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The process of forming a medical practice is different from forming any other type of business.  It must be evaluated from several different perspectives.  Failing to comply with the laws and regulations applicable to medical entities can result in serious consequences, including charges of fraud. In New York, medical practices are typically organized as Professional Corporations (PCs) or Professional Limited Liability Companies (PLLCs), although entities such as general or limited partnerships are also permissible. New Jersey allows organization as a Professional Corporation but does not recognize a special professional LLC form.  With limited exceptions, licensed medical professionals are prohibited from providing professional services through a general business corporation. Forming a professional entity in New York involves many nuances and is best handled by a professional.  The process of forming a professional entity is three-fold.  First, one must obtain a consent or confirmation of licensure from the Department of Education.  Then the organizing documents are filed with the New York State Department of State along with the required consents.  Finally, the filed certificate of incorporation or articles of organization are filed with the Department of Education.  There are also periodic requirements imposed on professional entities by the NY Department of Education.  There are significant issues involving the use of names, the proper form of consents, and the like.  You would be best-advised to use services of a knowledgeable attorney who will ensure that your professional entity is formed quickly and properly. One of the first decisions made in forming a medical practice is determining the type of legal and tax entity to be established. Both tax and non-tax considerations must be studied to make the best decision for your particular practice.  Today, most new medical practices find that the S Professional Corporation and the limited liability company provide better tax and non-tax advantages under which to operate. There are significant advantages to organizing a practice as a subchapter S professional corporation. The shareholders of a corporation generally are not liable for any corporate debt which is not personally guaranteed.  While incorporating will not shield against professional liability claims, the corporate form of business limits the liability of the non-liable shareholders to their share of the corporation’s assets.
A corporation has continuity of life which means it can operate indefinitely — even after a shareholder dies. Corporation shareholders have the opportunity to transfer their ownership interests to others, usually following the terms of a separate agreement between the shareholders called a shareholder or buy-sell agreement. This agreement generally sets the price of the stock and limits those who can hold the stock, making the transfer more controlled for all parties. The limited liability company (PLLC in New York and LLC in New Jersey) can offer significant advantages over the corporate form.  The formation of an LLC occurs with the filing of Articles of Organization. The members (owners) of the PLLC/LLC will adopt an Operating Agreement to define do’s and don’ts of operating the practice. Limited liability companies, by law, can have such legal characteristics as limited liability, centralized management, continuity of life and transferability of interests. Some of the advantages of LLC include:

  • LLCs do not require any special tax election to pass income through to its owners
  • LLCs generally have no restrictions on the type of entities who can own LLC interests (S Corporations limit who can own stock)
  • LLCs have no restrictions on the number of its owners
  • LLCs can have different classes of owners
  • LLCs have much more ability to allocate income, gains and losses
  • LLCs have the opportunity for stepped up basis rules under Section 754
  • LLCs have more liberal contribution and distribution rules
  • LLCs can include debt for which they are liable to their basis for deduction purposes

Some advantages of the S Corporation over the LLC include:

  • S-Corps do not have to allocate pre-contribution gains under IRC Section 704(c)
  • Calculate discharge of business indebtedness income at the corporation level
  • State law is more developed
  • Shareholders are employees for tax purposes, receiving a W-2 form for salary paid, reducing the necessity of quarterly estimated tax payments
  • Retirement plan calculations are more easily calculated than LLC members

Choosing the right entity will depend on your practice’s facts and circumstances. Before making a decision, discuss the implications with your legal and tax counsel. Making the best decision is crucial to your operations. Post-formation process is also extremely important.  It is critical that the shareholders and members of LLCs enter into appropriate agreements to protect their interests and provide for an orderly operation of the practice. Lack of proper documents frequently leads to costly litigation. We have a proven track record in forming professional entities and drafting all types of agreements regulating the affairs of medical practices.  Contact us at 212-668-0200.

Roche's Test Strips Lawsuit Targets Wholesalers,

On March 28, 2017, Roche Diagnostics Corp. and Roche Diabetes Care, Inc. filed a lawsuit in the U.S. District Court for the Southern District of Indiana, entitled Roche Diagnostics Corp. et al. v. Binson's Hospital Supplies, Inc., et al., ​Docket No. 17-cv-0949 (LJM)(DML). The Indianapolis-based subsidiaries of the . . .

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Is Increased PBM Transparency on the Way?

Newly proposed Federal legislation would increase PBM transparency regarding aggregate rebates and "spread pricing".An oft-controversial issue, independent pharmacy associations have long lobbied for greater disclosure of the rebates that PBMs receive from drug companies, which . . .

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A Federal District Court in Minneapolis has issued a highly favorable decision for physicians and healthcare providers on the limits of an insurance plan's ability to recoup.  Specifically, the court ruled that insurers can only recoup against providers from the same health plan that the alleged overpayment was issued . . .

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MDRXLaw 2017 Q1 Newsletter - Focus on PBM

We are pleased to announce the publication of our 2017 First Quarter Newsletter devoted to the issues facing pharmacies in connection with PBM audits.

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MFCU Takes Recoupment Actions Against Providers

Calling the attention of every New York Medicaid provider reimbursing its billing/collection agents on a percentage basis, the New York State Medicaid Fraud Control Unit (MFCU) has recently sent out recoupment letters demanding repayments of Medicaid funds paid to billing companies under fee-splitting . . .

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In a groundbreaking decision addressing one of the most pressing issues currently faced by Medicare providers, the U.S. District Court for the District of Columbia ordered CMS to clear the lengthy backlog of Medicare appeals at the administrative law judge (ALJ) level.

Under the Medicare Act, CMS must provide an ALJ . . .

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As providers continue to rely on software vendors to maintain protected health information ("PHI"), a well-drafted business associate agreement ("BAA") becomes increasingly important. The BAA will set forth the obligations between providers and business associates such as software vendors with respect to the PHI.

Software . . .

In Healthcare Publications


New regulations governing integrated care are affording health care providers and facility operators a cost-effective opportunity to expand the range of treatment services they offer. As is true in the early stages of any significant regulatory shift, it is vital for providers and operators to stay aware of the complex regulatory developments that affect integrated care facilities.

New York and New Jersey recently adopted facility models . . .

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This is the first article in an educational series to appear on the MDRXLaw Blog, profiling various regulatory and law enforcement agencies and entities relevant to health care providers. Given the number of agencies and entities having jurisdiction over health care providers, the individual role played by each can often be unclear. This post will profile the Medicare Fraud Strike Force, an interagency law enforcement collaboration.

In . . .

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Unprecedented National Health Care Fraud

NEWS BRIEF: Unprecedented National Health Care Fraud Crackdown; 301 Individuals Charged; $900 Million in False Billing Alleged

The joint DOJ-HHS Medicare Fraud Strike Force and twenty-three state Medicaid Fraud Control Units executed an unprecedented nationwide sweep earlier this week, announced as the largest health care fraud . . .

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