Chapter  32    PROFESSIONAL PRACTICE ARRANGEMENTS

INTRODUCTION...... 32:2

CAPITALIZATION.... 32:3

Overview......... 32:3

Financial Advisors.............. 32:3

The Business Plan.............. 32:3

Sources of Capital.............. 32:4

Conclusion....... 32:6

THE PRACTICE CONSULTANT........ 32:6

Introduction.... 32:6

Finding the Practice Consultant.............. 32:7

Hiring the Practice Consultant.............. 32:8

NEVADA LAW RELATED TO MEDICAL PARTNERSHIPS..... 32:9

Liability Concerns of Partnerships............ 32:11

NEVADA LAW RELATED TO PROFESSIONAL ASSOCIATIONS... 32:11

Overview....... 32:11

Who May Participate in a Professional Association............ 32:12

Liability Issues for the Professional Association............ 32:12

NEVADA LAW RELATED TO PROFESSIONAL CORPORATIONS... 32:13

Overview....... 32:13

The Medical Professional Corporation............ 32:13

"One Purpose" Rule of Professional Corporations............ 32:14

Who May Participate in a Professional Corporation............ 32:14

Liability Concerns of the Professional Corporation............ 32:16

THE INDEPENDENT CONTRACTOR ARRANGEMENT.... 32:16

Overview....... 32:16

Employee vs. Independent Contractor............ 32:16

IRS Safe Harbor Provision............ 32:18

Fraud and Abuse............ 32:20

Self-referral prohibitions............ 32:21

Pension plan issues............ 32:22

Malpractice coverage............ 32:23

Medicare assignment issues. 32:23

Anti-trust issues............ 32:23

Obligations of being self-employed............ 32:24

EMPLOYMENT CONTRACTS......... 32:24

Overview....... 32:24

The Employer............ 32:25

The Employee............ 32:26

Negotiation... 32:26

Selected Contract Terminology............ 32:27

FAMILY MEDICAL LEAVE ACT............ 32:30

APPENDIX A - Model Contractual Arbitration Provision . . . . . . . . . . . . . . . . . . . . . . . .32:33

APPENDIX B - Model Consultancy Agreement............ 32:34

INTRODUCTION

The practice of medicine has become increasingly more complex as it adapts to changing law and developing business structures.  A physician is confronted with many options in establishing a professional practice arrangement ranging from the simple sole practitioner to more complex entities such as limited liability corporations, partnerships, and reciprocal practice groups.

Each practice entity offers its own advantages and liabilities, but they all share many common issues of concern such as capitalization, employment of staff, and conformity with local, state, and federal regulations.  This chapter will discuss several forms of business arrangements and some of the primary issues of concern for professional practice arrangements.

CAPITALIZATION

Overview

Generating sufficient capital to develop and sustain a practice, in whatever business form chosen, presents an important challenge.  Medicine is a profession and a business and, like most businesses, may require funding from external sources such as lending institutions or investing shareholders.  Funds will be needed to lease or acquire office space, furnishings, administrative equipment such as computers, phone systems, fax machines, and diagnostic equipment and therapeutic tools.  Capital may also be needed to pay staff if regular income from billing is insufficient.  Before beginning any business venture, it is critical to set goals, analyze needs, identify sources of funding, and develop a coherent business plan.

Financial Advisors

Depending on the complexity of the business structure contemplated, and the concomitant capital needs, a professional certified financial consultant may be helpful in providing information regarding the various sources of capital available.  Other professionals, such as attorneys or certified public accountants, offer a wealth of experience and expertise at identifying advantages of and disadvantages to the many choices facing a physician establishing some form of business.  Consultation with these professionals will provide invaluable assistance in devising a comprehensive business plan likely to satisfy cautious lenders.

The Business Plan

Most, if not all, lenders, and particularly institutional lenders, will require a formal professional business plan in order to reasonably assess the prospective capital needs and risks associated with a new business or loan.  The business plan begins with identifying financial requirements in annual increments calibrated to the duration of the loan.  Depending on the amount of capital requested, a business plan generally includes a description of the business entity, a pro forma statement of earnings and liabilities anticipated, and some market evaluation such as management profiles, industry trends, and an assessment of the local market.  It is advisable to consult with the lender first to inquire specifically what information is required.   Lenders are often helpful at evaluating the risk in a particular plan.

Sources of Capital

Banks and other Financial Institutions .  The most common source of funding remains banks and other financial institutions, especially those familiar with servicing the needs of the medical field.  Some institutions even specialize in serving physicians and can provide practical advice on the various forms of business organization.  Such institutions or banks may be preferable for their experience with other medical ventures because they will not have to be convinced of the security of their loan.

Other financial institutions, such as savings and loans associations or thrift and loan companies (also known as institutional lenders) may provide funding.  These institutions are subject to the same regulations and supervision of the Federal Depository Insurance Corporation ("FDIC") as the full service banks.  Both may offer a full array of collateral services and accounts, such as business accounts, cash management, or payroll services along with funding.

Non-depository lenders such as licensed commercial lenders typically do not offer the range and variety of services and options but may be more flexible in their lending posture.  These lenders are not subject to the same FDIC regulations, but are regulated by other state and federal requirements.

Non-Institutional Sources .  Many other sources of funding exist aside from banks and lending institutions that potentially could provide capital at better terms, in exchange for an equity interest, particularly where the risk is greater than an institution is willing to assume.

A practitioner may consider utilizing family resources if available and sufficient.  In the alternative, family resources may be used as security for primary loans.  It is important to be aware of IRS requirements for gifts and arm-lengths transactions in family lending situations.  Funds transferred as a gift carry certain annual limitations, currently $10,000.00 maximum per annum, before incurring substantial gift taxes.  Loans must be bona fide meaning that they carry an actual interest and repayment schedule that is commercially reasonable.

A physician may consider requesting funding from other interested parties, such as hospitals and established Independent Practice Associations.  These parties are experienced and knowledgeable of the risks involved in the practice of medicine and may be more motivated to provide capital to physicians with whom they are familiar.  When entering financial relationships with other interested parties, care must be taken to avoid violating fraud and abuse laws, antitrust regulation, or the more recent prohibitions against referrals between entities having a broadly defined financial arrangement.

A physician may consider assuming limited partners or other equity arrangements that offer an investment opportunity for non-physicians whose limited purpose is to provide capital in exchange for some regular return.  Limited partnerships have prohibitive initial costs associated with conforming to Securities Exchange Commission ("SEC") and Internal Revenue Service ("IRS") code requirements.  However, they may be preferable for long-term investment arrangements of considerable capital outlay, generally in excess of $10,000.

There may also be funds available from institutions established with the sole purpose of providing investment capital to professional ventures such as medical groups.  For example, medical equipment companies have formed joint associations to provide loans to physicians and other practice groups.

A physician may also consider utilizing personal resources to secure financing or provide instant capital as needs arise.  Funding may be acquired by pledging or liquidating a pension plan, home or other real estate equity, or savings or insurance funds.  These resources should be expended judiciously because there may be limitations on the use and amounts available from each source.

There are various other types of innovative financing arrangements that are more common in other business and have recently been introduced to the medical field.  One such device is called "accounts receiving financing." This method has been successfully incorporated in other business contexts such as securitization of mortgages and other debt instruments.  Simply put, this type of financing involves pledging to the lender the income stream from active accounts receivable.  It is necessary then to demonstrate a reliable history of payment from a minimum number of accounts receivable in order to minimize the lender's risk.  This type of financing is attractive to lenders in a fairly limited environment and physicians should also be aware of limitations of assigning Medicare accounts.

There may also be financing available from small business investment companies.  These are privately owned, for profit entities that are licensed by the Small Business Administration to make loans which may not be fully collateralized.

Other creative financing arrangements may be attractive depending on the particular circumstance for which a loan is required.  For example, many vendors are willing to finance the purchase or lease of equipment at commercially competitive terms.  In acquiring equipment such as computers and diagnostic or therapeutic devices, a physician should carefully consider the rate of obsolescence in evaluating whether purchase or lease of equipment is preferable.  Should a physician wish funding for expansion or renovation of premises, the lessor may be inclined to finance such endeavors in return for increased rents or other benefits.  The parties may find quite creative methods to accomplish these goals, such as reduced or waived rent in exchange for possession of fixtures and improvements at the termination of the lease.

Other more advanced and complicated techniques for capitalization, such as Real Estate Investment Trusts ("REITs"), off-balance-sheet financing or sale-leasebacks, or tax exempt funding, may be advantageous.  Minority practitioners may be eligible for certain low or no interest funding from federal or state entities.  However, these methods are beyond the scope of this chapter and should be carefully explored with the assistance of an experienced professional advisor.

Conclusion

Adequate financing provides the lifeblood of any successful business.  The most critical initial step in any business endeavor is formulating an accurate and detailed business plan which identifies financial needs, locates sufficient investment capital, and evaluates sources of anticipated income.  A comprehensive plan will guide appropriate financing choices between the various lending opportunities and determine precisely what expert assistance is needed.  A valuable resource is the AMA's Physician Capital Source (1-800-AMA-1066, ext. 2) which can assist with developing a business plan and providing access to potential financing sources.

THE PRACTICE CONSULTANT

Introduction

Many physicians are finding that the services of a practice consultant are quite valuable in contending with the diverse and complex issues confronting the modern medical practitioner.   A practice consultant may be needed to determine what type of practice arrangement and business entity is most advantageous, or to navigate the fast-developing technology of automated billing and record keeping computer programs and associated network hardware.   It is important to clearly identify desired goals prior to hiring a practice consultant, and it is equally important to find a consultant with the experience and expertise to achieve those goals.

Finding the Practice Consultant

A practice consultant is hired whenever a physician or staff lack the knowledge or expertise to resolve an important practice issue.   Attorneys are appropriate to advise concerning various practice arrangements and business entities.   Other organizations exists for the specialized purpose of consulting and advising medical practitioners regarding more technical aspects of the field or, for example, specialized tax or investment planning.   It is critical that the physician first identify the goals desired and then set out to determine who or what entities are potential consultants.   Consultants can provide the most benefit if they are involved at the earliest stage of a project.

Consultants may be found in many different ways, but it may be easiest to inquire of other practice groups who may have used similar services.   At the same time, it will be possible to discuss that group's experience and obtain a reference of the consultant's contribution.   The local county medical society may also be able to provide referrals to specialized consultants.

When considering several different consultants, it is important to review the consultant’s prior experience, and education.   Ideally, a consultant will have advanced education in the specific field of expertise desired, but will also have either (or both) education or experience in the medical field.  Most professional fields, like medicine, have become highly specialized and a competent tax attorney may have little or no experience to offer in forming a professional corporation.

Most consultants will agree to an informal consultation and interview prior to any formal engagement.   This provides an opportunity for each party to consider whether the other is right for the task.   The practitioner should be concerned about the consultant's ability to formulate well-reasoned solutions to the practitioner’s problems or objectives.   For more complex endeavors, the practitioner may request a formal proposal from the consultant stating the consultant's understanding of the task assigned and laying out in some detail possible options to accomplish the stated goals.   The proposal should also include a cost analysis for each option with allowances for price variances in materials or sub-contractors.   A practitioner may send out a "request for proposals" to several different qualified consultants and consider and compare their responses.   The request may be as simple as a letter stated the objectives and inviting submissions in response.

Hiring the Practice Consultant

Once a suitable practice consultant has been found, it is important to establish an employment relationship that protects the physician.   Consultants and the parties they consult often have interests at odds: the party paying the consultant's hourly or daily fee wishes the job completed as quickly as possible while the consultant may be inclined to drag the task out by complicating the objectives or solutions.   On the other hand, a per-job fee may not accommodate the vagaries of certain tasks and contingencies that develop.   The per-job consultant may be constantly tacking on additions to the bill for unforseen events that develop.   Expenses should also be addressed in advance so that each party knows who is responsible for incidentals such as photocopying, telephone, travel, or other out-of-pocket expenses.

Compensation and all other parameters of the consultant's employment should be addressed in a written contract of employment.   A sample consultancy agreement follows this chapter as Appendix B.  Several relevant contract provisions are discussed later in this chapter under employment issues.

The physician employing a consultant may be required to withhold federal and state taxes and social security, and may be required to provide benefits, if the consultant qualifies as an employee rather than independent consultant.   For a more detailed discussion of persons or entities that qualify for independent contractor status, and for whom an employer is not required to make withholdings, see the section on independent contractors in this chapter.

NEVADA LAW RELATED TO MEDICAL PARTNERSHIPS

Nevada has adopted the Uniform Partnership Act ("UPA") which governs the formation and activities of partnerships in most states.  The act applies to medical partnerships where those entities provide professional services, defined as any type of personal service which may legally be performed only pursuant to a license or certificate of registration.  NRS 87.020(5). 

As discussed earlier, a partnership, including registered limited liability partnerships, is an association of two or more persons to carry on as co‑owners a business for profit.  NRS 87.060(1).  “Persons” may be individuals, partnerships, corporations, and other associations.  However, the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.  An association is not a partnership under Nevada law, unless the association would have been a partnership according to the statutory definition before July 1, 1931.  NRS 87.060(2).

The UPA does not require any particular formalities to establish a partnership, as compared to corporations, which are required to file articles and other recordings with the Secretary of State's office.  A partnership most commonly arises out of a declaration in writing describing the relationship between parties, their mutually respective rights and obligations.  A partnership may be found where the parties evidence their intent to establish a partnership through their acts and words, even absent a written agreement.  The UPA uses a process of elimination to rule out various other arrangements that are not partnerships.  NRS 87.070.  In determining whether a partnership exists, these rules apply:

1.         Persons who are not partners as to each other are not partners as to third persons.

2.         Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co‑owners do or do not share any profits made by the use of the property.

3.         The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.

5.                  The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference may be drawn if such profits were received in payment:

(a)            As a debt by installments or otherwise;

(b)            As wages of an employee or rent to a landlord;

(c)            As an annuity to a surviving spouse or representative of a deceased partner;

(d)            As interest on a loan, though the amount of payment vary with the profits of the business; or

(e)            As the consideration for the sale of a good will of a business or other property by installments or otherwise.

Generally, it is most advisable for individuals desirous of forming a partnership agreement to obtain appropriate counsel and carefully document their intentions, including profit, loss, and expense sharing apportionment.

Should an agreement fail to adequately delineate the partners' respective roles, or if the agreement is completely silent as to some important aspect, the UPA provides a number of "default" principles.  NRS 87.180.  These rules provide, for example, that no person may become a member of a partnership without the consent of all the partners.  Each partner must be repaid his contributions, whether by way of capital or advances to the partnership property, and share equally in the profits and surplus remaining after all liabilities, including those owed to partners, are satisfied.  Each partner shall contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits.  The partnership shall indemnify every partner in respect of payments made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation of its business or property.  A partner, who in aid of the partnership makes any payment or advance beyond the amount of capital which he agreed to contribute, must be paid interest from the date of the payment or advance.  A partner may receive interest on the capital contributed by him only from the date when repayment should be made.  All partners have equal rights in the management and conduct of the partnership business.  No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs.  Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners.  No act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners.

Liability Concerns of Partnerships

Under Nevada law, every partner is considered an agent of the partnership, for the purposes of the partnership business.  As such, the acts of every partner in apparent conduct of  the partnership's  business is chargeable to the partnership, unless that partner in fact has no authority to do the act, and the person with whom the partner deals knows he lacks such authority.  N.R.S.  87.090.  All partners are jointly and severally liable for any act or omission chargeable to the partnership, and also for all other debts and obligations of the partnership.  N.R.S.  87.150.  This indicates that partners can be held personally liable for their partners' wrongdoings.  

There is a slight difference with regard to the liability of new, incoming partners.   Nevada law states that a person admitted as a partner into an existing partnership is liable for all obligations of the partnership that existed before his admission as though he had been a partner when such obligations were incurred.   However, the incoming partner's liability for wrongful acts or omissions that occurred before his admission to the partnership shall be satisfied only out of her share of the partnership property, not personal assets..  N.R.S.  87.170.  

The doctrine of "Partnership by Estoppel" also creates liability concerns.  The effect of this doctrine is to create the legal fiction of a partnership where no formal partnership previously existed if individuals conduct themselves such that a reasonable observer would conclude a partnership existed.  When a person represents to others that he is a member of a partnership, or consents to another representing him to others as a partner in an existing partnership, he is liable to the person who relies in good faith on that representation.  N.R.S. 87.160. 

NEVADA LAW RELATED TO PROFESSIONAL ASSOCIATIONS

Overview

A professional association is formed upon filing a certified copy of articles of association, and payment of appropriate fees, with the secretary of state's office within 30 days of its organization.  NRS 89.210.

Who May Participate in a Professional Association

As with a professional corporation, members who organize a professional association must all be natural persons licensed to render the same specific professional services as those for which the professional association is organized.  A professional association may render professional service only through its members and employees, all of whom must be licensed to render the professional service.  NRS 89.230.

In the event that any member of a professional association becomes ineligible to practice in the association's service field, that member must sever within a reasonable time all professional services with, and financial interest in, the professional association.  NRS 89.240.  The professional association may by its articles provide for severance pay or for compensation for past services upon termination of a members association, whether by death or license revocation.

No membership interest in a professional association may be sold or transferred except to one who is eligible to be a member of the association or to the personal representative or estate of a deceased or legally incompetent member.  The personal representative of such a member may continue to own such interest for a reasonable period, but may not participate in any decisions concerning the rendering of professional service.  A member may transfer his interest in the association or any other interest in the assets of the association to a revocable trust if he acts as trustee of the revocable trust, and any person who acts as co-trustee and is not licensed to perform the services for which the association is organized does not participate in any decisions concerning the rendering of those professional services.

The articles of association may provide specifically for additional restrictions on the transfer of members’ interests and may provide for the redemption or purchase of such an interest by the association or its other members at prices and in a manner specifically set forth in the articles.

Liability Issues for the Professional Association

A professional association does not insulate a physician from liability for his own wrongful acts or omissions, but a member or employee of a professional association shall not be personally liable in tort for any act in which he has not personally participated.  Therefore, Nevada law shields a member of a professional association from vicarious liability for another members negligent acts.  Furthermore, a member or an employee of a professional association shall not be personally liable in contract for any contract which he executes on behalf of a professional association within the limits of his actual authority.  NRS 89.060.

NEVADA LAW RELATED TO PROFESSIONAL CORPORATIONS

Overview

As in most states, a professional corporation in Nevada is legally formed upon satisfaction of certain statutory requirements and filing formalities common to corporations in general.  For example, the entity must have a unique name that is followed by the designation "professional corporation" or its equivalent.  The corporation must have by-laws that delineate the structure and administration of the business.  The law requires that the board of directors of the corporation file with the secretary of state's office, the articles of incorporation and various other documents along with a nominal filing fee.  Corporations must hold regular meetings, and record and maintain the minutes of those meetings.

The Medical Professional Corporation

In Nevada, a corporation may lawfully engage in the practice of medicine only if one or more licensed physicians incorporate under, and strictly comply with, the provisions of the Professional Corporations and Associations Act.    NRS 89.010.  The Nevada Attorney General has issued an opinion stating that no corporation organized under the state's general corporation law may lawfully practice medicine, but one or more physicians may practice medicine in a corporate form if they are incorporated.  AGO 219 (10-3-1977).  A professional corporation is one that renders any type of personal service which may legally be performed only pursuant to a license, certificate of registration or other legal authorization.  The effect of the Attorney General's opinion is to require that a corporation engaged in the practice of medicine is  organized for the purpose of practicing medicine and that such a corporation include at least one licensed practitioner.

"One Purpose" Rule of Professional Corporations

Nevada law governing professional corporations is nearly identical to statutory provisions  for professional corporations in other states.  A professional corporation, as compared to a private corporation, may be organized only for the purpose of rendering one specific type of professional service and may not engage in any business other than rendering the professional service for which it was organized and services reasonably related thereto.  NRS 89.040.  But, a professional corporation may own real and personal property appropriate to its business and may invest its funds in any form of real property, securities or any other type of investment.

Other important exceptions to the "one purpose" rule exist for medical professional corporations, including those engaged in homeopathy and osteopathy, and provide that such professional corporations may market and manage additional professional corporations which are organized to render a professional service relating to medicine, homeopathy and osteopathy.  A professional corporation may render a professional service only through its officers and employees, all of whom must be authorized to render that professional service.  NRS 89.050.

Who May Participate in a Professional Corporation

Since a professional corporation is, by its definition, one organized to provide certain professional services, Nevada law limits those eligible to own a professional corporation to those who are licensed to practice in the corporation's purpose field.   NRS 89.070  The law restricts ownership and transfer of shares in the professional corporation in several important respects.

A professional corporation may not issue any of its stock to anyone other than a natural person who is licensed to render the same specific professional services as those for which the corporation was incorporated.  No stockholder of a professional corporation may enter into a voting trust agreement or any other type of agreement vesting another person with the authority to exercise the voting power of any or all of his stock, unless the other person is licensed to render the same specific professional services as those for which the corporation was incorporated.  No shares of a professional corporation may be sold or transferred except to a natural person who is eligible to be a stockholder of the corporation, or to the personal representative or estate of a deceased or legally incompetent stockholder.  The personal

representative or estate of the deceased or incompetent stockholder may continue to own shares for a reasonable period, but may not participate in any decisions concerning the rendering of professional services.

In addition to the rather narrow restrictions on ownership and transfer of interests in a professional corporation, Nevada law further provides that the articles of incorporation or bylaws may include even more restrictions on the transfer of shares and may provide for the redemption or purchase of the shares by the corporation, its stockholders, or an eligible individual account plan at prices and in a manner specifically set forth in the articles of incorporation.  A stockholder may transfer his shares in the corporation or any other interest in the assets of the corporation to a revocable trust if he acts as trustee of the revocable trust, and if any person who acts as co-trustee and is not licensed to perform the services for which the corporation was incorporated does not participate in any decisions concerning the rendering of those services.

But, a person not licensed to render the professional services for which the corporation was incorporated may own a beneficial interest in any of the assets, including corporate shares, held for his account by an eligible individual account plan sponsored by the professional corporation for the benefit of its employees, which is intended to qualify under section 401 of the Internal Revenue Code (26 U.S.C.  § 401).  If the terms of the trust are such that the total number of shares which may be distributed for the benefit of persons not licensed to render the professional services for which the corporation was incorporated is less than a controlling interest and:

a.         The trustee of the trust is licensed to render the same specific professional services as those for which the corporation was incorporated; or

b.         The trustee is not permitted to participate in any corporate decisions concerning the rendering of professional services in his capacity as trustee.

A professional corporation in which all the stockholders  are licensed to render the same specific professional service, may acquire and hold stock in another professional corporation, or in a similar corporation organized pursuant to the corresponding law of another state, if all the stockholders who are natural persons of the corporation whose stock is acquired are licensed in that corporation’s state of incorporation to render the same specific professional service as the stockholders who are natural persons of the professional corporation that acquires the stock.  NRS 89.070.

If an officer, stockholder, director, or employee is disqualified professionally from the practice of medicine by the state board, he shall sever within a reasonable period all professional service with, and financial interest in, the corporation.  But, a professional corporation may enter into a contract with an employee which provides for severance pay or for compensation for past services upon termination of professional service, whether by death or otherwise, including professional censure.

Liability Concerns for the Professional Corporation

A physician cannot insulate himself personally from liability by creating a professional corporation, but the business entity does offer some limitations on liability and recovery.  For example, a physician stockholder in a professional corporation cannot be held liable for the wrongful acts or omissions of any other stockholder physician.  However, each stockholder physician remains liable for their own wrongful acts or omissions.

THE INDEPENDENT CONTRACTOR ARRANGEMENT

Overview

The independent contractor arrangement is also becoming a common fixture in the practice of medicine.  An independent contractor is a physician, partnership, association, or corporation that agrees to provide services for a medical group or other professional entity on a one-time or as-needed basis.  The independent contractor relationship usually lacks a formal long-term contract between the parties and requires that each contracting party is responsible for the tax and liability consequences of his own acts.  This section provides some information as to the issues involved in independent contractor practice arrangements.  Physicians considering entering into an independent contractor practice arrangement should first consult with appropriate legal counsel to consider the tax and liability implications.

Employee vs.  Independent Contractor

The independent contractor arrangement is preferable in many respects.  For example, the medical group that engages a physician as  an independent contractor bears no responsibility under the tax code to withhold federal or state taxes.  There is no obligation to withhold social security contributions, maintain Worker's Compensation Insurance, or provide holiday pay for those individuals employed as independent contractors.  Finally, the individual employed as an independent contractor is not entitled to any benefits, health insurance, 401K participation, or overtime payment unless provided for by contract.

But the Internal Revenue Service has negated independent contractor agreements and inferred regular employment where the hired physician is in all critical respects treated as an employee.  The IRS will not abide independent contractor arrangements that are constructed for ulterior purposes.  Should an independent contractor employment arrangement be disallowed by the IRS, substantial penalties will be imposed on the hiring group by the IRS and the state franchise tax board.  The group may be also liable for income tax withholding, Medicare and Social Security Tax (FICA), unemployment tax, and interest.

Disallowance of an independent contractor arrangement could also affect the group’s benefits plans and cause a potential denial by the IRS of deduction of past contributions to the plan.  Those amounts would then be taxed as retroactive income along with appropriate interest and penalties for non-payment.  Also, those employees previously treated as independent contractors could be eligible for benefits and perquisites of employment that were previously denied to them as independent contractors. 

In 1987 the IRS published guiding criteria to determine whether an independent contractor arrangement exists.  IRS Revenue Ruling 87-41.  The following criteria indicate a regular employment relationship:

Instructions.  An individual required to comply with specific instructions is more likely to be considered an employee than an independent contractor.  The more specific the instructions, the more likely the worker is an employee.

Training.  If a worker is required to undergo training on the job, this is an indication of employee status.

Integration.  If the services performed by the worker are an integral part of the business entity's operations, the worker is more likely to be considered an employee.

Services Personally Rendered.  If services must be personally rendered by the worker, as opposed to being rendered by an assistant, the worker is more likely to be considered an employee.

Hiring, Supervising, and Paying Assistants.  Where the employer hires, supervises, and pays the workers’ assistants, the worker is more likely to be considered an employee.

Continuing Relationship.  The longer and more continuous the professional relationship, the more likely a regular employment will be found.

Set Hours of Work.  Where a worker has regular hours of work that are set by the employer, the more likely the worker is to be considered an employee.

Full Time Required.  If the business entity requires the worker's services on a full-time basis, this is an indication of regular employment.

Work on Employer's Premises.  Generally, working on the employer's premises is an indication of regular employment, but it is not determinative.  If the business entity requires that the worker's services are preformed on premises owned or controlled by the employer, this is an indication of regular employment.  But, if the services by their nature must be performed on premises owned or controlled by the employer, then this aspect has no weight toward finding regular employment.

Order of Sequence Set.  If the employer determines the order or sequence of the services to be formed, this is an indication of regular employment.

Oral or Written Reports.  Requiring regular reports of the worker is an indication of control and therefore an indication of regular employment.

Payment by the Hour, Week, or Month.  Payment at regular intervals is an indication of  regular employment, unless it is simply a convenient method of making periodic lump sum payments in response to regular billing by the worker.

Payment of Business or Travel Expenses.  Payment of business or travel expenses by the employer is an indication of regular employment.

Furnishing Tools and Materials.  Furnishing tools and materials by the employer is an indication of regular employment.

Significant Investment.  If the worker has no significant investment in the facilities to be used in performing services, this is an indication of regular employment.

Realization of Profit or Loss.  If the worker is not capable of, by the nature of the employment or payment, realizing a profit or loss from rendering the services, this is an indication of regular employment.

Working for More than One Firm.  If the worker does not perform services for many unrelated employers, this is an indication of regular employment.

Making Services Available to the General Public.  If the worker does not genuinely make his services available to the general public, this is an indication of regular employment.

Right to Discharge.  If the employer has the sole right to discharge the worker, this is an indication of regular employment.  A prematurely discharged bona fide independent contractor could bring suit for lost profits.

Right to Terminate.  If the worker has the right to end the employment relationship at will, this is an indication of regular employment.  The independent contractor is liable for damages for failure to fully perform on a contract.

IRS Safe Harbor Provision

In an audit for reclassification where the IRS seeks to disallow a claimed independent contractor arrangement, a "safe harbor" exists as a defense in the Internal Revenue Code.  26 U.S.C. §530.  This section applies only to the federal Internal Revenue Service and may not provide a defense in reclassification sought by the Nevada franchise tax board.

Under this “safe harbor” exception, if certain conditions are met, the relationship will not be reclassified as regular employment for federal tax purposes.  The employer must not have treated the worker as a regular employee at any time prior to 1980.  The employer must have treated all other similarly situated workers consistently as independent contractors in all years after 1977.  The employer must have filed returns after 1978 that consistently treated the worker as an independent contractor.  Finally, the employer must have a reasonable basis for treating the worker as an independent contractor in consideration of the indicia demonstrative of regular employment listed above.

Furthermore, an employer will have reasonable basis for treating a worker as an independent contractor if the employer relied on judicial precedent or published IRS rulings, a letter ruling from the IRS, a determination letter or technical advice issued by the IRS to the employer, a previous IRS audit that resulted in no reclassification for a similarly situated worker, or a long-standing recognized practice of a significant segment of the relevant industry treating the worker as an independent contractor.

The IRS has become very strict of late in finding that various employment relationships qualify as regular employment and not independent contractor arrangements.  Specifically, arrangements between hospitals and physicians and other health care providers that previously qualified as short-term independent contractor arrangements have been disallowed recently by the IRS and determined to be regular employment.

The IRS has recently ruled in separate cases that EKG panel members, the medical director of respiratory therapy, the physician in charge of employee physicals, and pulmonary function interpreters were all regular employees despite claimed independent contractor arrangements.  The IRS reasoned that if the services were found to be integrated into the employer's business, they were essential to the success of the employer's business.  Moreover, if the services were integrated, then the employer exerted control over the manner and conduct of the employee which is also characteristic of regular employment.  IRS Private Letter Ruling Nos.  9535001 and 9535002.

An IRS audit is an expensive event and should be considered when deciding whether the enter an independent contractor employment arrangement.

Fraud and Abuse

Independent contractor arrangements may also implicate concerns for fraud and abuse where the relationship constitutes a referral for fee arrangement.  Nevada law and Medicare anti-fraud and abuse law prohibit the payment or receipt of compensations for the referral of patients.  NRS 439B.425; NRS 616D.390; 42 U.S.C. §1320a-7b(b).  Independent contractor arrangements among physicians may be subject to scrutiny by the federal Office of the Inspector General (OIG), or by the office of the Nevada Attorney General.  Prohibited acts in an independent contractor arrangement generally include a payment by the independent contractor in exchange for patient referrals.  But, payment of a fee by the independent contractor for patient referrals is not considered an illegal "kick-back" where the fee represents the fair market value of the services provided by the referring group.

Nevada law clearly prohibits a practitioner from referring a patient for a service or for goods related to health care to a health facility, medical laboratory, diagnostic imaging or radiation oncology center or commercial establishment in which the practitioner has a

financial interest.  But, if the service or goods required by the patient are not otherwise available within a 30 mile radius of the office of the practitioner, or if the service or goods are provided pursuant to a referral to a practitioner who is participating in the health care plan of a health

maintenance organization than the referral is permitted.

A practitioner may also refer a patient for services to an establishment in which the practitioner has a financial interest if the practitioner is a member of a group practice and the referral is made to that group practice or the referral is made to a surgical center for ambulatory patients.

Nevada law sets out similar prohibitions against referrals for fees and additional value.  NRS 616D.390.  For example, an individual acting on behalf of a health care provider may not accept gratuities in exchange for favorable treatment in the purchase or lease of goods, services, materials, or supplies.  Similarly, a health care provider may not pay for referrals in excess of the additional value of the referral services.

Self-referral prohibitions

Federal Law (Stark II) .  The Medicare referral prohibition applicable to clinical laboratories, known as the Stark law, has been extended effective as of January 1, 1995, to other specified goods or services.  42 U.S.C. §1395nn.  The law now prohibits self-referral among many other medical specialities including  laboratory, physical therapy, occupational therapy, radiation therapy and supplies, radiology, durable medical equipment and supplies, prosthetic, orthotics and prosthetic devices and supplies, parenteral and enteral nutrients, equipment and supplies, outpatient prescription drugs,  home health services, and inpatient and outpatient services.

In essence, the federal law decrees that physicians or groups cannot refer to an entity or person for those enumerated goods or services, if the physician or group has a financial interest in the entity to which the referral is made.  In particular, the law may prohibit referrals from medical groups to independent contractors if the group receives a fee for the referral or a percentage of the physician's fee.  Under these circumstances, the group may not make a referral to an independent contractor, and vice-versa, for services paid for by Medicare.

A referral is defined as any request by a physician for a prohibited item or service, any request by a physician for a consultation with another physician regarding a prohibited item or service (including any test or procedure ordered by or performed by or under the supervision of that other physician), or any request for, or establishment of, a plan of care which includes the provision of any of the services subject to the ban.

The law does not apply where a pathologist requests clinical laboratory tests and pathological examination services, where a radiologist requests diagnostic radiology services, or where a radiation oncologist requests radiation therapy so long as the service are furnished by or under the supervision off the pathologist, radiologist or radiation oncologist pursuant to a consultation requested by another physician.

The federal Health Care Financing Administration has also issued guidelines to determine whether independent contractors are considered members of a group practice.  42 C.F.R. §411.351.  The Administration found that independent contractors are indeed members of a group practice and therefore two important exceptions to the prohibition against self-referral apply to independent contractors.  First, the "physicians’ services exception" provides that services rendered personally by or under the supervision of another physician in the same group practice are not prohibited.  Second, the "in-office ancillary" exception allows services rendered personally by the referring physician, a member of the same group practice, or by individuals who are supervised by another physician in the group practice, provided a number of detailed conditions are met.

Furthermore, the prohibition against self-referrals does not apply if the practitioner's financial interest is so attenuated as to be relatively unaffected by the referral.  In these instances, the interest is considered a personal service arrangement if:

6.                  The arrangement is in writing, is signed by the parties, is specific as to the service included and covers all of the services to be provided by the physician (or immediate family member) to the entity;

2.         The services contracted for do not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement;

7.                  The arrangement has a term of at least one year with compensation set in advance.  A contractual provision allowing termination of the contract at will prior to the expiration of one year will likely fail to meet this requirement;

4.         The compensation is established at fair market value without regard to the volume or value of referrals or business generated, except in the case of a physician incentive plan;

8.                  The arrangement does not involve any activity, including, but not limited to, the counseling or promotion of a business arrangement that violates any state or federal law; and

6.         The arrangement meets other requirements imposed by regulation.

Pension Plan Issues

Normally, an independent contractor is not entitled to participate in pension plans administered by the employer for the benefit of regular employees.  But, if the independent contractor and hiring medical group are considered an affiliated service group, the independent contractor may be entitled to participate in the contracting entity’s pension plan.  By the same reasoning, part-time employees who work more than one thousand hours within a twelve-month period may not be excluded from participation in the pension plan.  An experienced labor law attorney can assist in evaluating the effect of independent contractor arrangements on existing pension plans.

Malpractice Coverage

An independent contractor, even where bona fide, may have certain adverse consequences upon the contracting entities medical malpractice insurance coverage.  The carrier should be consulted in advance to determine if employing an independent contractor reduces or voids coverage.  In some instances, an additional premium payment may be required should the independent contractor not carry his own insurance.

Medicare Assignment Issues

Medicare assignment rules generally prohibit a health care provider from billing Medicare directly for services rendered by a third party.  Usually, Medicare makes payment directly to the physician who performed the services for the covered beneficiary, but in an independent contractor arrangement, the contracting entity may wish to bill for the independent contractor's services.

Medicare provides an exception to their assignment prohibition that allows certain health care delivery systems, including medical group clinics, to accept assignment from physicians to be paid by Medicare.  The exception primarily applies only if the services are provided within the premises maintained by the medical group.

Anti-Trust Issues

An independent contractor arrangement may give rise to anti-trust concerns where the contracting entity has control of the contractor sufficient to determine all fee schedules set by the contractor.  Under these circumstances, this arrangement may be considered illegal price-fixing between the contracting group and the independent contractor in violation of anti-trust laws.

Nevada law provides an extensive list, consistent with federal anti-trust provisions, of prohibited acts considered to be anti-trust violations.  598A.060.   For example, price-fixing is defined as raising, depressing, fixing, pegging or stabilizing the price of any commodity or service, and which includes agreements to establish prices among competitors for commodities or services.   Of particular relevance to medical practitioners and the market relationships among their various practice arrangements, the anti-trust laws also prohibit agreements to establish uniform discounts, or to eliminate discounts, establishment of minimum markup percentages, agreements not to advertise prices,  agreements among competitors to fix uniform list prices as a place to start bargaining, division of markets, consisting of agreements between competitors to divide territories and to refrain from soliciting or selling in certain areas, allocation of customers, and "tying arrangements," consisting of contracts in which the seller or lessor conditions the sale or lease of commodities or services on the purchase or leasing of another commodity or service.

Obligations of Being Self-Employed

Typically an independent contractor is self-employed and is responsible for conforming to state and federal requirements for registration, licensing, and payment of taxes.  A self-employed practitioner is responsible for making regular estimated payments to the IRS for federal taxes and social security payments.  The practitioner will also have to make regular estimated payments to the state franchise tax board.  Appropriate licenses and business registration should be obtained from state and local authorities.

If the independent contractor employs employees, the contractor will have to comply with other federal and state requirements.  The independent contractor will have to provide worker's compensation insurance, deduct social security payments and state and federal taxes from the payroll, and possibly provide health care or other benefits to the employees.  The county medical society may be of assistance to physicians who wish to comply with the legal requirements for self-employment.

EMPLOYMENT CONTRACTS

             Overview

A written employment contract can be essential to memorialize the parties' understanding prior to beginning employment, and thereby secure the respective rights and expectation of each person involved.  Oral contracts are often equally binding upon the parties, but in the event of disagreement or other conflict a written contract is essential to establish beyond dispute the terms of the contract.

Any contemplated employment contract should be read carefully to ensure that each provision is clearly understood.  The law of contracts can be unsympathetic to well-educated professionals who subsequently claim ignorance of the legal gravity associated with contractual obligations, and the assistance of capable legal counsel in reviewing a contract is well advised.

The Employer

Prior to signing an employment contract, the prospective employer should inquire to the greatest extent possible into the professional reputation and standing of a physician to be employed.  The physician should provide references to prospective employers, such as residency chiefs, former colleagues, and physicians with whom the candidate is currently associated.  Former patients may also provide valuable insight into the candidate's manner and abilities and provide another dimension into a candidate's professional ability and demeanor. 

The law is still developing in regard to the responsibilities of former employers to inform prospective employers of a candidate who was terminated for cause.  Some courts have held that former employers have a duty to inform prospective employers of potentially dangerous, deceitful, or impaired employment candidates.  Other courts have imposed liability for such warnings holding that a negative reference constituted libel, slander, or interference with prospective contractual advantage.  In response, many businesses have developed neutral policies that offer prospective employers only the barest essential information, such as confirming that the candidate was indeed previously employed with the referring entity, the dates of employment, and the candidate's former position.  An employer who makes a negative employment determination based upon negligently communicated information may not be liable, but potentially could find themselves embroiled in a protracted legal dispute among others.

The employer should consider developing in-house interview screening processes to generate as much first-hand information about a candidate as possible.  Innovative interviewing and application procedures include presenting the candidate with hypothetical scenarios that may require the candidate demonstrate specific skills desired by the employer such as diagnostic ability, technical clinical skills, interpersonal skills, or administration.  It is not uncommon for potential employers to require candidates to review model or existing cases that include descriptions of symptoms observed, vital signs, and other relevant information, and then engage the candidate in a discussion of what course of action the candidate would recommend or pursue.

Another common fixture that allows the employer a more extensive first-hand opportunity to evaluate an prospective employee incorporates the probationary period into an employment contract.  The employer and employee agree in their contract to a probationary period provision to allow the employer an on-the-job evaluation.  It is not uncommon for an employer to request a thirty-day, sixty-day, or longer period during which the candidate's job performance may be evaluated and during which time the candidate may be dismissed without prejudice at the employer's will.

The Employee

The candidate employee should also collect as much information about potential employers as possible.  For example, the candidate employee should be interested in the extent and character of the market captured by the employer in order to determine the nature and requirements of anticipated practice.  Such information will also inform the candidate of the employer's strategic direction, and the employer’s focus and current obligations. 

The employee should also be concerned with how the employer manages the group.  Contacting present employees to inquire of their experiences may reveal valuable informal information about how the practice is managed.

Negotiation

Most employers will entertain negotiations and not be offended or terminate an offer for employment if the candidate seeks to alter compensation or other terms of the contract.  Some employers use standard form contracts, or establish rigid employment structures, in order to avoid the vagaries and competitive ramifications of negotiations.  It is often felt that acquiescing to one employee's negotiations will have a contagion effect and cause all other candidates to negotiate, or current employees to attempt to renegotiate.  But, a standard form contract is rarely applicable to all candidates and should not be accepted without careful consideration of its terms and the employee's own needs.

Particular Areas of Concern.  Practitioners should be concerned, among other things, about the following issues in considering an offer for employment and subsequent contract drafting:

9.                  How are procedures shared?

2.         How are on-call and vacation time apportioned?

10.              How are patients shared?

4.         How is advancement or partnership attained?

11.              How are property rights (patents and trademarks) in new techniques or procedures developed by the employee apportioned?           

Selected Contract Terminology

The following are specialized contract terms that a physician reviewing an employment contract may encounter.  The list is not exhaustive or fully explicated, so a practitioner reviewing an employment contract should  consult with competent legal counsel.

"Hold Harmless" Clause .  This clause provides that the employee agrees to hold the employer harmless, to indemnify,  from any liability that the employer may incur as a result of the professional acts or omissions of the physician.  If a patient sues both the physician and the physician's employer for the physician's negligent acts, the physician has agreed to reimburse the employer for any damages it may have to pay as a result of the lawsuit.  An example of a "hold harmless" clause is as follows:

Physician hereby indemnifies and holds harmless employer and its directors, officers, employees and agents from and against any claim, loss, damage, cost, expense including reasonable attorney's fees, or liability arising out of or related to the performance or non-performance by physician of any services to be performed or provided by physician under this agreement.

An employee who signs an employment contract with a hold harmless clause may assume liabilities of the employer which can result in forfeiture of some or all professional liability coverage.  It is therefore advisable to check with the malpractice carrier before agreeing to a contract containing a hold harmless clause.  The insurer may consent to the physician's agreeing to hold the employer harmless to the limits of the policy.

Non-Physician Employers .  It is important that the employer is legally authorized to employ physicians.  The requirements for professional certification by license prohibit the practice of medicine by any lay individual, organization, partnership, or corporation.  Nevada law also prohibits non-practitioners from employing physicians or otherwise participating in a physician's medical practice.  NRS 695C.050.  However, according to an opinion issued by the Nevada Attorney General's office, HMOs are exempt from the prohibition against a corporation engaging in the practice of medicine.  A corporation which is a health maintenance organization authorized under Nevada law to provide health care services may provide such services because health maintenance organizations are not deemed to be practicing medicine.  AGO 219 (10‑3‑1977).

The Nevada statutory prohibition against corporations practicing medicine unless organized for that purpose arises from strong public policy concerns for possible abuses in the commercialization of health care services.  Any physician who violates the statutory prohibition is subject to grave disciplinary action and possible loss of license for unprofessional conduct.  However, some other organizations, such as non-profit, fraternal, religious, labor, or educational institutions may be exempt as well.

Proprietary Rights in Patient Lists and Records .  Client lists and patient records are property and may have monetary value for a business.  An employee who generates business or brings clients to a new employer is more valuable than an employee who must build a practice from scratch.  Parties to a contract should consider and provide for proprietary rights in all records related to a practice's clientele.

A physician may desire that the employment contract provide that in the event of termination, the physician is entitled to possess copies of client lists and certain patient records upon patient authorization.  If the contract does not provide for this contingency, it is still permissible and probably in the interest of professional conduct to inform the practitioner's patients of any developments in the practitioner's employment.  The patient is then free to voluntarily choose to remain under their physician's care or seek treatment elsewhere.

Another area of concern is possible malpractice actions.  A physician should ensure that the employment contract provides for unobstructed access to all patient records in the event that the physician must defend a malpractice claim or other administrative investigation.

Peer Review .  Most organized health care facilities incorporate some form of regular peer review to ensure the quality of their services and to evaluate the professional practice of employees.   Nevada law requires that managed care organizations "establish a quality assurance program designed to direct, evaluate and monitor the effectiveness of health care services provided to its insureds." NRS 695G.180; NAC 695C.400.  The program must include a method for analyzing the outcomes of health care services and provide a mechanism for peer review of practitioners.

Under Nevada law, the peer review proceedings and any documentation generated by the peer review process, including any reports or statements of opinion, are privileged and not subject to discovery in litigation or other dispute resolution processes.   NRS 49.265.   The Supreme Court of Nevada has held that the legislature's purpose in enacting the hospital peer review privilege statute was to protect only the internal operations of peer review committees.   Columbia Healthcare Corp.   v.  Eighth Judicial District Court of the State of Nevada, 936 P.2d 844 (1997).   In Columbia Healthcare, the parents of a child who had died after lengthy treatment for an arachnoid cyst in the posterior fossa region of his brain brought a medical malpractice action against several physicians and their employer hospital.   The hospital sought to exclude from discovery certain occurrence reports generated during the child's treatment and considered in peer review committee meetings claiming that they qualified for confidential protection under the hospital peer review privilege statute.   The Court held that the statute's language applied only to formal proceedings, and those internal records generated by the committee, or prepared at the direction of the peer review committee.

Performance Evaluations .   Performance evaluations are typically periodic reviews performed at a regular interval by a supervisor or group of superior physicians familiar with an employee's job performance.   Many health care providers and institutions have developed standard criteria in the form of a questionnaire to guide the evaluator through the important technical or skill aspects of the employee's performance that should be evaluated.   The evaluations are designed to be somewhat standardized and to facilitate the communication between employer and employee in an effort to improve the employee's job performance.

A performance evaluation should allow for both criticism and praise in order to motivate the employee and avoid fostering a negative sentiment in response to the periodic evaluations.   Some employers tie the evaluations to compensation reviews so that salary increases and bonuses are associated with positive evaluations.

Regular performance evaluations may be provided expressly in the contract between the parties, or evaluations may be incorporated into the terms of employment by publication in the employment manual produced by the employer.   If compensation is affected by performance evaluations, the employment contract should explicitly disclose this fact.   Furthermore, practitioners may wish to incorporate a confidentiality provision into the employment contract to stipulate that the performance evaluation is generated for the employer's reference only and is not subject to disclosure to any other person without prior authorization by the employee.

Workplace Poster Requirements .   There are numerous regulatory provisions that require certain employers place informational posters concerning hazardous materials, labor regulations, or general safety matters in a conspicuous location in the workplace.   An employer that fails to comply with  these regulations may be subject to hefty monetary fines.   These poster requirements are designed to inform employees of their rights and to direct them to the proper agencies for further information.   An employer should consult with an experienced labor attorney to ascertain which requirements are applicable in the particular practice employment environment.

FAMILY MEDICAL LEAVE ACT

Federal and State law provide important protections for employee absence in the event of medical necessity or pregnancy.   The federal law is called the Family and Medical Leave Act of 1993 ("FMLA").   29 U.S.C. §2601.   The FMLA was enacted by Congress to “balance the demands of the workplace with the needs of families, to promote the stability and economic security of families, and to promote national interests in preserving family integrity.” 29 U.S.C.  §2601.   The Act was also intended to entitle employees to take reasonable leave for medical reasons, for the birth or adoption of a child, and for the care of a child, spouse, or parent who has a serious health condition while accommodating the legitimate interests of employers.

The Act governs employers of 50 or more employees and assures eligible employees the right to take unpaid leave, for up to 12 weeks in any 12-month period for medical or family reasons without being terminated.   A covered employee is one who has been employed for 12 months and for at least 1,250 hours of employment during the previous 12 months.

Eligible employees must be granted leave to care for the employee's child after birth or upon placement of a child by adoption or foster care, to care for the employee's spouse, son, daughter, or parent with a serious health condition, and if a serious health condition renders the employee unable to perform the function's of the job.   A “serious health condition” includes illness, injury, impairment, or physical or mental condition that involves either in-patient care in a hospital or other facility, or continuing treatment or supervision by a health care provider.   Colds, routine check-ups and dental procedures, or temporary viral infections obviously do not qualify as serious health conditions.   “Continuing treatment” is defined as two or more visits to a health care provider or one visit followed by a course of continuing treatment. 

Employees who take family or medical related leave must still be afforded the same health benefits provided by the employer.   If the employee is a co-payor on the premiums, the employee must continue to make co-payments during the leave period.   However, if the employee does not return to work, the employer may be able to recover their share of payments made during the leave period provided the employee has not returned for reasons other than the condition that occasioned the leave.

The employee must provide the employer with at least 30 days advance notice if the need for the leave is foreseeable, such as an expected birth, or placement of a child by adoption or foster care, or if the employee plans for a major procedure.   Otherwise, notice must be given as soon as practicable and verbal notice may suffice.

The FMLA also imposes extensive record-keeping requirements on employers.   Employers must make and keep the following records:

1.            Payroll and identifying employee data for each employee, including name, address, job title, rate of or basis for pay and terms of compensation, daily and weekly work hours per pay period, and additions to or deductions from wages, and total compensation paid;

12.              The dates leave is taken by an employee under the FMLA.   Leave must be designated in the employer’s record as FMLA leave;

3.         If the FMLA leave is taken in increments other than entire days, the hours of leave;

13.              Copies of notices requesting leave furnished by employees to employers under the FMLA;

5.            Any documents, written or electronically generated, that describe employee benefits or employer policies and practices concerning paid or unpaid leave;

14.              Premiums for health care or other employee benefits paid for by the employer in part of whole; and

7.            Records of any dispute between the employer and the employee concerning the designation of leave as FMLA leave.

An employer is not required to spontaneously or regularly submit records to the Department of Labor, but is required to maintain such records and produce them if so requested by the Department.   But employers who qualify under the FMLA must post conspicuously a notice explaining the Act's provisions and providing information concerning the procedures for filing complaints for violations with the Wage and Hour Division of the Department of Labor.   An employee may complain of a FMLA violation by filing a formal complaint with the Secretary of Labor or by initiating a private lawsuit against the employer within two years of the last FMLA violation or within three years of the last willful violation.

Nevada does not require private employers to allow unpaid leave beyond the provisions of the federal FMLA.   Employers and employees are free to contract between themselves any other provisions for leave so long as those provisions do not violate any other state or federal labor regulation.   But, Nevada law does require that any employer who grants leave with pay, leave without pay, or leave without loss of seniority to employees for sickness or disability must also extend the same benefits to any female employee who is pregnant.   NRS 613.335.   The female employee who is pregnant must be allowed to use the leave before and after childbirth, miscarriage or other natural resolution of her pregnancy.   The Supreme Court of Nevada has strictly held that an employee complaining of a violation of this statute must demonstrate the employer's history of granting similar medical leave benefits to other employees, or a written policy to that effect.   950 Ryland, Inc. v. Daane, 840 P.2d 1236 (1993).

APPENDIX A

Model Contractual Arbitration Provision

(a)        The parties agree to submit any claims, that exceed the jurisdictional limit of small claims court, arising out of or related to this Agreement, or the breach thereof, to final and binding resolution by arbitration.

(b)        The parties agree to submit claims described above for final and binding resolution by arbitration by the (American Arbitration Association) in               , Nevada.

(c)        Such arbitration shall be governed by Nevada law, and arbitrated by a mutually selected arbitrator.  If the parties cannot agree on such arbitrator, then each party may elect one arbitrator of their choosing and the two arbitrators so chosen shall select a third neutral arbitrator.  If the two parties’ arbitrators cannot agree upon the third neutral arbitrator within 60 days of notice of the action, the court shall appoint the third arbitrator.

(d)            Discovery shall be at the discretion of the arbitrator(s) and shall be allowed upon a showing of good cause according to the following guidelines:

i.            The arbitrator(s) shall have discretion to order prehearing exchange of information, including but not limited to, the production of requested documents and exchanges of summaries of testimony of proposed witnesses; and

ii.            The deposition of the claimant(s) and respondent(s) shall be allowed as a matter of right.  One set of interrogatories approved by the arbitrator shall be allowed.  There shall be early and prompt designation and exchange of the names and addresses of expert witnesses who may be called upon to testify at the arbitration hearing.  Deposition of experts and all other discovery shall be allowed by the arbitrator upon a showing of good cause.

The award in any such arbitration shall be final and binding upon all parties.  [If the arbitrator so decides, the prevailing party in any such arbitration shall be entitled to attorney's fees.] The judgment thereon may be entered in any court of competent jurisdiction. 

This arbitration clause does not apply to malpractice claims brought by plan members.

APPENDIX B

            Model Consultancy Agreement

This AGREEMENT is made between [physician or corporation name], a [professional corporation, limited liability company, etc], whose principal place of business is [physician’s or corporation’s address] (hereinafter referred to as "Physician"), and [consultant's name] whose principal place of business is [consultant's address], an independent contractor (hereinafter referred to as "Consultant").

ARTICLE 1: Term of the Contract

§1.01    This agreement will become effective on [date] and will continue in effect [until the services provided for herein have been performed] or [for a period of ___ weeks, months, years, etc.].  This agreement may otherwise be terminated as set forth in §7.01.

ARTICLE 2:  Independent Contractor Status

§2.01    It is the express intention of the parties that Consultant is an independent contractor and not an employee, agent, joint venturer or partner of physician.   Nothing in this agreement shall be interpreted or construed as creating or establishing a relationship of employer and employee between Physician and Consultant or any employee or agent of Consultant.   Both parties acknowledge that Consultant is not an employee for state or federal tax purposes.   Consultant shall retain the right to perform services for others during the term of this agreement

ARTICLE 3:  Services to be Performed by Consultant

§3.01    Specific Services.   Consultant agrees to: [list specific services, reports or products that consultant is to devise, develop or provide, and the desired result].   Consultant shall regularly communicate with physician to review and evaluate progress.

§3.02    Dates.   The starting date for the stated services is ____.   The estimated completion date is ____.   Consultant shall use good faith and all reasonable efforts to complete services by the specified date.   The estimated time requirement reasonably expected for consultant to successfully complete the project stated in §3.01 is [days, weeks, months, etc.].  To the extent feasible, all target dates will be met according to the workplan schedule (see §3.04 below).   If it becomes apparent that the target dates cannot be met because of circumstances beyond the Consultant's control, both parties agree to amend the target dates to reasonable time frames in order to discharge a satisfactory end-product.   Consultant shall inform physician if, and as soon as, it becomes reasonably apparent that the completion date will be later than set forth.

§3.03            Employment of Assistants.   Consultant may, at the Consultant's own expense, employ such assistants as Consultant deems necessary to perform the services required of Consultant by this agreement.   However, Physician shall approve, in writing, the Consultant's use of any such employees or independent contractors.   Consultant assumes full and sole responsibility for the payment of all compensation and expenses of these assistants and for all state and federal income withholding tax, unemployment insurance, Social Security, disability insurance and other applicable withholdings.

§3.04            Schedule of Performance of Services.   Consultant shall perform the services according to the following schedule: [insert daily, weekly, monthly, etc.  schedule as desired]

§3.05    Report.   Consultant agrees to provide a written report to Physician when the services have been completed.   Post-report follow-up consultation by telephone shall be provided by consultant as needed, at no extra cost to Physician.  [Consultant shall provide a toll-free telephone number for this purpose.]

§3.06            Accuracy.   Consultant will at all times, exercise care, prudent judgment and its best professional efforts to generate recommendations, products, reports or other work materials for Physician which are as accurate and complete as possible so as to be of maximum potential business benefit and utility to Physician.

ARTICLE 4:  Compensation

§4.01    Fees.   For performance of the tasks stated in Article 3, Physician agrees to compensate Consultant in the following manner:

[consulting fee of $__ per hour; estimated time ___ hours; maximum fee $____, plus expenses as set forth in §4.02]

Or

[payments shall be made in accordance with the following work-completion schedule.   Contract may state dates or events by which the incremental payments are made as well as the amount of those payments; refer to §3.04 if necessary]

Consultant shall advise Physician if and as soon as he or she believes that the stated fee and/or time estimate may be exceeded.   Physician shall not pay for services beyond the estimated time unless an unanticipated occurrence requires that extra time or money be spent.   The estimated time and the maximum fee shall not be exceeded unless agreed to in writing by the Physician.

§4.02            Expenses.   For the services set forth in Article 3 above, Physician shall reimburse Consultant for all reasonable travel and other expenses, as set forth below.   Physician will only reimburse Consultant for the lowest available coach fare regardless of how Consultant travels.   Physician shall not be billed for travel time.   Expenses shall be verified by provision of paid receipts.   Consultant shall forward such receipts to Physician as soon as possible and in no event later than 7 days after the expense is incurred.

Charges for costs expended on Physician's behalf, shall be billed as follows:

Travel                                    Billed at Cost

Overnight Delivery            Billed at Cost

Faxing                [$__ flat fee] or [$__ per page]

Copying               $__ per page, only for jobs in excess of 50 pages. 

Less than 50 pages - gratis

Long Distance

Telephone                       Billed at Cost

ARTICLE 5:            Obligations of Consultant

§5.01            Expenses.   Consultant shall be responsible for all costs and expenses incident to the performance of services for Physician, including but not limited to all costs of equipment provided by Consultant, all fees, fines, licenses, bonds, or taxes required of or imposed against Consultant and all other of Consultant's costs of doing business.   Physician shall be responsible for no expense incurred by Consultant, other than those specifically referred to in §4.02 above, in performing services for Physician.

§5.02    Tools and Instrumentalities.   Consultant will supply all tools and instrumentalities required to perform the services under this agreement.   Consultant is not required to purchase or rent any tools, equipment or services from Physician.

§5.03            Worker's Compensation.   Consultant agrees to provide workers' compensation insurance for Consultant's employees and agents and agrees to hold harmless and indemnify Physician for any and all claims arising out of any injury, disability, or death of any of Consultant's employees or agents.

§5.04            Indemnification of Liability.   Consultant shall indemnify and hold Physician harmless against any and all liability imposed or claimed, including attorney's fees and other legal expenses, arising directly or indirectly from any act or failure of Consultant or Consultant's assistants, employees, or agents, including all claims relating to the injury or death of any person or damage to any property.

§5.05            Assignment.   Neither this agreement nor any duties or obligations under this agreement may be assigned by Consultant, without prior written authorization by Physician.

§5.06    State and Federal Taxes.   As Consultant is not Physician's employee, Consultant is responsible for paying all required state and federal taxes.   In particular:

Physician will not withhold FICA (Social Security) from Consultant's payments;

Physician will not make state or federal unemployment insurance contributions on behalf of Consultant;

Physician will not withhold state or federal tax from payment to Consultant;

Physician will not make state disability insurance contributions on behalf of Consultant; and,

Physician will not obtain workers' compensation insurance on behalf of consultant.

§5.07            Confidentiality.   Consultant agrees to maintain the confidentiality of all data [materials, interviews], and information concerning Physician, Physician's patients, [and Physician's billings and collections], and to use and disclose such information only to the extent authorized by Physician, and patient where applicable, and necessary to carry out the purposes of this agreement.   Consultant agrees to comply with and observe all laws relating to the confidentiality of patient records and information.

§5.08            Ownership.   Consultant sells, assigns and transfers to Physician all of Consultant's right, title, and interest in all visual, audio, computer code, or textual material (“Works”) commissioned by Physician under this Agreement, including the copyrights in such Works.   This sale, assignment, and transfer shall be for all past, present, and future Works delivered to and paid for by Physician.

§5.09    Trade Secrets.   During the term  of this Agreement and after the termination of this Agreement for any reason, each of the parties agrees not to use, publish, or disclose any confidential information or trade secrets belonging to the other party, and to treat as confidential all information about the business and affairs of the other party or its respective parents, subsidiaries or affiliates, disclosed by the other party during the course of this Agreement, and to use its best efforts to insure that the employees, agents and members of each party treat as confidential all such confidential information or trade secrets.

§5.10            Equitable Relief.   The parties agree that the precise value of the covenants contained in §§5.07 - 5.09 are so difficult to evaluate that no accurate measure of monetary damages could possibly be established, and that, in the event of a breach or threatened breach of such covenants the remedy at law would be inadequate and the parties shall be entitled to temporary and permanent injunctive relief restraining such breach or threatened breach.   Nothing in this section shall be construed as preventing either party from pursuing any and all other remedies available to it for breach or threatened breach of the covenants made in this section, including the recovery of money damages.

ARTICLE 6:            Obligations of the Physician

§6.01            Cooperation of the Physician.   Physician agrees to comply with all reasonable requests of Consultant necessary to the performance of Consultant's duties under this agreement.

§6.02            Assignment.   Neither this agreement nor any duties or obligations under this agreement may be assigned by Physician without the prior written authorization of Consultant.

ARTICLE 7:     Termination of Agreement

§7.01            Termination.   Notwithstanding any other provision of this Agreement, either party may terminate this agreement at any time by giving thirty (30) days' written notice to the other party.   Unless otherwise terminated as provided herein, this agreement shall continue in force for the full term of the contract as set forth in §1.01.   Following the termination or expiration of this agreement, Consultant shall provide Physician with originals and copies of all physician proprietary data and materials in Consultant's possession including information concerning [the Physician's practice] [the Physician's billing and collections] the services set forth in Article 3, as well as any notes, reports, documentation, specifications, programs, and any computer discs derived from this agreement.

ARTICLE 8:     Breach of Agreement

§8.01    Dispute Resolution.   If any party to this Agreement provides written notice of a claim that another party is in breach of the Agreement or has failed to adequately perform any obligation hereunder, such claims shall not create an automatic right of termination of the Agreement, but shall trigger the following dispute resolution process:

The party giving notice shall provide in writing, as part of the notice, a detailed statement of all facts upon which the party relies in making the claim, shall identify all persons known to have knowledge of such facts, and shall furnish copies of all documents reflecting such facts.

Within thirty (30) days of receipt of said notice, the party against whom the claim has been asserted shall provide a written response to the claim, and shall state all facts relied upon in making the response, shall identify all persons with knowledge of such facts, and shall furnish copies of all documents reflecting such facts.

If the claim remains unresolved, the parties shall meet within fifteen (15) days of receipt of the response to discuss the respective positions and agree upon a plan to cure any defects in performance which may exist.

If no such agreement can be reached, the claimant may give notice in writing that this Agreement is terminated.   The Agreement shall terminate thirty (30) days from the date of notice.

If agreement upon a plan to cure defects in performance is reached, the plan shall be implemented and completed within forty-five (45) days of the date of the meeting.   At that time the parties will again meet to either (a) accept the remedy, or (b) agree to an additional plan to cure.   If no such agreement is reached, the claimant may give notice in writing that this Agreement is terminated.   The Agreement shall terminate thirty (30) days from the date of notice.

§8.02            Attorney's Fees.   In the event a party breaches this Agreement, the breaching party shall pay all the costs and attorney's fees incurred by the other party in connection with such breach, whether any mediation, arbitration, or litigation is commenced.

ARTICLE 9:     General Provisions

§9.01            Notices.   Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested.   Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but each party may change the address by written notice in accordance with this paragraph.   Notices delivered personally will be deemed communicated as of actual receipt; mailed notices will be deemed communicated as of five (5) days after mailing.

§9.02    Entire Agreement of the Parties.   This Agreement supercedes any and all agreements, either oral or written, between the parties hereto with respect to the rendering of services by Consultant for Physician and contains all the covenants and agreements between the parties with respect to the rendering of such services in any manner whatsoever.   Each party to this agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are embodied herein, and that no other agreement, statement, or promise not contained in this agreement shall be valid or binding.   Any modification of this agreement will be effective only with the express written consent of both parties.

§9.03    Partial Invalidity.   If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions will nevertheless continue in full force without being impaired or invalidated in any way.

§9.04            Arbitration.   The parties shall attempt to resolve any controversial claim arising out of or relating to this Agreement, or the breach thereof, in an amicable way.   Failing this, any remaining controversy or dispute in connection with this Agreement shall be settled by arbitration in [location], Nevada.   Such arbitration shall be governed by the Nevada Code of Civil Procedure provisions related to arbitration.   The award in such arbitration shall be final.   The judgment thereon may be entered in any court of competent jurisdiction.

§9.05            Governing Law.   This Agreement will be governed by and construed in accordance with the laws of the State of Nevada. 

§9.06            Captions.   The captions inserted herein are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement nor the intent of any of the provisions hereof.

§9.07            Warranty of Authority.   All persons executing this Agreement in a representative capacity expressly represent and warrant that they have the authority to execute this Agreement on behalf of their principal, and that upon execution, the principal shall be bound by each and every term hereof.

§9.08            Counterparts.   This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitutes one and the same Agreement.

Executed at __________, Nevada on __________, 19__.

_____________________________                          _________________________________

Name of Physician or Business Entity              Name of Consultant or Business Entity

[Type of Business Entity]                                                [Type of Business Entity]

By: _________________________                                  By: ______________________________

____________________________                                    __________________________________

Title                                                                                    Title

__________________________________

Social Security or Taxpayer ID #

     © California Medical Association 1999.  Reprinted with permission.