Health Care Matters

A Complimentary Newsletter From:

Law Offices Of David S. Barmak, LLC

Managing Risk for Long Term Care and Health Care Providers

Volume 11, Issue 12                               ADVERTISEMENT                              DECEMBER 2010

In This Issue
Buy and Sell Agreements: A Critical Component for all Partnerships
Corporate Compliance Program for Medicaid Providers: Required by New York State and In Near Future Federal Government
David S. Barmak, Esq. 
David Photo
Licensed to practice law in the States of New Jersey, New York, Connecticut and Pennsylvania 
 

Buy and Sell Agreements: A Critical Component for all Partnerships

WHAT IF two individuals - college roommates - decide to open a business together?  They could be licensed professionals - physical therapists, physicians, etc. - or they could be non-licensees - medical equipment supply sales representatives. They decide to start a business together. One partner brings the business acumen necessary to make the business succeed; the other partner brings a winning personality that easily builds relationships with clients. The company succeeds despite all odds against it. The partners enjoy very enriching lives - professionally, financially and family. Tragically, one of the partners falls ill and dies. The widow of the deceased partner approaches the surviving partner - catching him totally off-guard - after the funeral service and says:  "I look forward to starting work next week." "WAIT A MINUTE" thinks the surviving partner, "I didn't bust my .... for all these years only to end up being partners with my deceased partner's spouse!"  UNLESS the partners planned for this moment, the surviving partner might just have a new partner - his deceased partner's spouse.

 

Every business needs a general agreement about ownership and responsibilities. What is often overlooked either within the general agreement or outside that agreement, is a buy-sell agreement (buy - sell).  Such a buy-sell covers how and when a partner can sell his / her share of the business and at what price. Typically this type of agreement is utilized if the partners decide to split and go their own ways. Another critical purpose for such an agreement is to resolve ownership when a partner dies or is permanently disabled. I like to think of a buy-sell as dealing with the scenario outlined above - how to avoid becoming partners with your ex-partner's spouse. Nothing personal against the spouse; however, the surviving partner does not and will never want, with rare exceptions, to collaborate with the spouse about finances, marketing, client relationships, etc. Their agendas are typically different: the surviving partner is running a business with an end game in mind- usually mid - to long range thinking; the spouse typically is thinking short-term - how to maximize the money available to move forward with his / her life.

 

The absence of a buy-sell usually adds business tragedy to personal tragedy. I've seen it over and over again.

 

The buy-sell should specifically identify that which triggers its provisions to come into action. A partner retires - perhaps he/she must divest ownership shares or at least voting rights. A partner divorces or declares bankruptcy - there's the need to consider protecting the business from a spouse or a bankruptcy trustee. A partner dies - ownership shares should be passed to the surviving partner(s) instead of a spouse or child. Life insurance is key in this latter situation.  Life insurance is purchased on the life of the partners so that when one partner dies, there is an influx of money to pay the spouse the value of the deceased partner's ownership interest (ideally a formula is set in advance by the partners in their agreement) as well as to replace the deceased partner as a contributor to the business (hire a replacement).

 

Drag-along and tag-along provisions are critical in buy-sell agreements. What are the definitions of drag-along and tag-along provisions? A drag-along provision enables a majority owner to force the sale of a minority owner's share. If the majority owner wants to sell the business to a third party a tag-along provision assures the minority owner that he/she will receive the same proportionate price as dictated by his/her ownership share.   A buy-sell must also provide a formula for valuing the ownership interest to ensure that the departing owner receives a fair price.

  

 

Corporate Compliance Program for Medicaid Providers: Required by New York State and In Near Future Federal Government

New York State:  Entities licensed under Article 28 or 36 Public Health Law; Article 16 or 31 Mental Hygiene Law; All other health care providers billing $500,000 to Medicaid in 1 year.  Federal Government:  Skilled Nursing Facilities within 27 months under Patient Protection and Affordable Healthcare Act.
 
A successful compliance program addresses the provider's need to prevent fraud and abuse and carries the added benefit of improving the provision of quality health care at lower costs. A successful compliance program also openly demonstrates, to employees and the public, the provider's commitment to conducting its affairs honestly and responsibly.

 

Compliance programs encourage employees to report potential problems and permit the provider to conduct an internal investigation and take corrective action. Thus, the successful compliance program should increase the likelihood of preventing, identifying, and correcting unlawful, abusive or wasteful conduct at an early stage, minimizing financial loss to the government, to taxpayers, and to the provider. 

 

Compliance programs need to encompass billings, payments, medical necessity, quality of care, governance, credentialing and other risk areas that a provider, with due diligence, identifies. Specifically, any compliance plan should include the following elements:

  1. Designation of a chief compliance officer responsible for the day-to-day operation of the compliance program; this employee should report directly to the provider's chief executive and periodically report to the governing body (if such a body exists) on the activities of the compliance program;
  2. Training and education of all affected employees and persons associated with the provider, including executives and governing body members, on compliance issues, expectations, and the operation of the compliance program; such training should occur periodically and should be made a part of the orientation of new employees and governing body members;
  3. A communication process, such as a hotline, accessible to all employees, outside vendors, governing body members, patients or other users of the provider's services, for the reporting of compliance issues; the lines of communication should allow for anonymous and good faith reporting of potential compliance issues as they are identified;
  4. Disciplinary policies and standards that are distributed to all employees, which are fairly, evenly, and firmly applied, and encourage good faith participation in the compliance process, including policies that articulate expectations for reporting compliance issues and assist in their resolution and outline sanctions for:
    1. failing to report suspected problems;
    2. engaging in non-compliant behavior;
    3. encouraging, directing, facilitating or permitting either actively or passively non-compliant behavior.
  5. A system for routine identification of compliance risk areas specific to the particular provider, for self-evaluation of such risks areas, including but not limited to internal audits and as appropriate, external audits, and for evaluation of potential or actual non-compliance as a result of such self-evaluations and audits, credentialing of providers and persons associated with providers, reporting, governance, and quality of care to beneficiaries.
  6. A system for responding to compliance issues as they are raised; for investigating potential compliance problems; responding to compliance problems as identified in the course of self-evaluations, external evaluations and audits, correcting such problems promptly and thoroughly and implementing procedures, policies and systems as necessary to reduce the potential for recurrence; identifying and reporting compliance issues to the Office of the Medicaid Inspector General; and refunding overpayments.
 

Wishing a Happy Holiday Season To You & Your Families From: The Law Offices Of David S. Barmak, LLC

Law Offices Of David S. Barmak, LLC
David Barmak established his health care law firm in 1984 to deliver legal services, both in transactions and litigation, to organizations and professional practitioners in the health care field.  We call this approach "Enterprise-Wide Risk Management" because it includes three important facets:
  1. Counsel and advisement on all aspects of legal risk, from setting up the entity to corporate governance and compliance;
  2. Protection of your practice or business through litigation prosecution or defense in the Courts; as well as regulatory compliance and licensure issues before government agencies; and
  3. Operations improvement through the implementation of enterprise-wise onsite audits, programs and training seminars in the areas of, but not limited to, Fraud and Abuse, HIPAA Privacy and Data Security, Employment, A/R Management, Emergency Preparedness, and Workplace Violence.David S. Barmak, Esq. received his JD from Cornell University and BA from Duke University.  He is licensed to practice and serves clients in the States of New Jersey, New York, Connecticut and Pennsylvania. 

He is the immediate past Chair of the Health & Hospital Law Section of the New Jersey State Bar Association.  Before making your choice of attorney, you should give this matter careful thought.  The selection of an attorney is an important decision.  The recipient may, if the newsletter is inaccurate or misleading, report the same to the Committee on Attorney Advertising. 

 
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