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A Potentially Costly (Legal) Mistake

Several years ago, we discussed social couponing and how it may actually be a violation of state and federal law when utilized in a dental practice. To read about this, you can visit our online article archive (http://articles.ADSflorida.com) and search (or just click) “Social Coupon”.  We reported that dental offices throughout the country have signed up with companies like Groupon and LivingSocial to offer discounted procedures including orthodontic treatment, whitening, teeth cleaning and radiography with the hopes that these patients will stay and need additional treatment. However, according to the American Dental Association’s legal division, this discounting/promotional program might raise legal issues, depending on the state in which the dental service is offered.

While little has changed with the concerns over social couponing, as the transitions market has become more active, and doctors are better understanding the extreme value of acquiring goodwill, we find ourselves more and more frequently highlighting similar points in structuring these kinds of acquisitions.

First of all, we would be remiss if we did not state that if you are presented with the opportunity to acquire a patient base, in nearly all cases, it is worth paying full-asking price (if not more), even if that requires you purchase equipment as a part of the deal. The finances work out such that in most every case, you will earn back your investment within months, not years. From there, you are living on an annuity of income – one of the quickest repayments of an investment available on the market today and likely the most profitable. If you are presented with such an opportunity, we would be happy to walk through the numbers with you. They’re simply astounding and well worth the associated risk of acquiring and moving a practice.

With that established, how you pay for the transaction becomes the potentially sticky proposition. A concern of many purchasers focuses on ensuring that the goodwill that’s being purchased is actually transferred. Understandably, purchasers want to ensure that as much of that goodwill arrives in their office as possible. They also want to be sure that the Seller is doing all they possibly can to make that happen. Tying these desires together, the common answer is to structure a purchase price based on the number of patients that transfer and/or the amount of additional income that is collected over a certain amount of time. While this sounds like a winning formula, this ultimately presents exactly the same potential problems and legal concerns as social couponing.

“What legal issues?” you may ask.

In many states, there are regulations that prohibit or restrict what may be given to a third party as a means of soliciting patients. So, in this case, the Seller, similar to third party companies (Groupon, LivingSocial, etc.) is receiving revenue based on a referral and/or the procedure performed on the patient who visited (transferred).

On a national level, the federal Anti-Kickback statute regulates federal health care programs, including Medicare and Medicaid. The statute generally prohibits dentists from offering or paying money in exchange for a referral. Dentists found in violation of the federal law could, at the least, be excluded from federal health care programs, but further may be subject to fines or even imprisonment. On a state level, censure and reprimand, suspension or revocation of a doctor’s license, and/or fines are all on the table as potential repercussions.

What About Florida?
The Anti-Kickback Law applies to all Florida health care providers and any provider of health care services, and additionally, the following laws are used to regulate the issues of fee splitting and kickbacks: The Florida Patient Self-Referral Act of 1992 (Fla. Stat §456.053), which is analogous to the Stark laws; Patient Brokering Act (Fla. Stat §817.505); Anti-Kickback (Fla. Stat §456.054); and Fee-Splitting (Fla. Stat §458.331).

The bottom line is that licensed health professionals, with few exceptions, are forbidden from paying or giving anything of value to someone (websites included) for providing a referral. Why is this so? The rationale is that paying for referrals can corrupt the objective medical/dental decision of whether a patient needs and will benefit from some treatment.

While it is always important to look for new avenues to generate new patients, care and diligence should be used to ensure that local, state and national laws are properly observed. The easiest way to go about this is simply agreeing on a fixed price for the transfer of patients. Mostly simply, pay a single price, at closing, and have requirements of a Seller to assist in transferring patients. On a practical level, it’s suggested to also hire any hygienist(s) in the practice as well as at least one of, if not the entire, front office team to aid in continuity for (and knowledge of) the patients. Other successful strategies have included personally escorting patients from old office to the new, or employing the Seller to work for a set period of time. Going out of one’s way to
welcome new patients (multiple times) has also proven successful.

Again, the acquisition of a patient base is simply the quickest way to grow a practice. It is one of the few times that a purchaser borrows/spends cash to acquire cash, and that acquisition is in the form of year-over-year collections. Payback is nearly immediate – potentially the best return on investment possible.

Think you may have such an opportunity? Let us know, we’d be happy to help you evaluate to establish a potential price, review economics of the purchase, then assist in structuring a transition that allows you the maximum value.

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