Practice Formation

Starting your own practice or expanding your current practice is an exciting adventure. It is also a significant investment. As such, it is important that practice owners properly form your business to help protect your investment. Health care businesses are subject to a vast number of regulations, some of which impact the business structure. Failure to properly form the practice can lead to costly amendments, delays in licensing and contracting, reimbursement issues, etc.

Chapman Law Group has a team of transactional attorneys that are dedicated to helping practices of all sizes and specialties with practice ownership issues, including practice formation, governance and structuring and disputes. Whether you are starting a new practice, merging an existing practice or creating a subsidiary practice, our attorneys can help you set up your new business entity.

Medical Practice Formation Process:

1. Chose Entity Type: The first step is to determine what type of entity is best for your practice: partnership, C or S corporation or limited liability corporation.  Before determining which type of entity, consider tax, liability, number of shares, sale of ownership, retirement plans, how the business will be controlled and whether the business is owned by another business. Our attorneys will discuss the pros and cons of each and help you determine the best entity type for your practice.

2. Due Diligence: If you are buying a practice you must make sure that the investment is appropriately valued. Our attorneys will perform health care specific due diligence to ensure that you are not taking on unnecessary risk or liability by purchasing the health care business.

3. Shareholder Agreements: Next, we will prepare your shareholder agreement and stock certificates. The shareholder agreement is a contract between shareholders that sets out their rights and duties. It contains rules regarding shareholder voting power, how disputes between shareholders will be resolved, shareholders rights to participate on Board of Directors, how amendments to the agreement can be made, etc. Shareholder agreements occasionally are used to determine operations, in lieu of bylaws. This is generally done with closely held corporations.

4. Buy-Sell Agreements: Next, we will prepare your buy-sell agreement. The buy-sell agreement sets out the rights of shareholders regarding sale of shares in the event a shareholder retires, becomes disabled, can no longer practice, dies or wishes to sell their shares.

5. Incorporate: We will prepare and file the Articles of Incorporation. The Articles of Incorporation will contain information about officers, Board of Directors, issuance and distribution of shares, distribution of dividends, resident agent, location and how amendments are made.  If the business is a non-profit, there are additional requirements. We will prepare the Articles of Incorporation together with the bylaws to ensure the business has proper planning regarding shares, control and management.

6. Operating Agreements:  A business operating agreement will be prepared that outlines the financial and functional decisions including rules, regulations and provisions that will govern the internal operations of the business.

7. Bylaws: For corporations, we will prepare the bylaws. Bylaws are required by law in most states. The bylaws set out rules regarding the Board of Directors who are responsible for the daily operation of the practice. Therefore, bylaws must be carefully crafted as they control the organization of the Board of Directors and give directors the power to make decisions regarding the operation of the practice. Our attorneys will discuss your control and decision-making preferences and craft the practice’s bylaws to meet your desired preferences.

8. Partnership Agreements: For LLCs, we will prepare a partnership agreement. The partnership agreement will determine the daily operations of the practice, as well as the rights and duties of members. The agreement contains rules regarding decision-making powers, dispute resolution, distributions to members, transfer of membership interest, capital contribution of members, dissolution, etc. Because LLCs are generally managed by the owners, the rules governing ownership and management are generally contained in one document, the partnership agreement. Whereas corporations have shareholder agreements, buy-sell agreements and bylaws.

9. Stock Certificates: Next, our attorneys will prepare stock certificates for shareholders of corporations.

10. Obtain Tax ID and NPI: Lastly, our attorneys will help the business obtain a tax identification number (TIN) and national provider number (NPI) for the group. Once you obtain your TIN and NPI, you may begin the contracting process (see payor contracting.)

11. Insurance Credentialing: Your practice isn’t going to make any revenue unless it’s properly credentialed by insurance companies. We will walk you through every step in the process.

12. DEA, OIG, State Regulatory Board Compliance: Whether your business is a home health care company, pharmacy, group practice or an urgent care, you must make sure you are completely compliant with DEA regulations, CMS regulations, and your State’s facilities regulations. We can inspect your facilities and train your staff in order to be completely compliant with the myriad of regulations in the health care sector.

13. Real Estate Purchases: If the practice is purchasing real estate, our attorneys can help owners set up a separate LLC or trust to purchase the real estate.

Business Formation Issues Specific To Medical Practices

For most businesses, business formation and structuring decisions are largely based on the owners’ tax and liability preferences. However, medical practices are subject to additional regulations and therefore require additional considerations. Before incorporating, practice owners should consider licensing, contracting and financing issues that may impact the business in the future. Issues specific to medical practices include:

    • Corporate practice of medicine laws
    • Stark laws
    • Kickbacks
    • Personal exposure to debts of the practice, such as overpayment recovery by Medicare and Medicaid
    • Enrollment in Medicare or Medicaid if an owner has prior enrollment issues, criminal convictions, government debts or disciplinary action
    • State licensing with an owner who has prior criminal convictions
    • Obtaining loans if an owner has a criminal history or disciplinary issues

Types of health care business we assist include: Multi-specialty practice groups, health care clinics, home health agencies (HHA), skilled nursing facilities (SNF), nursing homes, ambulatory surgical centers (ASC), urgent care centers (UCC), freestanding emergency rooms, suppliers (DME), dental practices, chiropractic clinics, diagnostic imaging centers, labs, pharmacies, physical therapy centers, substance abuse treatment centers, mental health facilities and institutional providers.

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