Compliance risk can easily ignite a dumpster fire – especially when unhappy patients are involved. Tune in as we share the story of a physician who thought he checked off all the boxes for compliance. In part two, Michael and Brad discuss the corporate practice of medicine and how this investigation could have been prevented.
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Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences. Creating simplicity in three, two, one.
Brad: Welcome back to another episode of the Legal 123s with ByrdAdatto, I’m your host, Brad Adatto with my co-host Michael Byrd.
Michael: Thanks Brad. As a business and healthcare firm, we meet a lot of interesting people and learn their amazing stories. In today’s episode we are without guests today, Brad.
Brad: This is true.
Michael: It’s just going to be you and me.
Brad: Poor people.
Michael: We’re going to talk about one of my favorite stories where a compliance risk became real.[00:00:42] And by real, I mean, a dumpster fire.
Brad: You used the word risk. Let’s talk about that. I know that you and I, we use this term every day when we’re talking to our clients about business and compliance. It’s a pretty boring word that conjures up images of Charlie Brown’s [00:01:00] parents or teachers doing the “wa wa wa wa”. But Michael, please bring the term risk to life much like my Charlie Brown images.
Michael: Okay. Well, I’ll try. We’ll have to go on the dark side for a minute. So stay with me. I looked up statistics on the lifetime odds of death by certain causes. So it was an easy example. The odds of dying by cancer is one [00:01:27] in seven.
Brad: Okay. First that is the dark side, but I’m interested since I survived hurricane Katrina, although my house and property did not, what are the odds of dying by a hurricane?
Michael: So the [00:01:39] odds of dying by a cataclysmic storm are one and 54,699. Pretty low risk though I’m sure much higher if you live in new Orleans. Here’s one that caught my eye today for today’s story about business risk. Do you know the odds of dying by quote, [00:02:00] all preventable causes of death?
Brad: All right the lawyer in me is having so many follow-up questions about the term preventable means, but I think that would get us off track for today’s episode. I do not know the answer. What are the odds of dying by quote, all preventable causes of death?
Michael: 1 in 25, this and of course, let me just as a lawyer pause, this is according to the great statistics found on Google.
Brad: Oh good.
Michael: But this helps us in how we think about businesses and compliance risk. If you don’t want to be at risk of dying by a cataclysmic storm, you can move out of a hurricane’s path to help your odds.
Brad: Or if you want to improve your odds of not dying by preventable causes of death, you could exercise and be well and diet and all the things that none of us do.
Michael: I’m sure that our life insurance friends are loving our conversation so far.
Brad: Michael getting us back [00:03:00] to our theme for the season on the Legal 123s with ByrdAdatto is dumpster fires. And for those not familiar with the term dumpster fire, it basically means a completely mismanaged situation which results in a disaster. The story today is fascinating because this particular physician tried to take many of the right steps to manage his compliance risk.
Unfortunately, for the physician, when you first met him it was in the middle of a dumpster fire and he needed help getting out of it. And Michael, you love context. So please start off as to what happened.
Michael: [00:03:35] So I received a call from a physician in North Carolina. He’s an OBGYN with a typical private practice. A few years back [00:03:43] he decided that he would like to find a new flow of funds from a typical commercial payers, aside from his typical commercial payers as such, he had received training on several noninvasive aesthetic treatments and was interested in developing this area of his [00:04:00] practice. And he was going to do this in addition to his current OB GYN practice.
Brad: Makes sense. Make some more money.
Michael: Got it. So he started to provide these noninvasive aesthetic treatments. Which led to an opportunity to become a medical director of a med spa.
Brad: Okay. Michael, we just had our first vocabulary word of the day. You said med spa. What is a med spa?
Michael: Med spa is short for the word medical spa. It is really just a branding term. [00:04:28] Typically in a med spa, you see noninvasive medical treatments like injectables, Botox, filler, et cetera, or lasers that are used for elective aesthetic procedures. But to be clear, Brad, it is a facility where medical services are rendered. No matter what name you put on it.
Brad: What if I call it non-invasive?
Michael: It’s medical Brad.
Brad: But it’s non-invasive.
Michael: Yes. I feel like you’re echoing some things we’ve heard over the years.
Brad: Okay. Thanks [00:05:00] for the clarification. Let’s get back to our story and you know, a little more context. What struck me about this story when we were talking about getting ready to do this podcast is if you really think of it from the outside world, that doctor appeared to have done everything right.
In fact, I was talking to my daughter about it and she goes, yeah, well, he sounds like he did everything right. He went out and he found a lawyer and that lawyer happened to negotiate it. He was active working over the supervision and the delegation of the patients. So he got in trouble for a law [00:05:30] he wasn’t familiar. That’s her exact statement this morning when I was talking to her about it.
Michael: well, I’m not going to go down the rabbit hole of Brad training his 12 year old to become a lawyer. I already have images of Todd Marinovich, the football player who was trained to be left-handed by his father.
So, yes, the doctor actually spent a day onsite and actually participated in the treatment of the patients. When we talk about health care [00:06:00] compliance risk and this setting, the top risk ties to patient care..
Brad: Let’s pause again. Let’s talk about patient care in particular, the chain of care or coordination of care briefly. So we can bring life to this high risk scenario.
Michael: So the chain of care starts with formalizing the physician patient relationship, and it runs all the way through completing the treatments provided to the patient. A patient has to be diagnosed, has to receive a treatment plan from a physician, a physician assistant, or a nurse practitioner. And then the treatments can be delegated as long as proper delegation and supervision protocols are followed in that particular state.
Brad: And the physician in this story did all of those things, Michael. So if the physician handled the chain of care appropriately and hired an attorney to review the medical director agreement, how did the physician end up in a dumpster fire>
Michael: The spark. See what I did there?
Brad: That’s pretty good.
Michael: Yeah, the spark that started the fire started with an [00:07:00] unhappy patient. Shocker.
Brad: Shocker. So for our audience, quick insider’s guide here. When problems arise in a medical practice, it typically starts with a patient or an ex or current employee or a competitor, but you said chain of care was handled correctly. How did the problem start with this patient?
Michael: Innocently enough, a patient needed to cancel an appointment at the last minute. And the medical spa had a policy where it did not return the deposit for last minute cancellations, the patient was not happy. And by not happy, I mean, went ballistic. [00:07:38] And in addition to going online, decided to turn the medical spa into the North Carolina medical board.
Brad: Okay, another insider right there for you audience, to understand when patients are angry, they have their three go-to moves that they love to pull when it doesn’t deescalate the way they want it to go. So number one is they go [00:08:00] online, as you said, and post a negative review. Number two, they might turn the practice or the medical provider into the medical board of nursing board. Or number three, they might file a lawsuit. And unfortunately, each has its own unique ripple effect.
Michael: Yes. And in this case, the medical board took an interest when they looked at the medical spa and saw that it was owned by non-physicians in a limited liability company, North Carolina has a strong corporate practice of medicine.
Brad: So we got to the most important vocabulary word of the day, corporate practice of medicine. Maybe we’re starting to sound like the Charlie Brown, wah, wah, wah. Well, let’s explore the risks with the corporate practice of medicine a little bit later, but you know, for those who want to understand what the term means, it’s really a state law which restricts who can own a business that is providing medical service. We’ll get more details later.
Michael: And for those few who’ve stuck with us from the very beginning. Yes and thank you. You may remember CPOM is [00:09:00] also Brad’s rapper name. The board saw that this is a medical spa providing medical services and the board charged the medical spa with the unauthorized practice of medicine. Doesn’t sound good?
Brad: No, it sounds bad.
Michael: Well, here take this on. The board also charged the physician with aiding and abetting in the unauthorized practice of medicine.
Brad: Yeah, aiding and abetting in general sounds bad. Like adding a bedding bad thing. And so unauthorized practice medicine sounds bad. And you know, we have seen this before in many states and you know, no patient injuries involved and consequences typically in something like this, it seems to be minimal. In this case, the North Carolina board decided to make an example out of this doc.
Michael: A battle ensued. The doctor had coverage under his malpractice policy to defend board enforcement actions. An attorney was hired by the insurance company to defend the doctor. The long battle ended with a disciplinary record for the [00:10:00] doctor. The sanction was reported to the national practitioner data bank.
Brad: We got a third vocabulary already. So again, the national practitioner data bank, for those not familiar with it, Congress created this clearing house for lack of better term where medical malpractice payments and adverse actions on healthcare professionals are kept.
Now the concept here is that it was going to help prevent practitioners from even moving from state to state without disclosing or the employer discovering these previous, damages that have been performed in some capacity. And the concept of course, is that we’re helping protect the health care quality and protecting the public.
But as Michael and I know that for the doctor, it’s more like the grownup version of something going on your permanent record that I’m sure our parents lectured us multiple times that you do that it’s on your permanent record. Well, this is the permanent record.
Michael: With two kids in high school, yes, I do in [00:11:00] fact use that as a weapon. Yeah. But the dumpster fire was burning now. And this was on our client’s permanent record. The first ripple effect of this already bad outcome was to his OB GYN practice, which as a reminder has nothing to do with the med spa. The health insurance companies he contracted with, to service his OB GYN patients saw the report to the data bank and started canceling his contracts. The second ripple effect is that it was reported to all the hospitals and other facilities where the doctor has privileges.
Brad: Whenever I think about the story and for our audience to understand this ripple effect is huge. So let’s think about how bad this is. He can no longer bill his in patient network patients at all. And so if they want to go see this doctor, because if their doctor, they have to be out of network [00:12:00] now, and which is for the patients hard, because they could be more expensive to the patient. Further, if he wants to admit the patient into the hospital, he can’t do it. Cause he lost his admitting privileges at the hospitals. And can’t even be there when one of his patients is giving childbirth because he can’t be in the hospital. So it’s a devastating result.
Michael: Yes, we should have noted he was a solo practitioner so there was no partner to help pour salt in the wounds. This doctor was licensed in another state and that state got access to his permanent record and they saw it and they started a disciplinary action against the doctor for remember this word, aiding and abetting in the unauthorized practice of medicine. And it was for the exact same circumstance.
Brad: So this is a dumpster fire, not only as a doctor being investigated in North Carolina, another state is now opened up an investigation for the [00:13:00] same action basically. And this is not your typical outcome that we see in these cases with this kind of risk and this kind of issues. But I think we need to dive further into this, Michael. And so we can understand the corporate practice medicine. And the risks right after this break.
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Brad: [00:13:50] Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto with my cohost Michael Byrd. Michael, I always shutter when we [00:14:00] tell this story, but our theme this season is dumpster fires and we have a roaring one on this story. It has massive impact, and yet we haven’t really discussed. It was actually preventable. Um, so let’s talk about the types of risk as a technical violation, because these technical violations typically don’t have this impact, you know.
Normally it’s other where, you know, in particular patient care tends to be the major focus for most medical nursing boards, but we just learned that even technical violations can carry risks. And sometimes are in our and this poor client’s case dire consequences. So why don’t we help the audience? We promised them that we’d get to this. So for those who are still with us, thank you. But let’s explain what is the corporate practice of medicine and use like as best we can as little detail so we don’t, again, sound like Charlie Brown,
Michael: I will try. And I can’t emphasize enough when we talk about technical violation. I mean, we use that term in our speeches at [00:15:00] conferences and we talk about it that way, like, okay, you’re carrying risk. If you set it up this way and if things go bad, it’ll get used against you. Usually it’s an add-on to an enforcement action for something else that’s happened. And what’s crazy about this story is it is the primary means and reason for attack by the medical board.
Brad: Yeah. It also goes back to you and I talk about this all the time is sometimes no one wants to be the test case. And in this particular case, unfortunately this time, he was.
Michael: 1 in 25. Preventable. So back to CPOM and I’m proud of you for not rapping when you said that last time. As you noted in the beginning, CPOM is a state law, which restricts who can own a business that’s providing medical services. And so, again, without trying to delve and sound like Charlie Brown. Let’s just start at the root of how you even know if corporate practice of medicine is relevant to you.
[00:16:00] And so you always start with looking at the types of services your business provides. If the key question are they considered medical services, and this can be confusing in a medical spa because there’s often medical and non-medical services that are provided and many of the services that are in fact considered medical are not intuitive. So we jokingly talked about, you said, but Michael it’s non-invasive we actually hear that all the time. And people assume that because it’s non-invasive it’s non-medical. And we even had board certified plastic surgeons, dermatologists, and other physicians who are intellect of medicine. And not only in elective medicine, they don’t think of these as medical because they’re not surgical.
And so the bottom line is to know that [00:17:00] if what you have is considered medical, and if it’s a traditional medical spot, you’d likely have at least something that’s medical, then you have to look at the corporate practice of medicine to understand if you’re carrying risks.
Brad: Yeah. So talk about the typical way the corporate practice of medicine laws are set up.
Michael: So they just generally you’ll see it across the country fall in one of three buckets. Bucket number one is a strict state. Like North Carolina that says only doctors can own a business that provides medical services.[00:17:37] And so you can’t have non physicians of any kind, including non-providers in those States. The other States say doctors and non-doctors can own a business together that provides medical services. But there are strings attached and they vary by state, but sometimes it’s limited to just other certain providers and [00:18:00] there’s always parameters about how much the doctor has to own and control over medical decisions. And then the final state is States that don’t have corporate practice of medicine laws like Florida.
Brad: Let’s kind of bring the story back to where we are. So as you kind of mentioned, North Carolina does have strict laws on ownership of a medical practice and corks. We’re talking about, we said med spa, but that’s a medical product practice.[00:18:25] And only those persons holding active North Carolina licenses may own a medical practice or med spa in this case. In fact, the North Carolina board medical board, you know, they’ve been pretty active, on this has reiterated this position. They have a minor exemption, but It’s not really applicable to this story. Let’s circle back that doctor hired an attorney to help him with this medical director agreement. The doctor had a common, you know, great provision of care. Was this dumpster fire preventable?
Michael: Yes. And, you know, [00:19:00] we are in a very specialized area with healthcare compliance and you have a business attorney that looks at a medical director agreement, and I have no doubt that that attorney gave good advice as it relates to, you know, what are your obligations and what are the payment terms and other traditional contract things that you do look at, but there are clues that are in there for a healthcare attorney that would spot the red flag.
Brad: We call these strobe lights.
Michael: For us they are. Yes. The clues can be found in the medical director agreement. So if you’re a doctor in a state that allows only doctors to own a business that practices medicine, you should not sign the contract with a business that’s improperly owned.
One of the key facts is that here it was a limited liability company, was the employer of the Docker and not a professional [00:20:00] corporation. And so the strobe light for us would be LLC. Those are not authorized to practice medicine. Those are typically going to be owned by non-doctors and you would start doing a little digging to figure out, you know, what the setup was. And in fact, in North Carolina, they have kind of an added element that makes corporate practice medicine even more specific and more strict in that they say that a non-professional entity here, the LLC cannot practice medicine and they cannot employ or contract with a physician to practice medicine.[00:20:37] So on its face, this medical director agreement violated the corporate practice of medicine.
Brad: And then this goes back to what you had said earlier is, you know, we don’t know who this lawyer is, so it could be the nicest person on earth, but unfortunately this person did not have the healthcare background to see that blinking strobe lights staring them in the face and did just concentrate on what would be the typical things you look [00:21:00] for, but did not think about those compliance perspectives.
Michael: So we talked about how the problem could have been detected when the medical director agreement was presented. And here’s a question for you, Brad. Would there have been a solution to make this work?
Brad: The answer is yes. So you know, we unfortunately have seen this a lot where we have the situations where we have non-physicians being a part of that and there is an arrangement out there called the management service organization model or the MSO model. The MSO model it’s basically a multi-purpose function in the healthcare compliance world. One of my first jobs out of law school was working as an in-house counsel at an MSO. And so there’s nothing new to it and it’s to this area, or actually not very creative in some ways even, but it’s a tool that can be used and it’s stood the test of time in the sense that it’s been around for so long.
But the basic elements of the MSO model is you get two entities and they enter to a [00:22:00] contract. And this contract called a management service agreement or sometimes referred to as the MSA and these two entities or one, the professional entity owned by the doctor. So you know, strong States like North Carolina, we’d have a doctor owning it and generally owned exclusively by that doctor. And then you would have a management company that can be owned by non-doctors.
Michael: Yeah. And to be clear, the professional entity in this case in North Carolina could be owned by the doctor in the story or multiple doctors, but because it’s North Carolina, it has to be doctor owned. And that can vary by state. And the key for the management company is this is a regular business. It can be owned by anyone which includes potentially the doctors, which sometimes on our deals, you’ll see the doctor that owns the medical entity also be an owner in the management company.
Brad: And that’s correct. And I think that’s a perfect example, especially with the MSO as a may versus a must meaning that the [00:23:00] physician must own a professional entity, but may own the MSO. And as you said we have a lot of deals where we definitely see from a business perspective and the business model. It makes sense that that physician, that key physician owns a medical practice also is a part of the MSO.
Michael: So let’s go back to the MSA for a minute and talk a little bit more about the function and purpose of the MSA.
Brad: So the management service agreement, or the MSA binds these two entities, and it really should set forth the nonclinical or managerial services that the MSO will provide to the professional entity. So services like billing and collecting and hiring of staff or going out and getting the space and leasing it or the equipment or whatever they need to make sure that the professional entity has all the resources it needs.
[00:23:46] So when the medical providers walk to that front door, they flip on the light switch and they’re allowed to then start rendering medical services. And you, the MSO you made that possible. But you gotta be careful. And there are some traps out there that you and I are familiar with about [00:24:00] some States that they worry about asserting too much financial control and boundaries set forth on that management entity over that professional entity.
Michael: Yeah. And I tell people that if you look at one MSA to another, they’re about 80% the same. And that 80% is all about setting the right boundaries to manage the compliance risk who’s doing what then the MSO entity doing non-medical functions, making it clear that the medical entity is doing medical functions.
Brad: I think one of the key components here is that we always get asked as question is you know, so that MSA there’s a fee, right? A management fee. You’re like, yes, there’s a management fee associated with it. And because of that, the MSO has never directly paid by the patient. It’s only the professional entity. That’s paying them and they’re paying them based on services rendered. So all those are very important. We could probably spend 45 minutes alone just talking about management fee [00:25:00] by itself. But you know, I think the pros and cons that you started talking about, we’ll get back into it. I want the audience to understand that yeah, there is a fee associated with it.
Michael: Yeah. And I’ll get to the pros and cons a minute. I was just going finish the you have that 80% of what you just touched on is the 20% and we always say this is kind of where the magic happens, where you have to be creative and make sure that you’ve set it up compliantly and you accomplish what you’re trying to accomplish economically in how you design the nuances of the relationship. And so as you said, people always ask about the pros and cons to the MSO. And the pros are that this reduces compliance risk significantly. And with the heavy growth of private equity into elective medicine, like medical spas, this model is becoming more and more the norm and for businesses with a strategy to build and sell their business, they’re often best positioned for that future exit [00:26:00] with the MSO.
The downsides are the investment in cost for setup on the front end and the time for the operational adjustment to having it, you know, an additional business entity involved in the business model.
Brad: Yeah so there’s definitely some administrative burden that comes with it. You have to make sure you’re dealing with the flow of funds correctly, but one of the things we do love about this model and you know, I’ve done it enough times where we have physicians who say, look, I can only sell my practice to another doctor. But if I have an MSO, I can sell that to anyone. And that opens up the opportunities and strong corporate practice of medicine States for other opportunities. But, you know, we’ve dragged this in the sense of we have all this great information, but I know our audience, that’s still with us, Michael, whatever happened? What was the result of all these investigations?
Michael: The dumpster fire took over a year, but it eventually went out. The client was eventually able to be reinstated with his OB GYN practice with the [00:27:00] insurance companies. And so that’s a massive hit for a year to be dealing with non-payment on the primary focus of his practice, but he did come out from it and is still going. And his relationship with the medical spa obviously ended long ago so that kind of interest in the non-invasive aesthetic treatments went away with this. It burned up in the dumpster fire.
Brad: Yeah. And then the fact that the client was able to resolve all these issues and extinguish the flames does not take away as to why this is a dumpster fire for him. He has permanent burn marks as a reminder. He was reported to national practitioner data bank, and I can’t help but think that this story may closely match the 1 in 25 category that you’ve said a couple of times. As a preventable death, if he had just talked to someone that actually understood all these moving pieces. So [00:28:00] Michael, any final thoughts as we’re wrapping up?
Michael: Well people always ask us the question, you know, why is everybody else doing it and getting away with it? And so I’ll go back to the 1 in 25. That means 24 out of the 25 are getting away with it. We call this a technical violation it’s preventable. And so the final thought is if you’re doing it and you’re comfortable with that risk, just know this is the extreme end of your downside. And if you have a bad patient outcome or a competitor or an employee, or ex-employee that, that turns you in for something else, the board will add this on and it will kind of heighten the penalties that you face.
Brad: Awesome. Please join us next week when we talk about losing containment on February 3rd.
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