Practice Valuation – The Basics

“Dental practices sell for approximately 70% of last year’s gross receipts, right?”

We find it fairly common to be asked this question…which leads to a discussion on baseline valuations and how they are performed for a dental practice.

Baseline valuations are based on two classes of assets: tangibles and intangibles.

Intangible assets include, among other things, practice location, goodwill and reputation.  Tangible assets include, among other things, equipment, technology/software, and the condition of the physical office space and furnishings.  Typically speaking, the breakdown between intangible and tangible assets in a basic valuation is 75/25 percent.

Of course, other factors go into any basic valuation.  This includes:

1)  Patient Base – the more active patients the better.  A family practice with a wide range of ages is better than a practice with only an older population.

2)  Profitability – like any business, one must look at a practice’s margins to determine whether the valuation should include a premium.  Practices with high overhead in the form of staff salaries and/or rent may inhibit the ability to pay a large loan back to the bank.

3)  Physical Condition of the Premises – this takes into account the physical building space, the condition of the equipment and supplies, and furnishings like carpet, flooring, ceiling tile, paint, etc.

4)  Location and Demographics – simply stated, a practice in the heart of Dupont Circle in Washington, D.C. will include a premium versus one in a more rural area.  New dentists like to live in urban/suburban settings, thus the location could account for a large portion of the intangible side of the valuation.

5) Miscellaneous Economic Variables – a practice that thrives on public and private insurance patients only will not be as attractive as a pure Fee For Service practice.  In addition, one would look to see whether more expensive procedures (endo/perio/ortho) are kept in-house or referred out to others.

Practices do often sell for approximately 70% of the previous year’s gross receipts, especially in the greater metropolitan Washington, D.C. area where we see higher numbers based on the factors outlined above.  Specialist’s practices can of course be higher.

We can be reached at 202-888-1732 with any questions about dental practice valuations.

The Strisik Law firm is a Washington D.C. Business and Health Care practice.

Medical & Dental Shared Space Arrangements

Medical and dental space sharing relationships are not only utilized among general practitioners but also among doctors within the same or similar specialty (for example, in the dental world with endodontists and periodontists…and in the medical world, with pediatricians and prenatal care providers) as well as dentists and medical providers in different specialties (for example, orthodontic and pedodontic relationships or dermatologist and optometrist relationships).

Such arrangements prove valuable irrespective of the age of the practitioner or the business of his or her medical practice.  It is especially ideal for practitioners who are semi-retired and for active practitioners who wish to reduce the number of days which they practice while simultaneously seeking to reduce their overhead.  Here are 5 important provisions found in space sharing agreements that your Washington DC business lawyer or health care lawyer should include.

1. Term of Relationship. This provision in the agreement specifies the length of time of the relationship between the parties subject to any earlier termination as permitted in the document. The parties usually choose a term as short as six months and as long as five years depending upon the types of commitments made by the parties to one another. Even if both sides desire a long term relationship (for example, five years), the parties must identify in their agreement certain events which would appropriately give either the right to terminate the relationship with the other. Such events include, but are not limited to, revocation or long term suspension of one’s license to practice medicine, death, or long term total disability.

 2. Use of Facilities. This provision in the agreement is one of the most important in the entire document. Both sides need to address the office space and time restrictions, if any, placed on each party. Is the entire medical office (except for the private offices) available for use by each party or just select areas? Is the use of certain operatories and the lab exclusive or non-exclusive? Specific days of utilization of operatories by the parties should be clearly set forth in the agreement; however, should the same time restrictions apply to non-clinical use of the premises such as administrative work and various paperwork duties? Should the space and time restrictions be waived if the other party is not performing any medical procedures? Only if there is a patient emergency? Are the space and time restrictions to be determined solely by one doctor and which may be altered in such party’s sole discretion? Or are changes and revisions to the time and space terms possible only by mutual consent?  These all should be discussed alongside your Washington D.C. health care lawyer.

3. Form of Operation. The agreement should confirm that the parties acknowledge that there does not exist an employer-employee relationship or partnership relationship between the parties and, therefore, neither doctor has the right to bind contractually the other by the such doctor’s actions or the actions of his or her associates or employees.

4. Separately Incurred Expenses. Because each party to the Space-Sharing relationship has retained his or her own separate identity and has maintained his or her solo practice in a group setting, it is important for the parties to identify what expenses, if any, remain the “separately incurred” expenses of each party. The most common example of such separately born expense is the doctor’s utilization of the hygienist or nurse practitioner and sometimes medical assistants. If there are special supplies which are used only by one doctor, these items can similarly be excluded from any jointly shared listing of expenses and can remain the separately borne expenditure of that doctor.

5. Indemnification. As noted previously, the Space-Sharing or Space Sharing agreement should acknowledge that the parties are not merging their practices with one another (thereby creating a partnership or corporate relationship) but are only sharing space and various support services while retaining their separate and independent legal status. Accordingly, in the event that either doctor is improperly named as a defendant in a Maryland or Washington D.C. lawsuit for acts committed by the other space sharing doctor, the agreement should provide that the innocent or blameless doctor should be indemnified or held harmless by the doctor responsible for the events giving rise to the litigation. Such indemnification provisions should be mutual and reciprocal and should cover any and all court costs, legal fees and other expenses related to the defense of any lawsuit. The provision should also include that the indemnified party may elect to select legal counsel of his or her choice to defend himself or herself.

I have had situations where one doctor finds another doctor to join his/her space; after great amounts of time and money are spent setting up the new arrangement (notices, stationery, moving, phones/cables, equipment) the original doctor changes their mind. The now-again solo practitioner is served with some type of legal demand to uphold a contractual agreement.  While the agreement should not prevent either party from terminating the relationship without cause, the agreement should provide for compensation by one party to the other if the party seeking a termination is doing so without cause.  All the reason why choosing the right Washington DC metropolitan area health care and business lawyer for these space sharing arrangements is crucial.

HIPAA Guidance for the Health Care Professional in light of Recent Tragedy

http://www.hhs.gov/ocr/office/lettertonationhcp.pdf

The above letter written and distributed by the Department of Health and Human Services on January 15, 2013, reminds us all that health care providers may make certain disclosures regarding otherwise protected patient information.

When confronted with a good faith belief that a serious and imminent threat to the health and safety of the patient or others exists, health care providers may alert persons believed to be able to prevent or lessen the threat.

In light of recent events, the takeaway from this HHS letter is that a warning can go a long way.

If you require the assistance of a Washington D.C. area health care lawyer with expertise in HIPAA rules and regulation, please contact the Strisik Law Firm today.

The Practice Receives a Medical Records Subpoena: Now What?

Medical, dental, and other healthcare professionals who receive subpoenas or court orders need to proceed with caution before releasing medical information to third parties.  Just because your office has received a request from a law enforcement officer or an attorney with an official document doesn’t necessarily mean that HIPAA and other patient privacy laws have been waived.  Most importantly you need to carefully read the record request and communicate with your healthcare attorney prior to responding.  Records requests often come in the form of a deposition notice.  Despite the language of the notice, it may not be necessary for you or your records custodian to disrupt their day to appear at an actual deposition. Communication with your Washington D.C. health care attorney or Washington D.C. business attorney and making the request can clarify what you need to do in a given situation.

The following are some of the common types of medical, dental or other healthcare records requests that a healthcare provider might receive, along with some guidelines on to how to handle each.

Court Orders – It’s important to recognize that not all subpoenas originate from the Colorado courts. However, healthcare providers must comply with requests for protected medical information from the courts. If you receive a Maryland or District of Columbia court order, you must be careful not to disclose any information that is not specifically demanded in the document. You are not required to disclose to the patient that you have been ordered to release his or her medical records. However, this kind of notification is not prohibited.

Criminal Subpoenas and Search Warrants – Investigative subpoenas and warrants create a number of legal difficulties for healthcare providers. If you are approached with either of these types of documents by law enforcement, you should immediately contact your attorney before complying.

Civil Subpoenas, Deposition Notices and Discovery Requests – Oftentimes attorneys will submit subpoenas, deposition notices or other discovery requests without an accompanying Court order. Not all subpoenas are requests from healthcare providers, and outside of the medical community, these types of requests often stand by themselves. However, as a healthcare provider, you should first verify that the court in which the matter is being brought is one of competent jurisdiction. In addition, the subpoena, deposition notice or other discovery request should be signed by one of the party’s attorneys and notarized. When you receive the subpoena, notice or request, before responding to it, you should notify the patient to inform him or her of the request. Before releasing any records, you should be satisfied that your patient is aware of the subpoena or notice. Often in civil lawsuits, a the patients’ attorney wishes to object to disclosing certain records. By notifying the patient, you give the patient’s attorney time to make their objections to the court and can help protect yourself against claims against you for improper disclosure.

Remember, the key to avoid legal and ethical complications is to proceed with caution. Most situations involving requests for medical records allow time to produce the requested information. Unless a Court has issued an order, it’s reasonable to ask for additional time before complying if necessary. If you have any doubts as to whether or not you should comply with the subpoena, warrant, or discovery request, seek the counsel of an experienced Washington DC health care attorney or Washington DC business attorney specializing in health care.

Understanding the Challenges of Starting Your Own Business

Washington D.C. business lawyers receive variations of the following call or email frequently.

“Mr. Strisik, I have been working for Acme Widgets for 5 years. I am tired of working for someone else and want to launch an idea I have had. Can you please help me draft the paperwork to get started? Where do we begin?”

Here are the most common issues I advise my clients they must work through prior to moving forward.

1. Motivation – to be clear, I ask my clients whether they are at a career dead end and are acting out of desperation. Starting a new business should not be the solution to everything else not working. Rather, the new business should be the result of fulfillment of long-term goals, aspirations and planning.

2. Skill sets – at the beginning, entrepreneurs must wear numerous hats. They will be in charge of finance, accounting, human resources, sales and marketing, secretarial/administrative and technical support. Washington D.C. business lawyer meet hundreds of self-starters who are not always meant to undertake these varied roles.

3. Personality – most people know whether they are an introvert or extrovert. What they do not know, however, is how “big picture” and “detail oriented” they truly are until they launch into business ownership. The question I ask my clients is how they will plan the 24 hours in their day when nobody else is planning it for them. Accountability is a key to being a self-starter.

4. Professional goals – a 20 year veteran dentist came to me to launch her career in practice consulting. She wanted to spend more time with her children, who were all in grade school. About a year down the path, she had nearly forgotten to align her professional goals with the personal goals she set out with.

5. Financial goals – numbers, numbers, numbers. What look like good numbers to one person may look like poor numbers to another. I always ask my clients to project 1, 2 and 5 years down the line of financials in order to determine whether their financial goals will be met.

6. Financial capacity – a common trap for new business owners is capitalization of their business. Given that it could take years to turn a true profit, there must be clarity about how much can comfortably be invested to reach that milestone. It costs money to make money. The question is how much it will take before one must stop the bleeding.

7. Decision-making ability – the transition from corporate America to small business ownership means difficult decisions will no longer be made for you – but by you. I ask my clients whether they can often take the emotion out of a difficult situation in order to make a decision that is in the best interest of the business (rather than in the best interest of the individual).

Contact Strisik Law today if you are planning to start a business in the Washington, D.C. metropolitan area. At the outset of our conversations, it will be useful for me to give practical legal advice that will lead you towards financial success. Referring to the above checklist early and often will help us determine whether you are ready to proceed.

Avoiding Lawsuits brought by Former Employees

Lawsuits brought by employees, including former employees, often arise from a lack of adequate understanding of legal issues surrounding documentation and communication of employment issues.

One of many reasons for lawsuits is that these employees are not provided with a good understanding of why they were let go. The result? Employees leave feeling as though they were terminated for an illegal or unlawful reason.

Employers who take the time to write termination or exit letters can help the process.

The purposes of a termination or exit letter are as follows:

  • Provides written explanation of the reason for the termination
  • Uses actual facts and circumstances for the termination (missed work, did not report-in; repeated tardiness; reduction in force; position elimination; behavior)
  • Offers specific details for the employee
  • References employee manual or policy violated by employee action(s)
  • References any impact on co-workers and productivity

A good Washington D.C. business lawyer will suggest you provide this letter to the employee so he or she has an opportunity to comment or dispute its contents. The employee should then sign the letter or indicate in writing that he or she refuses to sign. The purpose of documenting this communication is to prepare for any lawsuit that may arise. The communications back-and-forth with the employee have provided you with a defense against any such lawsuit.

An attorney hired to represent the employee will have a difficult time finding merit in a suit.

Employers should be most concerned about making personnel decisions which are appropriate for the business needs of their organization. At the same time, employers must be aware of the potential for lawsuits by employees who have been discharged.

Through a determined effort to create, distribute and enforce procedures, however, and utilization of just this one tool described above, claims and successful lawsuits can be greatly reduced. An employer can benefit greatly by timely legal advice before problems arise. Guidance from a Washington D.C. business lawyer can help an employer establish a framework in which it is very unlikely that a terminated employee will succeed in a lawsuit. While all claims cannot be avoided, an employer can position itself to decrease its vulnerability to litigation, and to increase its chance of success if a claim is filed.

Problem Employees and the Employment Handbook

The only constant in life is change.  In employment, problems require change.

Problem employees can will ruin a business.

Employment issues must be dealt with using clear and concise policies, procedures and guidelines.  There is no better time than today to evaluate your business employment manual/handbook to determine whether your employees are provided with a “road map” of their work environment and your expectations of their time at work.

Employment policies and guidelines provide business owners’ with support for the employment actions they may take.
Employment lawyers create employee manuals / handbooks that are specific to your individual practice needs.   There is no one-size-fits-all solution.

Your manual may cover as many or as few issues as you choose, but should always include the following key provisions:

Equal opportunity statement – This states that race, creed, color, religi0n, gender, sexual orientation, national origin, disability, age or covered veteran status will not affect employment decisions in any way.

Definition of the work schedule – This indicates that all employees are to be at their assigned work areas performing their assigned tasks at a certain time and in a certain manner.

Compensation & Benefits – This will classify an employee as exempt or non-exempt; details when the employee can expect to be paid, how wage increases are handled and whether they are eligible for overtime; and what type of benefits your business provides (health, dental, vision, 401k, vacation, etc.).

Codes of Conduct – This section clarifies expectations regarding employee dress, use of company equipment, punctuality, use of tobacco, alcohol, and drugs, as well as policies regarding personal phone calls, Internet usage, and personal visits.

Performance review policy – This section explains exactly how and when employee performance is evaluated, including performance review criteria.  It may also spell out the policy on progressive discipline and unsatisfactory performance, and it may list those infractions that could result in termination of employment.

Time off policies or “Leave” policies – This section explains policies on vacation, parental/maternity leave, illness, military, funeral, personal, jury duty, holidays, personal days, etc.

Documentation is critical and preparation is key.  Unfortunately, most businesses wait until employee behaviors are so problematic that they becoming damaging before a robust employment manual is created.  Proactively assessing your business employment practices will save time, headache and expense.

 

Do You De-Identify?

$1,000,000

$500,000

$2,500,000

$250,000

The above represent a short list of penalties imposed within the last year by the U.S. Department of Health and Human Services on covered entities (health care providers, insurers, and others) who have breached the HIPAA Privacy Rule by disclosing a patient’s individually identifiable health information.  Just Google “HHS HIPAA Fines” and the results will be staggering.

Bad publicity, costly fines and lengthy litigation can be avoided when information about a patient is de-identified prior to disclosure.

Under the HIPAA Privacy Rule, information can be De-Identified so that the information itself is no longer individually identifiable.  The key is the “individual” component of this equation:  de-identified informatio can be used and disclosed for a wide variety of purposes without getting the health care entity in hot water with the government.

Health care entities must question the manner in which they obtain, use and disclose information pertaining to their patients.  In order to avoid costly litigation and penalties, health care entities should note the following:

1.  The law allows de-identified personal information about a patient to be disclosed;

2.  The law does not provide a privacy or monetary interest for an individual whose information has been de-identified prior to disclosure; and

3.  HIPAA contains guidance as to the appropriate manner in which personal information is de-identified; as long as those rules are followed, the Courts in the U.S. cannot intervene.

Learning how to properly de-identify patient’s personal information in today’s litigious society is crucial.  The benefits include avoidance of fines, lawsuits and negative publicity.

 

Don’t Overlook the Office Lease!

“I agreed to what?!”

“I did not realize I could negotiate.”

“We did not view our lease as an asset.”

Do any of the above sound familiar?  Today’s office lease is one of the practitioner’s greatest assets.  When reviewed, analyzed, negotiated and executed properly, one easily see how an office lease will add to the value of the practice.  Unfortunately, far too many practitioners find themselves wishing they took the time to have a skilled attorney review their office lease prior to signing.

The result?  Anywhere between 10 and 20 practitioner-unfavorable provisions that impact the value of their practice.

Chances are, if your lease was written prior to 1980, there are mutually beneficial provisions for landlord and tenant.  Over the last 30 years, landlord attorneys have creatively changed the office space landscape.

Our court system may or may not help.  Some state courts will draw the proverbial line in the sand, that is, to protect tenants from placing their signature onto an unfavorable lease.  But for every tenant friendly state, there is an equal and opposite landlord friendly state that will seek to protect the law of the contract.

How to protect against the unknown?  Have a qualified attorney review and negotiate your office lease.


Some of the more obvious clauses your professional practice attorney should review include
:

1.  Term & Termination – the length of the lease and renewal options, including notice provisions

2.  Recapture – allows the landlord to terminate a lease if the practitioner asks for an assignment or sublet

3.  Extension (“Personal Option”) – allows only the practitioner to renew; making it personal to the practitioner-only

4.  Assignment/Sublet – crucial when the practice wants to expand, space-share, or sell

The following are some “must” review aspects of a lease to avoid impacting the value of the practice:

1.  Exclusivity – allows the space to continue to be rented to a medical/dental practitioner only

2.  Premises Damage or Repairs & Maintenance – these sections are often laden with ways in which a landlord can get “out” of making timely repairs that will affect the ongoing activity of the practice

3.  Release of Liability – should be examined to determine whether personal liability will be extended beyond the lease term

4.  Use and Care of Premises – if not filled-in appropriately, this allows a landlord to recoup for any unauthorized use

5.  Subordination, Non-Disturbance and Attornment – these clauses outline and define the relationship between lenders to the landlord (current and future) and how the tenant may be affected if the lender ever forecloses on the property

6.  Hold-over – a penalizing clause that defines the period when a current lease ends and prior to the negotiation of a new lease.  Miscalculations of the time it may take to build out a new practice space  (and thus, not allowed to occupy a new space) are one  reason why this clause must be favorable to the practitioner.

The 10 examples above are some common provisions found in today’s medical/dental office lease.  Far too often these provisions leave a practitioner without recourse when they are accepted as-is.   The danger is compounded when the lease is being negotiated by a new medical practitioner – who may be stuck with unfavorable clauses to begin her career.

An attorney qualified to represent professional practices clients can review and negotiate the most practitioner-tenant friendly provisions on your behalf.  The result of such work will be the protected value of your practice.

 

Dentists, Doctors, their Staff, and Social Media

Does your practice have an effective and up-to-date compliance plan?

The provisions regarding Social Media must be looked at closely in light of recently issued guidance from the National Labor Relations Board (NLRB).

As background, what health care providers and their staff are working to avoid, first and foremost, is dissemination of confidential patient information.  More particularly, protected health information (PHI), which includes any one of eighteen categories of one’s health, treatment, or payment that individually identifies the person.

To be individually identifiable, there must be a reasonable basis to believe the information can be used to identify the individual.   This includes:

  • Names;
  • Addresses;
  • Date of birth;
  • Telephone numbers;
  • Fax numbers;
  • Email addresses;
  • Social Security Numbers;
  • Medical records;
  • Account numbers;
  • VIN numbers and license plates;
  • Web addresses;
  • IP addresses;
  • Fingerprints and voice prints;
  • Photographic images;
  • Any other unique identifying numbers, characteristics or codes.

Why, then, is there a slippery slope when it comes to Social Media policies?

In summary, the NLRB tells us as practitioner-employers, we must not infringe upon or chill our employee’s right to discuss the terms and conditions of employment, whether inside or outside of the practice (including families, friends, and third parties).

Social Media policies, therefore, cannot be overly broad or unduly restrictive.  They must contain specific examples of the restricted use of Social Media in the context of the practice.  For example, a practitioner may want to make it clear in her practice policies and procedures that “Social Media usage may never include any reference to a patient of the practice” and provide numerous real-life limiting examples (using some of the 18 factors listed above)  of how Social Media can be damaging to the practice.

For the practitioner, keep in mind under the National Labor Relations Act, it is an unfair labor practice act to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7…of the NLRA.”

All the reason why a clear and effective compliance plan is crucial to your practice.  If ever in doubt as to the effectiveness your policies and procedures may have on your employees and to an outside party, including the NLRB, seek qualified advice and counsel from a health lawyer.