Archive April 2017 XVIII, No. 4

Legal Update: It's Not Easy to Deep-Six Deadwood Docs

Forcing out lower-producing physician-owners is fraught with risk.

John Fisher, II, jfisher@ruderware.com

underperforming physicians KICKED TO THE CURB As much as you'd like to, resist the temptation to force underperforming physicians to sell back their ownership shares.

They own shares in your surgery center, but they don't do their fair share of cases, which is causing resentment in your ranks. And you want them out. Using the safe harbor requirements to force underperforming surgeons to redeem their shares might seem like a good idea, but it can backfire.

The safe harbors that protect ambulatory surgery center investment interests are the only safe harbors that require a certain level of referrals. Yet failing to meet one or both of the one-third safe harbor tests — the one-third of income rule and the one-third of cases rule — doesn't automatically disqualify a physician from maintaining an investment or create any real compliance risk. That is because they are only safe harbors. Safe harbors can insulate you from risk, but failing to meet them does not cause a violation of the Anti-Kickback Stature (AKS). Even though one or both of the one-third tests (osmag.net/7KArwB) are not met, the physician might still be in compliance with the AKS.

The risk of forced redemption
This is not what busy physician-owners want to hear, but the ASC safe harbors were never intended to be used as a tool to exclude existing investors. Yes, lower performing docs can create an undercurrent of resentment and in some cases might create compliance risk. But hasty action to exclude a lower-performing surgeon can create regulatory risk for your surgery center. Some mistakes I often see centers make:

Forcing out lower-producing physicians. Using exclusion clauses in your operating agreements to squeeze out lower-performing docs can backfire. Redemption provisions often put too much focus on the safe harbors instead of considering whether the AKS is violated.

Letting the environment create "bad facts." Evidence of derogatory comments (deadwood doc), scheduling inequities, unfortunate emails or evidence of plotting to freeze out an investor can create more risk than failing to meet a safe harbor.

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