Closing a Practice

CLOSING DOWN A MEDICAL PRACTICE: GUIDELINES AND CONSIDERATIONS

Janice Hartnett, MD, MBA and Kenneth Ginsburg, MD, MBA

Introduction

The decision to close an obstetric/gynecologic practice can be the planned culmination of a rewarding career at retirement, or an imposed result of a failure to succeed in a market, bankruptcy from financial mismanagement or after losing a large lawsuit.  Whatever the precipitating event, orderly closure of the practice is important in protecting the physician to avoid liability and litigation, capturing earned income and paying outstanding debts, assisting staff in their transition to new employment, and, most important of all, assuring ongoing and orderly care of patients.

The following is a brief review of considerations and guidelines for the obstetrician/gynecologist contemplating or completing practice closure.  More information can be obtained from the references listed at the end of this article.

Patients and Their Medical Records

The Ob/Gyn should notify patients in writing when the practice is closing, ideally at least 3 months ahead of the planned closure date.  This notification should include both the final date of availability, where to go for emergency care, a list of other physicians who can care for the patient and a records release form with instructions for obtaining copies of medical records both now and in the future.  Guard against the appearance of abandonment, a serious medico-legal concern.  A copy of the written notification sent to patients should be kept in their record to demonstrate that this important step has been taken.  At the minimum, all ‘active’ patients should be notified; the definition of an active patient varies, but generally includes at least everyone seen within the two year period prior to practice closure.  Consult your attorney, county medical society of malpractice carrier for instructions unique to your locale.

Considerations regarding how long to maintain medical records include statutes of limitation for malpractice actions (a physician’s best defense in a medical practice action is his or her medical record) and the obligation to make records available for patient’s future medical care.  Both of these have legal requirements, and if they differ the longer of the two retention requirements should be followed.  Typically, the former of these considerations imply a longer required holding period, extending in some jurisdictions to beyond the age of majority for malpractice cases involving birth trauma.  Again, you should consult both your county medical society and malpractice carrier for instructions on this important issue.  Beyond length of retention, the physician should also consider how (physical form – paper chart, digital media, microfilm, etc.) and where charts will be stored, as well as how patients will gain access to those records in the future.  It is important to insure confidentiality of records for HIPAA compliance, an issue which should be specified in written agreements with storage facilities.

Employees

Here the competing interests of physicians to keep their staff to the very end must be overridden by considerations of fairness to employees, who deserve to know as soon as possible that the practice will be closing.  The employees will begin to look for suitable future employment, and many or most may be lost before the physician would have wanted the employee to terminate employment.  The physician can greatly help the employee with letters of reference, referrals to other practices for new jobs, etc.  Severance packages should be considered, with the general guideline of 1 week pay for each year of employment.  Unemployment insurance, payment for sick time and vacation time banked but unused, and COBRA also require attention as the practice closes.

That said, the physician closing her or his practice must also consider how to maintain functionality of the office to the end, not only in terms of patient care but to attend to the operational aspects of closure (see below).  Bonuses for employees that remain to the time the practice literally closes can be offered to key employees.

Practice Operations

The devil is in the details, and many details need to be addressed to settle the finances of the practice, terminate the legal entity, dispose of assets, and inform everyone with a ‘need to know’ that the practice is closing.  Legal guidance is important with many of these issues, and a paid consultant to manage some or all of these issues may be money well-spent to ease the burden of practice closure – especially if a practice manager is not employed or does not remain available.

Financial and Legal Considerations

Develop a plan to collect accounts receivable and settle accounts payable.  The decision to send accounts to collection should be balanced against both the cost of these actions and the ill-will they generate; often payment plans can be negotiated with patients who have outstanding debt to the practice.  Some accounts will necessarily be written off as bad debt.  Ask that invoices that settle accounts with vendors, lessors, utilities, etc. be marked ‘Final Bill’ by the issuer.

Your attorney will dissolve the legal entity of your practice, an action that must be coordinated with the accountant who will assist in filing final tax returns and unemployment documents for employees.  Other considerations include disposition (current and ongoing future) of pension, profit and other retirement plans for physicians and other employees, as well as financial planning for the physician leaving practice.

Practice Assets

The physician leaving practice must consider how to dispose of the physical assets of the practice, including the real estate, equipment, stocks of medications and supplies, etc.  Disposal of medications may be governed by Federal and/or State law, which should be consulted before actions are taken.  Leases for space and equipment need to be concluded properly in writing to protect the physician from later claims that contracts were unilaterally broken.  When owned by the practice that is closing, assets can be sold, auctioned, or donated.  Often your accountant can recommend which is most financially advantageous if this is a consideration.

Notification

While there may be legal requirements to post notifications of practice closure in various ways (check with your state or county medical society), a number of other entities and vendors require and/or deserve notification.   Always communicate in writing, and retain both sides of all communication for possible future reference.

An obvious entity that must be notified--as early in the closure process as possible--is your medical malpractice insurance carrier.  Beyond their advice regarding many of the issues discussed above, they will provide the physician with proof of malpractice insurance coverage through specific coverage dates.   Inquire also about the purchase of tail coverage, extending malpractice coverage beyond the date of closure to cover future allegations of medical malpractice.  Third party insurance payers along with Medicare and Medicaid require notification so as to complete their transactions with the practice.

Also inform the state Medical Licensing Board and the Drug Enforcement Administration that the practice is closing; the latter may oversee the disposition of all supplies of drugs and medications in the office.  DEA prescription pads must be destroyed.  Hospitals and medical schools that the physician has been affiliated with need to be notified so that they know that the physician is leaving practice.  Seek to obtain written confirmation of their acknowledgment, indicating that you are leaving the medical staff voluntarily and in good standing.   Termination of membership in professional societies and State and County Medical Societies is a matter of personal choice; many physicians remain active in these professional organizations beyond retirement.  Again, if the physician does resign from these organizations it should be done in writing, requesting acknowledgment.

More practically, think of practice closure as if you are moving your residence.  Inform the phone company, utilities, internet and cable providers and the post office of the practice closure.  Consider arranging to have the phones answered for some time after closure, perhaps three to six months.  Notify vendors that the practice is closing if this has not been done in finalizing accounts payable, and cancel magazine subscriptions.  

Resources

Buying or selling a practice
http://www.healthecareers.com/acog (Search for “sale of a practice”)

References

Daniel Kasinec, FACMPE. Process & checklist for closing a practice. ACMPE Paper, August 2002.

Lisa H. Schneck. Closing down a medical practice: Patients, employees and details need attention when a group shuts down. MGMA Connexion, Vol. 1, Issue 3, November 2001.

Closing Your Practice: 7 Steps to a Successful Transition. 1997: American Medical  Association, Chicago.

Contact:

Anne Diamond
Senior Director
adiamond@acog.org