The Integrated Health Care Pracitce – Commonly Asked Questions – Part 1

What is the benefit of forming an integrated health care practice?Many doctors are forming integrated health care practices in order to avoid delays in patient care. For example, your patient may have required medical treatment in addition to chiropractic care. Appropriately, you referred the patient to a medical doctor. In some instances the patient returned to you, in other instances the patient was lost for good. In all instances the patient was put to the inconvenience of having to make an additional appointment at another location for treatment. You and the medical doctor lost valuable time and energy playing telephone tag. Worse, the patient lost time waiting for the new appointment when he could have spent that time recovering.Who can own an integrated practice?Some states will only permit an MD or DO to own a medical practice. (For purposes of convenience all further references to MDs include DOs). Other states will allow a DC to be a shareholder in a medical practice only if a MD is also a shareholder. Some states (such as Florida), will permit anyone to own a medical practice (but not a chiropractic practice). The only constant is that only an MD may make medical decisions; if you are not a medical doctor, you may not interfere with the professional judgment of a medical doctor.Being a DC, how do I start an integrated health care practice in those states that permit only MDs to own an integrated practice?You may not own the medical practice but you can provide management services to it and you can lend money to it. In states that permit only MDs to own an integrated practice I generally I recommend that three corporations be formed: a funding company, a management company, and a group medical practice. The DC owns the funding company and management company and the MD owns the practice.What is the function of the funding company?The funding company makes a loan to the medical practice so that the practice has capital to pay for start up costs such as the purchase of equipment, salaries, lease payments, management fees, taxes, and for the purchase of the assets of the existing chiropractic practice.In order to make sure that the loan gets repaid, the practice gives the funding company a promissory note and a lien on all accounts receivables and other assets of the practice. The MD also gives the funding company an agreement that pledges the MD’s stock in the practice in the event that there is a default under the terms of the loan. The MD is not personally liable to the funding company.The practice pays monthly interest on the loan. The principal amount is due on demand. If the practice pays off the amount due under the note, the loan is satisfied and the funding company no longer has an interest in the practice’s assets. On the other hand, if the practice is unable to repay the loan when demand for repayment is made, the funding company may “call” the loan and “take” the shares in the practice in satisfaction of the loan amount due and transfer them to a new MD/DO.This situation is similar to a bank lending you money so that you can purchase a home. If you can make the payments, everything proceeds normally. If you cannot make the payments the bank may, at its option, foreclose on the home and take your home instead of the money owed. The bank is then free to resell your home to someone else.Where does the funding company get its money?The funding company is funded by you personally or by other investors.What is the function of the management company?The management company provides all non-medical services to the practice. It charges a fee for every act and/or service that it performs on behalf of the practice. Such services may include clerical duties, advertising, equipment rental, lease rental and other similar activities. The charges must be at a set fee determined in advance. These services and fees are set forth in a management agreement between the management company and the practice and must be for a period of no less than one year. The fees should reflect the amounts commonly charged in your geographic area for the particular services rendered.Under no circumstances should you charge a percentage. Many states consider the payment of a percentage to the management company by the practice to be fee splitting. Such a percentage payment could be construed as a kick-back under Federal law. This fee must be paid regardless of whether the practice can collect for its services. Your accountant can help you determine the fair market value applicable to your area.May I offer the MD/DO shares in the management company?It makes good sense to offer an equity position in the management company to the MD. Such an interest would give the MD a greater incentive to develop the potential of the practice.