In the wake of the New Jersey Supreme Court’s 2017 decision in Allstate Insurance Company v. Northfield Medical Center, P.C., management services organizations (MSOs), physicians, private equity funds, and practicing healthcare attorneys should keep the following “do’s and don’ts” in mind when structuring their MSO arrangements to comply with New Jersey corporate practice of medicine (CPOM) rules:

Allocate the majority of shares and/or voting rights in the medical practice to the plenary licensed physician-owner(s)Allocate more than a minority of shares or voting rights to any limited licensed professionals and never to an unlicensed individual
Require the physician-owner(s) to contribute start-up capital to the medical practiceThe management contract should not contain a provision allowing the termination and replacement of the physician-owner in the event of a conflict of interest between proper medical judgment and cost-containment
Clearly delineate the roles between the physician-owner’s clinical activities and the management company’s administrative activitiesPay all remaining medical practice profits after expenses to the management company in exchange for the provision of management services, leased space, and leased equipment
Physician-owner(s) should participate in or oversee day-to-day patient care and supervision of clinical personnelRequire the physician-owner of the medical practice to pre-sign undated documents or certificates which permit physician’s removal from the practice
Physician-owner(s) should retain the right to terminate the management contractIncorporate a “break fee” in the management agreement, space rental, or equipment lease which is intended to penalize the medical practice’s physician-owner for breaking the management agreement or lease
The medical practice must pay fair market value for management servicesA management company should not make above-market loans to a medical practice
Monies earned from the provision of patient services should be kept within the medical practice and used to pay salaries, bills, and other medical practice expensesIf possible, a medical practice should not contract with the management company that also leases space and equipment to the medical practice

By following these simple do’s and don’ts the ownership, control, and direction of a medical practice will stay in the hands of the plenary licensed physician-owner, giving the MSO structure the greatest chance of being upheld by a court if ever challenged.

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Photo of James A. Robertson James A. Robertson

Partner and Chair, Healthcare Department

Mr. Robertson’s healthcare practice is reflective of his significant expertise across a wide range of legal disciplines, enabling him to effectively counsel clients on a myriad of healthcare regulatory, corporate and litigation matters. He represents a diverse array…

Partner and Chair, Healthcare Department

Mr. Robertson’s healthcare practice is reflective of his significant expertise across a wide range of legal disciplines, enabling him to effectively counsel clients on a myriad of healthcare regulatory, corporate and litigation matters. He represents a diverse array of healthcare industry clients including for-profit and not-for-profit healthcare and hospital systems, academic medical centers, nursing homes, home health agencies, medical device manufacturers, pharmaceutical companies, integrated delivery networks, physicians and physician practice groups, and healthcare private equity funds.

Mr. Robertson provides comprehensive representation in connection with all types of healthcare transactions, including corporate mergers and acquisitions, joint ventures, and divestitures. He assists clients with the structuring and creation of clinically integrated networks (CINs), organized delivery systems (ODSs), accountable care organizations (ACOs), multiple employer welfare arrangements (MEWAs), and health insurance companies. He oversees the establishment and purchase/sale of individual physician and group practices, ambulatory surgery centers, nursing homes, and assisted living facilities. He structures and negotiates compensation arrangements with physicians in connection with employment and exclusive contracting arrangements, medical directorships, physician recruitment initiatives, hospital department management, office and equipment leases, and management services arrangements. He also negotiates managed care agreements and risk-sharing arrangements with payors and represents healthcare clients in payor litigation.

On the regulatory and compliance fronts, Mr. Robertson regularly provides guidance on issues related to fraud and abuse laws, including the federal Anti-Kickback Statute and Stark Law, the New Jersey Codey Law, the certificate of need statute and Community Healthcare Asset Protection Act (CHAPA), as well as other regulatory compliance issues associated with healthcare transactions and physician-integration arrangements. He develops, implements, and maintains corporate compliance programs for hospitals and other providers in the healthcare industry and is well-versed in the compliance issues associated with, and the implementation of requirements under, the Health Insurance Portability and Accountability Act (HIPAA), the Emergency Medical Treatment and Labor Act (EMTALA), and the Affordable Care Act (ACA).

In the area of information privacy and data security, Mr. Robertson advises healthcare clients on issues arising under HIPAA and the Health Information Technology for Economic and Clinical Health Act (HITECH). This includes the drafting and negotiation of HIPAA compliant business associate agreements with third party vendors, drafting and assisting in the enforcement of privacy and security policies within client organizations, and providing guidance on record retention requirements and the physical or electronic storage of medical records. In addition, he represents healthcare clients in investigating, reporting, and remediating information breaches and the liability such breaches create under various information privacy and security laws.

Mr. Robertson assists clients in seeking advisory opinions from federal and state regulatory agencies, and regularly represents healthcare entities in Medicare, Medicaid, charity care, graduate medical education (GME) and disproportionate share hospital (DSH) reimbursement matters before state administrative agencies and the federal Provider Reimbursement Review Board. His work also encompasses internal audits and investigations, responding to government inquiries, investigations, subpoenas and search warrants, and providing advice in connection with voluntary self-disclosures and corporate integrity agreements (CIAs).

Mr. Robertson is a resource for addressing medical staff matters, providing counsel on fair hearing requirements and designing state-of-the-art medical staff bylaws. He also provides guidance in connection with strategic initiatives on system affiliations including the establishment of outpatient health care offices, diagnostic imaging facilities and ambulatory surgery centers.

Contact information: | 973.577.1784 | vCard | LinkedIn

For more information visit the Greenbaum, Rowe, Smith & Davis LLP website.