Hi, I'm Addie Cuiava, CEO of the American Alliance of Orthopedic Executives. Welcome to our educational program for orthopedic office staff. In Practice Management 101, we introduce general concepts of good office management and good patient interaction. After you've become familiar with the major parts of running an efficient and profitable practice, we know that you'll be ready to more fully participate in the successful operation of your orthopedic office. Thank you for joining us, and I'll catch up with you at the end of this program. Welcome to our talk on Governance and Structure. Hello, my name is Ron Horshefsky, and I'm the CEO of Midlands Orthopedics and Neurosurgery in Columbia, South Carolina. I've been affiliated with the AAOE for many years, serving on their board for seven plus years and serving as the president in 2018. Hoping that your time invested in this presentation is well spent. Thank you. Governance issues are truly important to the future of any practice. You know, you want to answer the difficult questions before you run into difficulty, so having everything in place beforehand is really helpful for when problems do arise. And I think a really important piece is that physicians that you're trying to recruit into your practice want to know if you have a solid governance structure. So let's jump in to talking about the governance of an orthopedic practice. I can't tell you how many times I've heard stories of young physicians joining a practice on a handshake with the message of, just trust me, coming from the senior shareholders. I think the senior shareholder who's inviting that person to the practice is basically communicating to the person, hey, we're not ready for you yet. We haven't figured everything out, but just join us and we'll figure it out together. And very often, the young physician who's joining is disappointed in the results. You know, there's not a clear path for them to become a shareholder. There's not a clear understanding of what it means to even be a shareholder. And it's not clear how decisions are made within the organization. I think a very important statistic that you need to be aware of is that 60% of physicians will leave their first practice that they join after fellowship. So that's an amazing statistic. And it's a recent statistic that 60% of people will leave their first practice. So you put a lot of energy into bringing somebody into the practice. So when I talk about governance being a recruitment issue, it is. You want to have everything in place so it's crystal clear, and physicians will likely join your practice because you have everything in order, because you definitely don't want to put in all the work and have somebody just leave in disappointment. I think it's an important message just to make clear that the senior shareholder, the person who's bringing the person into the practice, they're not trying to be disingenuous. They mean everything they say. When they shake the person's hand, they have every intention of fulfilling the promise. But once that person joins the practice, mentally the box is checked. You know, it's like, okay, I've got the person in the practice, and they're not really thinking any more about how to make it easy for this person to become a shareholder and all the governance issues related to that. So you want to have it in place beforehand, because the uncertainty and poor communication with physicians leads to trust issues, right? So you don't want your young physician not trusting the current shareholders in the practice, because that will lead them to potentially considering leaving the practice. So we've talked a little bit about governance already, but we haven't really defined what it is, right? So governance is a collection of documents that serve as a way of defining the rules for how things are going to be done, how decisions are going to be made. And it's usually the compilation of a number of documents. The shareholder agreement is an important one. Your corporate bylaws are an important governance document. And then there's two different types of employment agreements. All practices actually have to have two different types, but I'll describe them in two different areas. There's a senior employment agreement and kind of a shareholder track physician employment agreement. So we're going to get into a little bit more detail about those right now. The shareholder agreement has two incredibly important functions. One of them is going to be assigning a value to the organization. Now this is a terrible scenario to think about, but just imagine if one of your shareholders were to suddenly pass away in an accident. Now the family is going to understand that, hey, this is a practice that generates millions of dollars. And my husband, my wife, they generated a quarter of the revenue there. So if this practice is worth $5 million, I think I have the expectation I'm going to get checked for $1.25 million. Now that's a reasonable expectation. But when somebody passes away or somebody leaves the practice, you have to understand that they're taking with them some of the value of the organization. And it's very difficult to reconcile the expectations with the reality within the practice. So the shareholder agreement does a very important function just in terms of assigning a value to the practice. Another thing that it does that's really important is that it basically assigns limitations to the sale of the organizational stock. So it requires the shareholder who leads the practice voluntarily or the family who acquires the shares somewhat involuntarily to sell those shares back to the organization. So they have no choice but to sell the shares back to the organization itself in an untoward event. Let's talk briefly about a couple of different ways for you to value what your business is worth. This would be defined within the shareholder agreement. A very common way to value is to use something called EBITDA and multiply it by a certain multiplier. So EBITDA is your Earnings Before Interest, Taxes, Depreciation, and Amortization. And a very common multiplier is something in the range of 3 to 5. I think 5 is probably high. But EBITDA times 3, I think, is a fairly common valuation tool used to determine the value of a practice, the language to which you would find in the shareholder agreement. In my opinion, that can lead to some pretty big numbers, though, for a buy-in and for a buy-out, and it could pose challenges for the practice to actually come up with that money to pay out. Because remember, I said that somebody takes value with them when they leave. So EBITDA at the time, EBITDA is a look back, right? So if you're going to look forward to when that physician is not part of the practice, you're going to come up with a different number, right? So buying them out of their own value, the value that they brought, the value that they're taking with them when they leave the organization is an inherent weakness of EBITDA times 3. Another way to do it is to simply come up with a number. A lot of practices will say, hey, our buy-in is a fixed number. It's $50,000. $50,000 in, it's $50,000 out. If you were to get in an accident and something bad were to happen, like say you were getting an accident, you pass away, the only thing that your family would get in exchange for the stocks for the organization would be that $50,000. With the attitude being that, hey, you're going to make your money while you're here in the practice and that we don't want to burden young physicians coming in or burden the practice when you're going out of the practice. Keeping in mind that the shareholder agreement is a document that's going to be signed by everybody who's a shareholder, let's talk about some of the other important functions of a shareholder agreement. It basically defines the qualifications for who can be a shareholder. If those qualifications change over time, or in other words, if somebody ceases to meet those qualifications, then they no longer qualify to be a shareholder. And that would, in and of itself, trigger a change in the shareholder agreement. It would also clearly delineate who owns what within the organization. So typically, there's an addendum at the end of the shareholder agreement that will state the percentage of ownership. It can be equal, but it doesn't have to be equal within the organization. And I've also clearly defined that buy-in and buy-out process, which is so important. Think about the impact on your practice if a number of shareholders were to leave within the same time frame. So, the shareholder agreement can actually have language within it that limits the number of people who can leave at any one time. And if they leave, then they forfeit, potentially, some of the benefits that they would get during the buy-out process. So, in our practice, there's a limit on how many, it's a limit on how many people can retire. There's a limit on how many, it's one person can retire per year. So, one shareholder can leave the practice in any calendar year. And if two people give notice, then the second person, whoever notified second, would go into the queue and would be in first for the next year. So, in essence, the shareholder agreements can help you define what notice is necessary to leave the practice in good standing, which is very important. Usually, in an orthopedic practice, one of the important qualifiers to being a shareholder is they're taking call. So, if they take call, then that's wonderful. There's no issue. But if they don't take call, it's really hard to consider them to be a shareholder within the organization unless there is some other means to compensate the people who are covering the call for them. Sometimes, it doesn't matter how much. It's like we're in this together. We're all going to take call. But sometimes, as a practice, you want to invite in somebody who's not necessarily an orthopedic surgeon as a shareholder within the organization. It could be somebody like a rheumatologist, right, who has an infusion clinic. It could be a pain management doctor, a physiatrist who does a lot of injections. So, they're generating comparable revenue to a shareholder physician. They've invested in buildings and things like that. So, you might want them to be a shareholder. But if they can't cover call, that's a barrier. So, you have to work through how are you going to allow that to happen and not have resentment within the practice. So, there's ways to do it. Typically, what it involves is the non-call physician paying the call physicians to cover their call. But like I said, sometimes, that's just not enough because it does still impact that shareholder who ends up covering call more often as a result if you're not taking it. Your corporate bylaws are a document that, in many practices, it's only been copied from other copies of other copies and is in really poor condition. It's rarely read, rarely addressed. But it's a very important document for you to, as the leader of the organization, to understand inside and out. Because if there's an issue within the practice, then lawyers are going to go into your bylaws and look at how it's structured. And if you haven't followed those bylaws, then it's problematic. So, I would invite you to go into your corporate bylaws and read them line to line. And if there's something in there that you don't want to do, you can really just amend your bylaws. But they need to be up to date to how you're practicing. So, they're typically registered with the state, and they really play an important role in many aspects of your organization. And it'll help define who is empowered within your organization to make decisions. And, you know, what level of agreement must occur for certain level of decisions to be made. As an example, you know, hiring a new physician should require a 75% vote for approval. So, simply, what you're simply saying is that a majority vote, 51% want to hire a new physician. That's not enough. Really, for big decisions, it needs to be 75% vote. I'm really just using that number as an example. So, I'm not dictating 75%, because, you know, you might want to say 80%, 90%. But when the decision becomes more important, you really want to have more people in agreement with it than a simple majority. And there's also, within corporate bylaws, a definition of whether there's an executive committee or a representative group of physicians that are going to be involved in the organizations that are going to serve on behalf of the larger group. So, if you have, say, four to six physicians in your practice, there's not likely going to be an executive committee. But if you get into the realm of 15 or more physicians, you're probably going to want to have an executive committee. And those folks are going to meet on a regular basis, as defined by the corporate bylaws, and that they are empowered to make decisions to certain levels. Sometimes there's a monetary amount. So, like, perhaps the executive director or CEO can make spending decisions up to $25,000 or $50,000, and then, you know, the executive committee would need to be involved in decisions that are going to be made $200,000 or less. And then, if it was going to be more than $200,000, it would be the entire shareholder group that would have to make the decision. But it might not be a majority. It might be 75% for that level of spending. The bylaws are also going to help define different roles in the organization. So, your job may be defined in there. Executive director or CEO, but also define physician roles, serving as the president, the treasurer, the secretary, or even a vice president role. So, all of that is defined in the corporate bylaws. So, you want to make sure that your actual, in effect, structure represents what is described in that important document. Earlier in the presentation, I spoke about different types of employment agreements. There being an employment agreement for shareholders, and then one for physicians who are on track to be shareholders, and that could be the same one that you use for physicians who are not on track to be shareholders. But there really needs to be two different types of employment agreements because what's defined in this employment agreement for somebody who's a shareholder is typically the compensation formula for shareholders, which will be different for an employed physician. This employment agreement is also going to serve an important role of listing the qualifications, the standards, and the behaviors that need to be maintained in order to be employed as a shareholder, with the understanding that if they should cease to meet any of those qualifications or act outside of the normal standards and behaviors, that it would jeopardize their ability to be a shareholder in the organization. It's a very important thing to have in your employment agreements because it's easy to do when everybody's getting along, but when somebody isn't getting along and they're causing a problem, they're disrupting the practice, you want to have that document behind you to support you in a disciplinary process that may lead to them not being a shareholder. Very rarely does this occur, but it empowers the practice and it really protects the practice to have that language in place. I'm going to highlight two important components, in my opinion, to employment agreements that are often left out. So I think behavioral guidelines are really important and you want to have them in place because it really will set an expectation for conduct and behavior, and if they start to practice outside of that, then you have the means to bring that person perhaps to the executive committee or to the shareholders as a group and discuss the issue and work towards solution with the understanding that the behavior that's being exhibited is not consistent with the behavior that we expect as a shareholder and there could be consequences. So if you read through, I've got 10, this is just a sample here, this is actually what I'm trying to work into our own shareholder slash employment agreements as well. But it basically has a list of behaviors that are expected to be followed and if they're not, then there are consequences. I'm just going to leave that up for a moment for you to kind of go through. Another important component of an employment agreement is having a very clear leave of absence policy in place. As a shareholder, you're responsible for your overhead and if you have a forced leave of absence for a health condition, for pregnancy, for a military deployment, this could be a crushing experience for a shareholder in the practice. And what you want to have in place is agreement amongst all the physicians and there can be some discretion in there, but you want to have the language in the agreement so that it's understood that if a physician has a baby and needs to take a leave of absence, that it's not going to financially ruin that shareholder through that process. Same thing with military deployments, same thing with a health condition if they're out of the practice. So having some steps and stages to a leave of absence that allows for the person to have a reduced overhead burden is really an important, I think, recruitment tool because people are paying attention to what might happen in their own lives after they become a shareholder in the practice. And I think it shows a level of preparation and understanding that increases confidence in a new physician joining the practice. And of utmost importance, it helps to define what's going to happen in that untoward event that will lead to people not having to get into an argument to resolve. Just a couple of other things to think about in terms of your employment agreements. You want to think about kind of legal problems that could come forward in the practice of any individual physician and just kind of think through, like if somebody were to be arrested for a DUI and they're a shareholder in the practice or if there was an issue with drugs or alcohol, how would you handle that? So all of the documents that we're talking about are going to help you to deal with those situations. So a DUI or drugs or alcohol, that all could be addressed within the behavioral guidelines potentially. Let's talk about if somebody were accused of Medicare or Medicaid, what would be the situation? If somebody were accused of Medicare or Medicaid fraud, a very serious issue. So the qualifications that are described in the employment agreement, you could basically say if you lose your credentialing with Medicare or Medicaid, that you can no longer be a shareholder. But you also want to protect the practice with a structured compliance program that would allow you to demonstrate that you're looking as an administrator for the presence of Medicare or Medicare fraud. Or more importantly, I don't think you want to frame it that you're looking for fraud within your position, but so much as you're looking to make sure that you're being compliant with those Medicare and Medicaid rules, which can be fairly stringent. Performing regular chart reviews and documenting them on a quarterly basis is a very protective behavior for the practice. And if there is an issue, you can say, and you can show, hey, listen, I've been doing quarterly chart reviews. I've given feedback to the practices. Here it is in the minutes of our meetings that I've addressed specific issues with the physician. So we as a practice take this very seriously, and the Medicare examiner will look at that completely differently as a result of the fact that you've addressed this on an ongoing basis with the physicians and within the practice. What I like to call the shareholder track employment agreement, and even the non-shareholder track employment agreement. Basically, the employment agreements that you're going to use for people who are not shareholders are very similar to the ones that you would use for the shareholders. But there will be some inherent differences, probably the most important one being the compensation formula that's described. The termination clauses within the agreement will probably be different. The shareholder might need to give a one-year notice, and they could limit the number of people who leave within a certain duration. The employment agreement for an employed physician might just require 90 days, 180 days. You just want to be really careful in that agreement. Let's just say, for example, you have a shareholder track employment agreement, and the person very early on you realize is not going to be a shareholder, and that you don't necessarily want them to continue practice with you even through the term of the agreement as stated. You just want to be careful that you have a way to have that person exit the practice without having to give them too long of a notice. So that can be a little bit tricky. So if you have to give somebody a six-month notice of termination of the contract, because you might want them to give you a six-month notice, but then in turn you have to give them a six-month notice, right? So it's usually an equal time period there. So three months might be too short for somebody who just moved to your neighborhood, I'm sorry, moved to your region. They moved in from another part of the country. They're practicing. You're not happy with what they're doing. They're not meeting the behavioral guidelines or whatever it is, and you ask them or you tell them that you're not going to continue employment, three months is a short notice for them. Six months may be too long though. So it's just a really important member that you want to pay attention to within your employment agreements. And it will be different from the shareholder track to the shareholder employment agreement. Let's talk briefly about corporate structures and liability. Inherently, a corporation protects its owners, absorbing the liability and limiting the liability of the owners. It's a really important component. One thing I want to stress is that there are different tax advantages available to the different corporate structures that are beyond the scope of this presentation. But I do want to talk about a couple of tax things, which is probably not my strongest suit, but I just want you to understand that the concept of double taxation in a corporation. So at the end of a fiscal year or the end of the calendar year, if you have profit left within the organization, then that will appear on your corporate tax return, and then you'll have to pay taxes on that. And often you hear in the news, well, that company didn't pay any taxes. So, well, ideally, that's the strategy. You want to pass that money through to the owners, and then the owners actually pay the taxes. So if there's money left in the organization at the end of the year, that profit gets taxed, right? And then the remaining money gets distributed to the owners, and then the owners have to pay a tax on that. So when we talk about double taxation, that's what we're talking about. So ideally, at the end of the year, you want to have the corporation have all of its profit out so that you don't have to pay taxes twice. There are also some significant tax advantages to being a S-corp versus other corporation models. So, again, that's a little bit beyond the scope of this, but you can really limit the amount of taxes that are being paid for Social Security and for Medicare through your corporate structure. So talk to your accountant about it. Make sure that you're comfortable with your knowledge base with that, because it could save your physicians thousands upon thousands of dollars on an annual basis. Everything that we've talked about so far is to manage problems. Prepare your practice for problems. So I just want to touch briefly on medical malpractice insurance, because this is, of course, a way that you are protecting your practice from future problems. But you play an important role in protecting your physicians. I think we all feel that every day. We have to protect them from Medicare fraud. We protect them from disagreements with each other. But we also play, as administrators, an important role in managing the risk associated with medical malpractice. And it's beyond whether you chose a claims-based or occurrence-based medical malpractice policy, which let me just define the difference between those two very briefly. So a claims-based medical malpractice policy will cover claims that are made within a certain period. So let's just say I'm a physician and I did a surgery three years ago, but the claim is made this year. So as long as I have a medical malpractice policy in place when the claim is made, then I'm covered. Think about now a retired physician, right? I've retired and I did surgery three years ago and there's going to be a claim made. So in a claims-based policy, a physician is required to buy a tail policy. So that would cover them into the future. These can be surprisingly expensive, but a claims-based policy may require a tail. So then the other type of medical malpractice insurance is occurrence-based. So that same situation where I did that surgery three years ago, I have an occurrence-based policy. So I'm covered because it was within that year and I don't have to worry about it into the future when I retire because it occurred within the timeframe of the parameters of that medical malpractice policy. So the occurrence-based policy is typically a little bit more expensive than the claims-based one because you pay for it in the future with the tail coverage. This is a very difficult concept. I hope I've explained it so that you can understand it. And I just want you to understand that your role in medical malpractice is very important especially when an issue is identified. You want to alert your medical malpractice company when something has happened. It's not like it doesn't have to be, hey, the patient said I'm going to sue you. But if the patient passed out when they got an injection and fell down and hit their head, you know, there's a form through your medical malpractice company that will just alert you to that happening. You know, it's very likely that that won't result in a lawsuit or anything like that. But it's good to get into the habit of alerting the medical malpractice carrier that something has occurred within your practice. In my opinion, when something happens to a patient that is unexpected, it's really a time for you as an administrator to take action. So one, you're going to alert the medical malpractice carrier to talk to all the people that were involved so that you have a clear understanding of exactly what's going on. And then you're going to alert the medical malpractice carrier to talk to all the people that were involved so that you have a clear understanding of exactly what happened. And even, and importantly, reach out to the patient. It really depends on the circumstances. And you may get different advice on this from different people. So just understand, this might not always be the best thing to call the patient. But in many circumstances, it's a good idea for the administrator to call and follow up or for even the physician to call and follow up. And they might do that with a little bit of encouragement from you. Again, this is a little bit debatable about whether you should call or you should not call. So if you report an incident to your medical malpractice, part of the discussion can be, in this situation, do you recommend that we reach out to the patient just to touch base and see how they're doing and see if there's anything that we can do for them. Opinions vary, but it could be an important step in resolving the issue before it becomes too big of an issue. The other thing just to consider is that you're paying the medical malpractice folks a lot of money. And once you alert them to something, the ball is really in their court. They should be the ones that are handling the situation in that you can have communication with them, but you should not be put in an uncomfortable position where you're having to go back and forth with the patient over and over and having the situation escalate. So it can get a little bit dicey, but work closely with the medical malpractice provider for their guidance. Reflecting on what we've discussed so far, there's a lot of different documents that you need to have in place to protect your practice. There's a lot of things that you can do as an administrator to minimize risk within the practice and understanding that a lot of this all just feeds into physician recruitment. The physician who's coming in and interviewing with your practice wants to know that you are a mature organization that has thought through all the difficulties, thought through the process of buying in, and is able to answer their complex questions when they make the huge decision about joining your practice. So as much as this is about protecting your shareholders in the practice, it's also about building a strong future for your practice by demonstrating that you know who owns the practice, who makes the decisions in the practice, and who answers to who within the practice. One last thing I want to share with you is a decision matrix. This is just a snapshot of one. It's really reduced in its content, but just the concept of defining who is empowered to make what decisions and what decisions might require a different level of agreement. So a decision matrix is a great tool. I'm going to give you my email address right now. Feel free to email me and I'm happy to answer any questions for you down the road. It's r-o-n-c, so ronc at midorthoneuro.com. So it's ronc at midorthoneuro.com. I'm happy to answer any questions at any point. I hope this has been time that's well spent for you and I hope you have a wonderful day. Thank you. Hey there, it's Annie again. I hope you learned a few things about practice management that you can use today in your work. Whether it's a reminder about how to warmly greet a patient or a tip about the importance of the accurate and timely filing of a claim for reimbursement, each lesson was designed to reinforce what you know and maybe bring you a new piece of information that makes your job more interesting. Thank you to our sponsor, Inovus, for bringing you the most up-to-date information about orthopedic practice management. See you next time.

orthopedic practice governance

recruitment issues

corporate governance documents

medical malpractice insurance

communication with patients

decision matrices

physician retention