Beyond Flying Solo: A Guide to Options in Structuring the Practice By Clifford Stromberg and Julie Mathews Schuetze of the Law Firm of Hogan & Hartson, Washington, D.C. Edited by Judy E. Hall, Ph.D., Originally published in June 1997

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Ethical Constraints on the Deal. While the marketplace may permit all sorts of transactions and terms to be negotiated, ethics rules governing psychology may limit the terms that are permissible. For example, the American Psychological Association's Ethical Principles of Psychologists and Code of. Conduct ("the Ethics Code") which has in effect been incorporated into the licensure laws of most states, contains many provisions which affect the permissible structure of professional practice relationships. For example:

• Standard 1.22 requires that psychologists only delegate to “employees or supervisees" those "responsibilities that such person could reasonably be expected to perform competently."

• Standard 1.27 requires that division of fees be based on the services provided and "not based on the referral itself."

• Standard 3 requires, among other things, that psychologists not misrepresent their relationships with other professionals.

• Standard 4.01(b) requires that supervisory relationships be disclosed to patients.

• Standard 4.09 requires that upon termination of a patient, the psychologist take "reasonable steps to facilitate transfer of responsibility to another provider if the patient or client needs one immediately."

• Standard 5.04 contains requirements for maintaining records.

• Standard 5.10 states that "recognizing that ownership of records and data is governed by legal principals, psychologists take reasonable and lawful steps so that records and data remain available to the extent needed to serve the best interests of the patient or others." This could make it improper, for example, to enforce a legal provision denying access to records by a formerly-employed therapist if the therapist desires the records to serve a patient who needs immediate therapy.

Ensuring a Smooth Transition. Naturally, affiliating with another psychologist or psychology practice -- in what­ever fashion -- will disrupt the psychologist's current practice to some extent. To minimize this disruption, and ensure that any legal requirements are satisfied, psychologists should be aware of certain issues.

Continuity of patient care is a priority. Every day, patients learn about health care practitioners who sell their practices or change affiliations. Patients wonder: Will I still be helped? Will I have to travel farther for my appointments? Will this change affect my insurance coverage? The psychologist must reassure them.

Communication is crucial in allaying patient fears. Once the psychologist is relatively certain that he or she will enter into an affiliation transaction (e.g., become a hospital employee or join a new group practice), he/she should announce this change to his/her patients. As a first step, the psychologist could send a letter to his/her patients explaining the psychologist’s new affiliation and assuring patients that the change will not erode services to them. (This encouragement to continue with the practice may be one of the “deliverables” that is required when selling a practice to another.) After the patients receive this letter, the psychologist might post a sign in his or her office to remind patients when the change will be effective.  State professional licensing laws sometimes require that psychologists notify (e.g. by letter, newspaper advertisement, posted sign) their patients about the sale of a practice or change in name.

State law may include requirements relating to transferring patient records to the psychologist's new practice. Many states have adopted medical record confidentiality restrictions that affect access to such records by psychologists who practice with, or by employees of, the psychologist's new practice. In addition, states often stipulate a minimum length of time that health care providers must retain their records. Just because a patient does not follow the psychologist to his/ her new practice does not mean that the psychologist can destroy records. Arrangements must be made for maintenance of the records at an appropriate site in light of contractual agreements and state law.

In addition to patients, the psychologist's employees -­secretaries, billing clerks -- also will be affected by the psychologist's affiliation with other providers. Staff members often know about the proposed transaction (from phone calls and faxes) long before either party has decided to proceed. Frequently, psychologists will confide in staff members and "keep them in the loop" about general issues related to the affiliation to maintain a good atmosphere in the office and to calm fears that they may lose their jobs. More­over, telling staff members may be beneficial to the psychologist because the psychologist may rely on the staff to handle tasks related to the transaction (e.g., resolving billing issues with patients). However, you should be circumspect about what "promises" are made to employees. A psychologist should not say "I' m sure the practice will want to keep you on" if he/she will be unable to fulfill this promise. Likewise, efforts to "bad mouth" the practice one is leaving, or to solicit employees to leave, could create legal liability.

A psychologist who changes practice settings or structures also should review his/her existing contracts (including real and personal property leases, managed care and indemnity payor contracts, and insurance coverages) to make sure that they are fully transferable or assignable to the psychologist's new practice, or that the psychologist may terminate those contracts upon the effective date of the psychologist's new affiliation, or that the new affiliation does not result in a breach of the contract for which the provider is responsible.

Contracts with third-party payors often have provisions triggering a responsibility of the psychologist to give the payor notice or changes in practice structure. Often, these agreements state that the psychologist may not assign (transfer) the contract to a third party (e.g., the psychologist's newly formed professional corporation) without the payor's prior written consent. Sometimes, managed care or indemnity contracts provide that a "change of control" or a "change of ownership" -- such as if the professional corporation merges with another, or the owners of a certain percentage (often 50%) of stock change -- will terminate the contract. Thus, the psychologist should contact the payor as soon as practicable to obtain the payor's consent to assign the contract to the psychologist's new practice, or to have the payor waive the contract's breach. Frequently, payors are willing to consent, especially if the psychologist's new practice already has a contract with the payor. In addition, health care providers often will affiliate with anew practice but keep payor contracts in their individual name, thus not requiring assignment of the contract. Nevertheless, it is important to review payor contracts for events that could trigger the payor's right to receive notice of a certain event, such as a change in the provider's address, phone number, or practice name.

Termination of Relationship, As mentioned in an earlier section of this Update, it is important for the parties to discuss each party's rights to terminate their relationship, including the process for effecting such termination, as well as the “penalties" (financial or otherwise) for such termination.

Termination Rights. There are two basic types of contract termination: "without cause" termination and "for cause" termination.

Without cause termination provisions allow a party to terminate the relationship, usually upon a certain number of days prior written notice to the other party, for any reason or for no reason at all (which really means that you have a reason, but would rather not formally express it). For those psychologists who seek some long term security in a relationship, it would be wise to negotiate an agreement that does not contain a without cause termination right. Conversely, psychologists who may be ambivalent about a deal may wish to include such a termination right for themselves. It is important to remember, however, that rarely does an agreement have a one-sided without cause termination right -- that is, for the sake of fairness, both sides to a transaction would usually have such a right. Therefore, if a psychologist wishes to have a right to terminate a relationship without cause, she should be prepared also to give the other side that right.

"With cause" termination provisions specify particular conditions that give rise to a party's right to terminate the agreement. The most obvious condition is if one party defaults or breaches its key obligations (e.g., fails to pay or provide services) under the agreement. Other typical "with cause" bases for termination include filing a petition in bankruptcy, intentionally misrepresenting a material fact in a representation or warranty in the original contract, and the psychologist having his/her professional license revoked or suspended. Typically, before a party may terminate the agreement with cause, the "nonbreaching" party must give the "breaching" party written notice of the event giving rise with the cause termination right, and allow the breaching party a certain number of days to "cure" the breach. Agreements also may require that the parties pursue a dispute resolution process (e.g. mediation or arbitration) before terminating the agreement. There is no standard reason to terminate an agreement "with cause." Accordingly, the parties may tailor their arrangement to the specific situations that they deem serious enough to warrant termination of the agreement. continued

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