Legal Issues Buying or Selling an Urgent Care Center

When buying, selling, or starting an urgent care center, be sure to handle legal and regulatory pitfalls adroitly.

Various legal areas need to be addressed, including:

Corporate Practice of Medicine

Urgent care centers can be commercially successfully, but frequently are ventures backed or begun by non-MDs.

In states with a strong corporate practice of medicine doctrine, such as California, Illinois, New York, Massachusetts, or Texas, non-physicians cannot “partner” with MD’s or DO’s, nor can non-physicians hire medical doctors or osteopathic physicians.

While the urgent care center may be operated as a hospital outpatient unit, free-standing urgent care centers would be operated like medical groups or private medical practices. This means that there must be a clear separation between the practice of medicine by physicians (a clinical operation), and administrative, management and marketing functions by an MSO (management services organization). The corporate practice of medicine, in its strong form in California and other states like it, prohibits undue intrusion by the laypersons (investors, organizations, managers) into the clinical / medical domain.

The MSO can be involved in day-to-day operations, and activities such as billing and collecting, dealing with legal, handling insurance reimbursement, credentialing, and so on.

Anti-Kickback & Fee-Splitting Issues

To help mitigate fee-splitting and anti-kickback issues, the MSO should be paid at fair market value (justified, documented). A flat fee should be paid for marketing services – i.e., no fees on a per-patient basis. This is sometimes trickier than it seems. Ventures come up with all sorts of “per ….” formulas, which is attractive financially but risky legally.

Licensing Issues

Urgent care centers may or may not require state licensure, depending on the state; but in any case, they will need a state clinical laboratory license and a CLIA certificate issued by the federal government (CMS), to perform lab testing onsite. If the urgent care center has a pharmacy onsite, then a state pharmacy license will be required. An X-ray permit or registration may be necessary if the urgent care center performs onsite X-ray services.

If this is a retail health clinic, there may be state licensure specifically for such clinics (i.e., treating sore throat, common colds, flu symptoms, cough, sinus infection, etc.).

If non-physician providers are delivering healthcare services, care should be taken that these providers are acting under physician supervision, if required; and, are offering services within their legislatively authorized scope of practice. For example, physicians must be physician-supervised under a delegation of services agreement, and nurses under collaboration agreements and standardized protocols.

Stock Purchase or Asset Purchase Agreement

If the physician practice is owned by a professional medical corporation, then the professional medical corporation may decide to sell via a stock purchase agreement (i.e., selling all the shares of stock to the buyer, so that the buyer succeeds to the assets and liabilities), or, via an asset purchase agreement (the liabilities remain with the seller).

The professional medical corporation should be certain that the buyer is a licensed physician or professional medical corporation, so as to avoid a claim that the seller is aiding and abetting unlicensed practice of medicine. The seller may wish to provide to collect the accounts receivable for a wind-up period of time (for example, six months).

Due Diligence & Healthcare Compliance

In either case, for the buyer, due diligence is necessary as with all health care M&A. If the seller has left a compliance loose end, it may come back to haunt the buyer.

Recently, our law firm represented the buyer of a different healthcare entity, a medical spa. It turned out that there were many unresolved healthcare compliance issues, because the seller had never hired regulatory counsel in the first place.

For example, the management agreement between the professional medical corporation and the MSO had expired; the parties were continuing informally to honor the terms of the expired management agreement, but those terms created corporate of medicine violations (which in turn could lead to the agreement being declared illegal, and hence unenforceable); the physician had a “medical director” agreement with the MSO — a red flag for enforcement in California; and there were no standardized protocols for the nurse practitioner, making it appear as though the nurses and MSO were running the medical practice.

Among the many compliance obligations that due diligence should uncover are those relating to notifying patients regarding the change in ownership of the urgent care center. The outgoing MD should notify patients of his or her departure and new location and contact information, and that patients can see the incoming MD if desired.

Provisions should be made regarding the medical records. In a strict corporate practice of medicine state such as California, the physician and not the MSO owns the medical records. However, usually patient consent (authorization that is HIPAA compliant) is required to transfer records to another physician.

The urgent care center will have to determine which third-party payors will provide reimbursement. There may be a change of ownership (CHOW) requirement if Medicare and Medicaid beneficiaries are to receive services.

If you have questions concerning the legal operation of an urgent care center, contact our law firm.

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