Dissolving a practice takes more than closing the door

A column examining the ins and outs of contract issues

By — Posted June 15, 2009.

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A physician client recently asked me to assist him in dissolving the medical practice that he and his co-owner had established nine years previously.

Despite successful years of running their practice, it was time for them to go their separate ways and pursue other ventures.

While the doctors said they wanted to part ways amicably, negotiating the finer deal points was not always smooth sailing. Nevertheless, they closed their practice, made appropriate arrangements for their patients and their patients' medical records, distributed the practice's assets, and ensured that the other details involved in dissolving a medical practice were addressed.

These issues were addressed in a dissolution agreement -- a necessity for any multiphysician practice that is closing.

It's imperative that this type of agreement is in place before the practice is shuttered. It makes sure there are no lingering issues or surprises after the doors are locked for the final time.

Two major issues arise in every practice dissolution -- patients and their medical records, and practice assets.

Patients and their records

Your first and foremost concern when dissolving your medical practice should be the welfare of your patients. With that comes the priority of safekeeping of their medical records.

It is important to provide adequate notice to your patients that the practice will be closing so that they can make other treatment arrangements. Many states have laws mandating the length of time that physicians are required to provide their patients with notice of their departure.

If your state does not specify a length of time, plan on notifying your patients no less than 60 days before the date you intend to stop seeing patients.

Notice should be in the form of a letter sent to patients that states when the practice will be closing, how patients can arrange to transfer their records to other physicians, and where their records will be stored. Consider also placing notices in local newspapers with the same information contained in the letter. Failure to give adequate notice could result in claims of patient abandonment.

Also be aware if your state has requirements for the length of time and manner for storing patient records.

For example, Texas law requires that physicians retain each patient's medical record for a minimum of seven years from the date of the patient's last treatment. But, if the patient is younger than 18, the medical record must be retained until the patient reaches age 21 or for seven years from the date of the patient's last treatment, whichever is longer.

Some states, like California, do not have general laws governing the length of time that a physician must retain patient medical records. If your state falls into this category, it's safe to plan on storing the records for a minimum of seven years.

Practice assets

The assets of a medical practice range from accounts receivable to exam tables and latex gloves. You will want to ensure that these items are accounted for and handled appropriately.

In some situations, how the practice's assets will be allocated and distributed in the event of dissolution will have already been predetermined by existing contracts (for example, your shareholder agreement, or an employment agreement). However, this is most often not the case.

As you wind down your practice, you should make arrangements for how accounts receivable will be collected post-dissolution. Additionally, you should not close the practice's bank account on the day of dissolution, but rather the bank account should remain open until all accounts have either been collected or written off as uncollectible.

And for the exam tables and the rest of the stuff? Will these assets be sold to another practice, sold to an equipment reseller or distributed among the practice's owners?

The answer to this question will largely depend on the plans of the departing owners.

If an owner is starting a new practice elsewhere, he or she might be interested in taking certain assets of the practice to the new location. But if an owner is retiring, he or she most likely would prefer his or her share of the assets in cash.

If the assets will be liquidated, the proceeds of the liquidation should first be used to pay off any liabilities of the practice and then distributed to the departing owners in accordance with each owner's percentage ownership of the practice. When allocating or disposing of medical supplies and pharmaceutical samples, be sure to follow all applicable state and federal laws, and contact your local Drug Enforcement Agency office.

Other issues

Be sure to read all of the outstanding contracts that affect you or your practice, including property leases, equipment leases, maintenance contracts, employment agreements, service agreements and most importantly, health plan contracts.

Also, notify your insurance carrier of your last day of practice and determine how your tail policy will be handled. Additionally, make sure you follow state's laws regarding state filings required to formally dissolve an entity (for example, articles of dissolution, or a certificate of dissolution).

While there are numerous closing items that you will need to address, your attorney can assist you in managing the checklist and dissolving your practice.

Closing the doors to your medical practice will not happen overnight and will likely not be an inexpensive process. Remember how much time, hard work and expense went into starting or purchasing your medical practice? Expect a similar level of commitment to winding down and ultimately closing your practice.

If there are multiple owners of a practice, expect some contentious and heated debates. Give yourself plenty of time to make the necessary arrangements that best cater to the needs of you and your patients.

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