The Risk of Practice Builders

Brett Sparks, June 6, 2017
1,357 Words

As the traditional practice model declines, physicians look for opportunities to offset declining reimbursement, rising expenses and added regulatory costs. What physicians often find are conference speakers, colleagues and practice consultants who offer a “special” opportunity. The opportunities offered by these “practice builders” are surprisingly consistent. They are: 1) Perfectly legal; 2) Not very difficult and; 3) Pretty lucrative. These opportunities are often presented as relatively risk free, requiring only a little of the physician’s time or an investment with a guaranteed return.

Most physicians have a healthy skepticism and exercise an abundance of caution. Their hesitation is dismissed by the practice builders and met with platitudes like, “You have to make the future you want–and deserve!” and “Make your practice work for you instead of you working for your practice.” There are charts, graphs and EOBs showing the potential of the special opportunity. And the money is obvious from the luxury cars, expensive suits and upscale restaurants utilized by the practice builders. Feeling sheepish for asking questions and waiting, some physicians decide they can’t afford to miss their golden opportunity.

This must have been how chiropractor J. Scott Neuner felt when he attended a two-day Perfect Practice seminar in 1996. While Dr. Neuner’s home state New Jersey prohibits chiropractors from employing medical physicians, the Perfect Practice speaker, an attorney, pitched a multi-disciplinary practice structure that would allow a chiropractor to benefit from a medical practice. Several months after the conference, Dr. Neuner retained Perfect Practice, paying them almost $26,000. Perfect Practice guaranteed Dr. Neuner that practice revenue would increase by at least that much or they would refund him the difference.

Dr. Neuner followed the Perfect Practice model, which included setting up a professional corporation owned by a “friendly” physician who was controlled through a stock purchase agreement. Dr. Neuner set up a management company which entered into a management services agreement with the professional corporation. The professional corporation also entered leases with prohibitive termination fees so the friendly physician would be inclined to leave them in place. Dr. Neuner hired medical physicians to work at his new medical practice, raised his charges for services and incorporated a neurological study performed by another company owned by the same person who owned Perfect Practice.

Within a year, Dr. Neuner’s practice had generated $91,000 in payments from Allstate. Then, Allstate balked at the pending $330,000 in claims and challenged Dr. Neuner’s practice structure as being in violation of New Jersey law. Allstate sued Dr. Neuner, the friendly physician, the Perfect Practice owner and the seminar speaker. While Dr. Neuner and the friendly physician settled, the Perfect Practice owner and the seminar speaker went to court. On May 4, 2017, the New Jersey Supreme Court overturned an appellate court’s decision, leaving the two men responsible for the claims paid and Allstate’s attorney fees–all of which were tripled to almost $4 million. More comprehensive details of the actions and legal proceedings can be found HERE, HERE and HERE.

This case is notable for several reasons. First, it illustrates the pitfalls of “golden opportunities.” Dr. Neuner settled with Allstate and cooperated against Perfect Practice and other defendants. That settlement probably wiped out the $91,000 in revenue, leaving Dr. Neuner with his legal expenses and lost payment to Perfect Practice. (The friendly physician also settled with Allstate.) These legal settlements can create future problems when contracting with insurance companies, credentialing with hospitals and obtaining malpractice coverage. It is entirely possible that neither Dr. Neuner nor the friendly physician’s settlements were covered by their respective malpractice carrier. Both physicians most likely lost far more money than they made on this business venture.

The case also addresses the use of a “friendly” physician and the related practice structure. The Perfect Practice model used a friendly physician to circumvent the prohibition on chiropractors employing medical physicians. (Friendly physicians are also used by companies to work around state prohibitions on the corporate practice of medicine.) The friendly physician essentially “owns” at the pleasure of a third-party, with the third-party receiving the revenue and having the right to trigger the resignation of the friendly physician and assignment of their stock to another friendly physician.

The Perfect Practice model structured the chiropractor to direct, control and benefit from the practice operations, with the friendly physician essentially being paid for the use of their medical credentials. In fact, Dr. Neuner never had a face-to-face meeting with the friendly physician who “owned’ his practice. The friendly physician’s only financial interest in Dr. Neuner’s practice was an annual “consulting fee” of $4,000. (This same friendly physician was an “owner” of 40 Perfect Practice practices.)

The court rejected the use of a friendly physician and “technically compliant” structure. While the friendly physician was the medical practice owner on paper and entered into a management service agreement and leases necessary to operate the practice, the use of these arrangements was clearly to circumvent the prohibition on Dr. Neuner owning a medical practice or employing medical physicians. Regardless of the structure, the outcome of the Perfect Practice model was the same as if Dr. Neuner owned the medical practice.

Finally, the court decision against Perfect Practice and the seminar consultant represents a new accountability for practice builders. This case has been working its way to the New Jersey Supreme Court for twenty years precisely because Allstate chose to pursue claims against Perfect Practice and the seminar consultant. While the appellate court ruled in favor of Perfect Practice and the seminar consultant, the New Jersey Supreme Court seems to have ruled that willful blindness was not a viable defense to noncompliance. It may be that in this case the practice builders were held to a higher standard because both were licensed professionals, (the Perfect Practice owner was a chiropractor and the seminar speaker was an attorney). Typically, the physicians would have been the target of litigation to recoup payments while the practice builders avoided liability. In this case, the practice builders were found liable for payments Dr. Neuner’s practice received.

While this ruling may represent a new attitude towards the liability of practice builders, it merely reinforces physician concerns with practice builders and revenue streams. When faced with these “special” opportunities, physicians should protect their current livelihood first. The status quo may not be great, but it is better than losing money, spending years involved in litigation and risking the physician’s medical license. The physician should be critical of practice builders who come bearing easy money based on a “unique model” or “special sauce.” Most physicians are pretty smart. If there was a simple, compliant way to make more money, that activity would generally be the norm.

Every professional activity the physician is involved with is a potential liability. The physician should consider the risk versus the reward of that activity. Is the physician comfortable being medical director for another business? Is the physician satisfied that supervising another company’s nurse practitioner is worth the compensation? Does it make sense that the physician is being directed to bill “incident-to” charges for services the physician did not perform? Does the lawyer for this new stem cell procedure really understand the related regulations?

The physician should also factor in the appearance created by the activity and its association. A testosterone clinic may “guarantee” a physician that the public won’t know they are its medical director, but suppose it becomes known. How will that affect the physician’s current business? Reputation? Future prospects? Professional liability?

Physicians should consider questions such as these with Dr. Neuner and Perfect Practice in mind. Both Dr. Neuner and the friendly physician were probably comforted that the seminar speaker promoting the Perfect Practice model was an attorney. The number of practices already utilizing the Perfect Practice model also probably influenced Dr. Neuner. Perfect Practice most likely had professional marketing materials and glowing testimonials from other providers. None of this matters to insurance companies and government regulators. Appearances, technical issues and misunderstood regulations don’t matter either. New revenue represents new liability to physicians. Physicians better be confident they know and understand the risks. And now, practice builders better do the same.