Starting a medical practice is both an exciting and overwhelming experience. You may have high hopes and be eager to start practicing medicine the way you want to. But you also face legal hurdles to ensure your new business's compliance and operational success.
Aside from simply forming an entity and finding office space, you need to check a range of contract, employment, insurance, and operational tasks off your to-do list early in the process. Working with a healthcare attorney experienced in practice formation is often wise to avoid these common legal mistakes when starting a medical practice.
Avoiding Legal Issues in Medical Practice Startups
As a physician or healthcare provider, you know how to legally and compliantly deliver patient care. But you may have limited knowledge of the legal structure that medical practices must adhere to in New York and the surrounding areas.
When a medical practice fails to meet legal and regulatory requirements, owners can face severe consequences, including license suspension, financial penalties, and exclusion from insurance networks. Below are a few common legal mistakes providers make when starting a new practice:
Entity Formation
Practice owners are at risk of choosing the wrong entity when forming the entity with the state, such as defaulting to a general business LLC or C-Corporation rather than a Professional Corporation (PC) or Professional Limited Liability Company (PLLC).
Ownership Structure
Medical practices need to comply with strict Corporate Practice of Medicine (CPOM) laws regarding their ownership structures. Allowing non-physicians or certain limited license professionals to hold equity in the clinical entity or setting up a standard Management Services Organization (MSO) without clear legal separation are common mistakes.
Prior Employment Agreements
Physicians sometimes err when starting their own practices by ignoring non-compete or non-solicitation clauses in prior employment agreements or neglecting resignation notice periods, resulting in penalties from their previous employers.
Licensing and Credentialing
Starting a new medical practice requires you to start the licensing and credentialing process months before you plan to start seeing patients. Credentialing delays can arise from even small mistakes, such as minor typos on your application or gaps in your work history, and you cannot receive in-network reimbursement until this process is complete.
Malpractice Coverage
One common legal mistake when starting a medical practice is assuming that your previous employer's malpractice policy will automatically cover claims filed after you leave. In reality, you likely need tail coverage or prior acts coverage to fill the gap before your new practice opens. You also need to approach insuring your new practice correctly, which often involves securing coverage for the corporate entity as well as for providers.
Vendor Contracts
New practice owners often make the mistake of rushing into vendor agreements, particularly EMR and billing agreements, without having a healthcare attorney review them. Auto-renewals and data access restrictions after termination are just a couple of points for careful negotiation
HIPAA Compliance
Rushing to set up operations in your new healthcare practice can lead to significant HIPAA compliance oversights. Common mistakes include relying on outdated HIPAA risk assessments, implementing inadequate access controls, using non-HIPAA-compliant messaging, and failing to maintain ongoing compliance.
Employment Agreements
Providing properly structured employment agreements to your clinical and non-clinical staff is essential for any practice. Important terms include determining the desired notice period that either the practice or the employee must provide to terminate the agreement is important for business continuity, as well as establishing grounds for immediate termination “for cause.”
Leases
You also need to approach a commercial lease correctly when securing real estate for your new practice. Mistakes to avoid include:
- Underestimating build-out costs and discovering that the landlord's tenant improvement allowance is insufficient
- Not factoring building maintenance, insurance, and taxes into your operating expenses when signing a triple-net (NNN) lease
- Failing to secure "exclusive use" provisions to prevent direct competitors from leasing nearby spaces
- Failing to negotiate an early termination clause with minimal penalties in the event the practice does not develop as hoped
Early Legal Planning Can Give Your Practice a Strong Foundation
A healthcare attorney can apply their skills and experience to your business's development, ensuring that it meets legal and compliance requirements. They can provide guidance through each of the above processes and answer any questions you may have throughout your practice formation.
Before you begin practicing, they can review your practice's structure and confirm that it meets all of the legal requirements for opening a medical practice, so you can begin seeing patients with confidence.
Consult a Medical Practice Formation Lawyer Today
If you want to avoid these common legal mistakes when starting a medical practice, consulting an experienced attorney throughout your practice formation is key. I'm Susan Frankel, a healthcare attorney with more than three decades of experience across business and medical law. Schedule a consultation with me today by contacting Empower Healthcare & Legal Solutions PLLC at 845-581-7859.