The decision to close your practice may be a difficult one; careful planning and a systematic approach are needed to minimize legal and financial exposure.
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AAOS Now

Published 9/1/2012
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Todd A. Rodriguez, JD

What to Consider When Closing Your Medical Practice

Address these legal and practical issues before shutting the door

Orthopaedic surgeons may decide to close their medical practices for many reasons. Some may elect to sell their practices to hospitals and become hospital employees. Others may have experienced a disability or the unexpected death of a key partner in the practice. Still others may decide that the current regulatory and economic landscape is becoming too burdensome, and some will simply wish to retire.

Whatever your reasons for winding down your medical practice, you’ll need to consider both legal and practical issues before you lock up and leave. This article addresses some of the key considerations you’ll face.

Selling the practice
Once you have decided to close your practice, typically the simplest—and most ideal—approach is to sell it to a hospital or another local practice. Keep in mind, however, that your practice will be more attractive to potential buyers if you are willing to stay on for at least a transitional period of time following the sale. If patients know that their long-time physician is still available to treat them, they will likely return to the practice after the sale, ensuring a solid patient base for potential buyers.

The next step is selecting a date to cease practicing. Contractual obligations may be a deciding factor when choosing this date. To avoid becoming the target of a breach of contract lawsuit or other legal claim, review your existing service and vendor contracts—including managed care participation agreements—because each of these may have specific termination and notice requirements.

If you are unable to find a willing buyer, or time does not permit you to wait for the right buyer to come along, you may have to close down the practice outright. When this happens, your first thought should be what will happen to your current patients. Under federal and most state laws, a physician is responsible for keeping patient medical records safe and for making them available to the patient upon request.

The ideal solution would be to find a local practice that, in hopes of retaining some of your patients, is willing to assume custody of your patient charts. Under these circumstances, you should have a medical record custody agreement with the practice, requiring it to comply with the law in storing, maintaining, and producing the medical records. If you are unable to find a local practice to take custody of your records, check with your local hospital to see if it would be willing to take custody. If not, the only option may be to keep the records in storage for the time period required by state law or as recommended by your medical liability insurance carrier.

Notifying patients
The next step should be to notify patients of your decision to close your practice. Ideally, you should give patients sufficient time to make other arrangements for their ongoing care, because failure to do so could lead to a claim of patient abandonment. Some states require that you give a specific number of days notice before terminating the physician-patient relationship. If your state is silent on the subject, consider seeking guidance on how much notice is advisable from both legal counsel and your malpractice insurance carrier.

You may also suggest that patients contact your office or their local medical society for recommendations on continuing orthopaedic care and that they go to their local emergency department (ED) if they have an emergency after your practice has closed. Finally, patients should be notified of where their medical records will be stored and how they can obtain their records or have them transferred to a provider of their choice.

Others involved in the patient care process, including your local hospital and referral sources, will also need to be notified of the impending close of your practice. Depending on your hospital’s medical staff arrangements, they may need this notice to arrange for proper orthopaedic coverage of their ED.

You will also need to notify your employees so that they may begin looking for alternative employment. Time this notice carefully to ensure that you are not left with a skeleton crew while you are still actively practicing. As part of this process, you will need to make arrangements to terminate employee benefit plans and deal with retirement plan funds. When dealing with employment-related issues, be sure to work with legal counsel to minimize your legal exposure under applicable state and federal laws.

Insurance considerations
Even if you are retiring completely from practice, you may still be named in a malpractice action based on services rendered while you were in active practice. Accordingly, you should notify your medical liability insurance carrier of the decision to close your practice. If you have claims-made insurance, make arrangements to purchase an appropriate extended reporting endorsement (ie, tail insurance).

Similarly, you should notify your other insurance carriers (eg, general liability, errors and omissions, and employment liability) to let them know when you will be ceasing operations. In many circumstances, you or your medical practice entity may still have legal exposure for events that occurred prior to closing the practice. Therefore, it may be advisable to continue your insurance coverages for some time after the practice has closed. If you practice through a legal entity such as a professional corporation, you may wish to retain your insurance coverages until the practice entity has been dissolved, which may take several months or even years after you stop practice.

Dissolution
Once you have stopped actively rendering services through your practice, you can begin the actual “wind-down” process. If your plan is ultimately to dissolve your corporate or other legal entity, you will need to review and follow state law on the dissolution process. Typically, this involves collecting all accounts receivable due to the practice, liquidating the practice’s assets, and paying the practice’s outstanding debts and taxes. The practice accountant will then file a final tax return for the entity, which clears the way for the dissolution process. This process may require you to obtain clearances from your state corporate and revenue departments and can take several months or even years to complete.

Although the decision to close your medical practice may be difficult, with careful planning and a methodical approach, the process need not be overwhelming. The process is not, however, without its potential legal pitfalls.

Once you’ve closed your practice, you don’t want to have to worry about any ongoing legal exposure. It is important, therefore, to work closely with your legal and accounting advisors to ensure that you minimize your legal and financial exposure in closing down your practice.

Todd A. Rodriguez, JD, is a partner in the Exton, PA, office of Fox Rothschild LLP. He can be reached at trodriguez@foxrothschild.com