February 1999 Bulletin

Survive hospital bankruptcy

Get legal advice; evaluate your options

What should you do if the hospital system that owns your practice goes bankrupt? That's not too far-fetched.

Last July, Allegeheny Health, Education and Research Foundation, which owned eight southeastern Philadelphia area hospitals, filed for Chapter 11 bankruptcy. The system was eventually sold to Tenet Healthcare Corp., which offered contracts to 250 of the 300 physicians in the system, but struck agreements with 170 physicians.

Joan M. Roediger, JD, an attorney and consultant for the The Health Care Group, Inc.®, suggests physicians:

Seek legal advice about:

Read your current agreement. Make a list of everything that is owed to you. Include such items as unpaid salary, bonus, rent, expense reimbursement and retirement money. Organize and collect any unpaid bills.

Familiarize yourself with the terms of your office lease. Talk to the landlord and see if they will either transfer the lease to you or give you a new lease.

File your claim or objection(s) with the court objections in a timely fashion. You must file an objection if your health care employment agreement (or other contracts) are proposed to be assigned to the new employer and you do not wish to work for the new employer.

Don't decide to work for another health care entity solely because it is the winning bidder. Investigate other practice opportunities. Evaluate your options.

Alert your staff to immediately flag any communications from attorneys, the bankruptcy court or from the bankrupt employer for your attention. You may have to act immediately upon certain notices as the proceedings progress, and you will not want to miss them.

Perform due diligence on your prospective new health care employer. Find out what assurances you will have so you won't be in the same position again. Talk to other physicians in the same system. Negotiate an agreement you can live with.

Be sure any decisions you make are in accordance with the rules of the U.S. Bankruptcy Court. Otherwise, penalties for violations may be imposed against you.

What are your options? The Health Care Group suggests that "the best option is to reacquire the practice you sold to the hospital. Buy back all the equipment, computers and furniture that you sold. Reassume the office lease and needed equipment leases. Buy your way out of any restrictive covenant. Do not buy accounts receivable, even though this means that you will need start-up financing. Also, do not buy goodwill-your former patients should find you readily enough."

Medical records and patient name and address files belong to the hospital. The consultants warn, "Do not solicit employees or take patient or practice information without written permission."

If you join an existing group, you will probably not be offered co-ownership right away, say the consultants. You may have to wait perhaps 12 months, but if the new association does not work out, it is easier to undo the arrangement if the co-ownership has not been cemented.

Creating a new group with former hospital system physician-employees is the most challenging option because of the complexity of working out the "nuts and bolts" of equipment, leases, etc., but also issues such as employment rights, compensation arrangements and governance structure.

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