medical practice is breaking up. While the patients’ medical records belong to them, the actual file including notations and other corresponding material by the provider belong to that healthcare provider. Depending on the organization and policies of the practice, this may be either the treating physician or the medical practice which employs the physician. In the case of the departure of a physician or the breakup of the practice, it must be decided how medical records will be confidentially maintained, stored, or destroyed so as to remain in compliance with applicable regulations. In any event, the overriding objective should be to protect patients.

Atlanta and Augusta, Georgia Healthcare Law Firm

Our business law firm represents health care providers, including doctors, healthcare centers, ambulance services, laboratories, physician groups, elder care businesses and pharmacies. We have offices in Atlanta and Augusta, Georgia. Our law firm can be reached at (404) 685-1662 (Atlanta), (706) 722-7886 (Augusta), or info@ksllawfirm.com.

*Disclaimer: Thoughts shared here do not constitute legal advice.

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