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Winding Up a Medical Practice

Following the COVID-19 pandemic, there has been a significant shake-up in the healthcare industry. In an effort to combat burnout, many physicians are taking advantage of new or alternative job opportunities or retiring altogether. These decisions can have significant legal consequences – from federal privacy laws to local regulations. For example, physicians must provide continuity of patient care in order to avoid allegations of abandonment. Similarly, they must ensure patient and healthcare provider access to medical records, while maintaining the integrity, security, and confidentiality of the records. Accordingly, these decisions require significant consideration and planning. 

Continuity of Care

Generally, a physician who ceases to practice or anticipates that he/she will remain out of practice for more than three months must plan for the transition of their patients. For example, in New Jersey, the Board of Medical Examiners requires the practitioner to make reasonable efforts to directly notify any patients treated during the six months immediately preceding the cessation of the practice. Physicians should check with their malpractice insurance carriers, as well, because their malpractice insurance policies may contractually obligate them to provide more stringent notice to their patients. 

For critically or chronically ill patients, it is suggested that the practitioner notify the patient during their scheduled visit, as well as by regular and certified mail. Depending on how the physician typically communicates, the physician may consider providing additional notification via email or through their patient portal. In some instances, the practitioner may wish to recommend a successor practitioner in order to ensure the patient’s continuity of care. 

Public Notification

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Similarly, depending on jurisdiction, the physician may be obligated to publish a notice regarding the cessation of their practice in a newspaper of general circulation in the practice’s geographic location. Further, this notice should articulate the process by which patients may obtain a copy of their medical records. Similar to patient notification, this notice is required by the New Jersey Board of Medical Examiners. Further, the notice must be published at least once each month for the first three months after the cessation of the practice. 

Employee Notification

Employee notification can differ depending on whether the practice is being closed or sold. Physicians may have notification obligations arising out of their employees’ employment contracts or possibly by labor agreements. Further, a practice may have a notification obligation arising out of its policy on notices of separation.  Depending on the size of the practice, state and/or federal laws also might require additional notices to be provided to employees and severance pay. Generally, the Worker Adjustment Retraining and Notification Act (“WARN Act”) requires 60 days advance notice of layoffs to hourly and salaried workers, as well as managerial and supervisory employees, provided the employers have 100 or more employees. 

Many states have more stringent counterparts to the federal WARN Act. For example, the NJ WARN Act generally requires 90 days’ notice and applies to termination of more than 50 employees.  Further, on August 18, 2022, Governor Phil Murphy signed S-315, which establishes additional protections for workers in the healthcare sector during a change in control – including consolidations, mergers, and reorganizations. Under S-315, non-governmental healthcare entities must offer continued employment to eligible employees for at least four months following the transfer of control, without any reduction in wages, paid time off, or the total value of their benefits – including healthcare, retirement, and education benefits.

Payor and Supplier Notification

Physicians have a duty to notify their payors and suppliers. A physician’s notice of obligation to his/her payors and suppliers is often found in their contracts with those entities. For example, if a physician contracted with a medical billing or recordkeeping service, he/she may face penalties for early termination of the contract.

It is imperative to identify all current contracts which the physician and his/her office maintain in order to determine whether the contract(s) may be terminated early, assigned, and – if it cannot be terminated early – what the penalties are for early termination. If it is not possible to terminate the contract, the physician may remain liable for payment under the contract. 

Records Retention

Physicians must establish a procedure for patients to obtain a copy of their treatment records or to have their records transferred to another healthcare professional who is assuming the practice responsibilities. Pursuant to the Health Insurance Portability and Accountability Act of 1996, patients must be able to obtain a copy of their treatment records or have their records transferred to another healthcare professional who is assuming the practice’s responsibilities.

Depending on the laws of the state(s) in which the physician practices, the retention period for patient records may be anywhere from three to ten years. Accordingly, providers dissolving their practices may be obligated to engage a third-party records retention service to keep and maintain patient records for the requisite period of time. 

Liabilities and Debts

The physician must be able to identify and plan for any outstanding liabilities and debts. These can include outstanding claims, ongoing litigation, and accounts receivable, among other things. Closing the practice does not make the practice or the physician immune from liability for claims arising during the practice’s operation. As a result, it is important to confer with the physician’s insurers. Often, general liability policies may be offered through a “tail” policy, at a reduced cost. 

Accounting and Winding Down

In addition to the foregoing, the physician will need to file a final tax return for the practice. Thereafter, the physician may file the appropriate documents to terminate the entity with the appropriate state and federal business and taxation authorities. 

Professional Licensure Considerations

For physicians who are no longer practicing medicine, they will have to de-active their NPI and contact their requisite licensure board to change their status to inactive or retired.  

Real Estate

For physicians leasing office space, they must take into consideration the requisite notice of termination required by their lease agreement. Even if they close their practice, they could still be liable for rent payments through the termination date of the lease. Further, for physicians who own their office space, they must consider how to empty and sell their physical property or lease their property, which could take months after they cease operations. During this time, the physician will continue to be obligated for the carrying costs of any applicable mortgage, taxes, insurance, utilities, and other costs through the closing date of the transaction. Without profits from the practice, these expenses can add up quickly and mitigate any profit realized from the sale price.

Changing Ownership

Winding down a practice may not necessarily mean closing it. In many instances, smaller providers may elect to change the ownership structure of their practice through consolidation, merger, acquisition, or reorganization. In this instance, the physician’s patients should still be notified, even if they can be transferred to the new entity – as they have a right to obtain healthcare through a provider of their choosing and may elect to go elsewhere. The physician can negotiate with the acquiring entity to assume the records retention responsibility. Further, the physician will still need to resolve their liabilities and debts – or negotiate the assignment of their liabilities and debts by a successor entity. Additionally, a physician who sells his/her practice may be asked to sign a non-competition agreement or other restrictive covenant, which could limit the physician’s potential to be employed, treat patients, etc. 

Conclusion

If you are a physician considering winding down your practice, you will need to prepare accordingly. There are many outstanding items to address – including patients, staff, records, notices, licenses, insurance, and real estate. Consulting with the appropriate professionals for each of these issues should help ensure a smoother transition.

Kerry Cahill is an attorney with Lindabury, McCormick, Estabrook & Cooper, P.C. (www.lindabury.com), based in Westfield, NJ. Her experience spans a broad spectrum of for-profit and non-profit sectors, with a focus on advising clients in the healthcare industry. 

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