The 10 Biggest Legal Mistakes Older Physicians Make in Retirement Arrangements

Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them
Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)

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Executive Summary

Each year thousands of physicians retire after long and successful careers. While retirement should be a time of relaxation, if proper precautions are not taken, a physician’s retirement can become a legal nightmare. To ensure the type of retirement that so many physicians have worked for, it is imperative that they plan thoroughly and address meticulously the many financial, legal, and human resource issues that can arise. This section highlights 10 of the most serious mistakes physicians can make when planning to retire, close their medical practice, or both.

Mistake 1 Failing to Timely Review and Assess Contractual Obligations

Most physicians are party to a number of contracts that impose myriad contractual obligations. Such agreements can include medical office leases, maintenance and service contracts, insurance contracts, utility agreements, and personal service agreements (i.e., medical directorships). One of the physician’s first steps toward retirement should be to gather and review all of these contracts as soon as possible, but at least one year prior to the targeted retirement. Doing so will provide adequate time to assess notice and termination provisions and to determine how the physician’s rights, obligations, or both may be affected if any agreement needs to be prematurely terminated. It is important that the physician clearly and accurately understand and then execute the steps necessary to effectuate a proper termination under each agreement.

Action Step At least one year prior to retirement, physicians should identify and compile a copy of all their current contracts, including any personal services agreements under which they are personally obligated to perform, as well as other types of contracts affecting their practice (e.g., office leases, service contracts, and insurance policies). If necessary, physicians should ask their attorney to assist in the review and assessment of their contractual rights and obligations.

Mistake 2 Allowing a Lapse in the Physician’s Professional Liability Insurance Coverage

Physicians generally have either occurrence-based or claims-made malpractice coverage. A claims-made policy covers the physician for claims made during the time in which the insurance is maintained. Therefore, physicians who retire and allow their claims-made policy to expire will not be protected if a claim is filed after the expiration of the policy. It is vitally important that physicians who have a claims-made policy arrange for a reporting endorsement, commonly referred to as “tail” coverage.

Action Step Physicians should review their current medical malpractice coverage and determine if it is an occurrence-based or a claims-made policy. If necessary, they should contact their medical malpractice insurer for assistance. Physicians may find the carrier is willing to provide them with tail coverage and to offer them a credit for prepaid premiums, discounts, or both.

Mistake 3 Failing to Timely and Adequately Advise Patients of Impending Retirement

To avoid a claim of patient abandonment, it is important that physicians properly terminate their “relationship” with each patient prior to retirement. While it is likely that state law will outline specific notification requirements, when it does not, a physician should provide patients at least 60 days advance written notice of the impending retirement. Such notification must be in writing and can be provided by mailing a letter to each patient informing him or her of the physician’s retirement, closing date, or both; and the patient’s rights with respect to his or her medical records. It is a good idea for physicians to have their attorney review this notification letter to ensure that it meets state requirements.

It will likely be impractical to send a notice to every patient the physician has formed a relationship with over the years. When that is the case, experts recommend that the physician notify patients seen within the last three years, being careful to identify the high-risk patients currently under the physician’s care and for whom continuing care will be vital. It is often suggested that the physician send notice to these individuals via certified mail with a return receipt in addition to the physician’s general notification letter. Such documentation should then be filed in the patient’s records.

Action Step Physicians should research their state’s law requirements concerning patient notification. If necessary, they should consult an experienced health care attorney for assistance. They should ensure that they are able to identify every patient they have seen over the most recent three years, being careful to identity high-risk patients. If applicable, the retiring physician should notify three to four other physicians with comparable qualifications to whom he or she may recommend patients.

Mistake 4 Failing to Make Adequate Arrangements for Records Storage and Retention

Proper storage of patient records is of critical importance. State law may stipulate how long patient records must be retained, how they must be stored, and the degree to which patients (and others) must be granted access to their records. In addition to ensuring access by patients and state and federal authorities, the physician’s medical malpractice insurer also may have particular record retention and storage requirements.

While it is important to research state-imposed requirements concerning record retention and storage, it is equally important to identify the outside statutory time limits within which a patient (or others) can initiate a legal claim against the physician. Usually, maintaining records for seven to 10 years is a sufficient amount of time, but there are exceptions. For example, a pediatric practice will need to maintain patient records much longer. It is not uncommon for states to extend the statute of limitations applicable to minors for several years after a patient reaches the legal age of majority.

Further, if the physician plans to transfer or sell his or her records to another physician, it is advisable that the physician consult with an experienced health care attorney to ensure that the arrangement complies with applicable state and federal laws. Such an agreement should specifically grant the physician a right to access his or her patient’s medical records in the future, to receive copies of material upon request, and to be notified if the physician receiving the records retires, or otherwise plans to dispose of the patient records.

Action Step Physicians should research state and federal legal requirements concerning patient record retention and storage, and follow them meticulously. Also, they should explore the possibility of retaining, in at least two different locations, multiple copies on microfiche or other electronic means.

Mistake 5 Not Properly Addressing Employee Needs

When a physician has employees who will be affected by his or her retirement, assessing the employees’ needs early in the planning phase is wise. First, if the physician’s retirement also means the closing of the medical practice, the physician will want to ensure that the employees are provided with adequate notice. In addition to researching any legal requirements, it is imperative that the physician review his or her personnel manual and assess obligations with respect to compensation, accrued vacation and sick time, severance pay, insurance benefits, pension plans, and other benefits. The physician should plan on providing the employees with at least 30 days of notice; however, this may be driven by the physician’s notice requirements to his or her patients.

The physician should also anticipate that some employees will likely resign before the closing day. To address staffing shortages, experts advise physicians to interview temporary staffing companies in advance, select one or two that can adequately address the physician’s needs, and make arrangements to contact them if temporary help becomes necessary. Experts further recommend that the physician consider offering a bonus to key employees who remain on staff until closing.

Action Step Retiring physicians should take inventory of their employees to determine who should be offered a “retention bonus” and which ones might leave before the official closing date. Also, they should contact temporary staffing agencies and select at least one that will be able to address their needs. Physicians should be careful to accurately analyze their financial and legal obligations with respect to their employees and factor each into their plan.

Mistake 6 Failing to Arrange for the Proper Disposal of Drugs

Physicians must notify the U.S. Drug Enforcement Administration (DEA) and, if applicable, the appropriate state counterpart about their impending retirement. They should seek instruction from each on what steps are necessary to ensure proper disposal. For example, when controlled substances are disposed of or destroyed, the DEA requires registrants to complete a DEA Form 41 and have the disposal or destruction completed by a DEA authorized company.

Both state and federal agencies should be contacted for specific instructions on how to properly dispose of controlled substances and what record retention requirements may be imposed. In addition, physicians must ensure that all unused DEA order forms are voided and returned to the proper authorities at the DEA. Likewise, unused state prescription pads must be voided and returned to state authorities. Finally, physicians must send a certified letter to the DEA informing the agency of their retirement and intent to surrender their DEA registration.

Action Step Physicians should contact the DEA and their state counterpart for specific instructions on the disposal of prescription drugs. They should be sure to complete all necessary paperwork and keep copies for their business files.

Mistake 7 Failing to Notify the State Licensing Board and Other Professional Associations

Prior to retirement, physicians must contact their state licensing board, state medical society, the American Medical Association, and any specialty boards and societies of which they are members. In some states, physicians may be able to maintain an active license (with some restrictions) at no cost and/or become exempt from continuing medical education requirements upon request. It is also common for many professional organizations to offer reduced fees for retirees. Each organization must be contacted to learn of its individual policies.

Action Step Physicians should make a list of all the professional associations, specialty boards, and societies of which they are members. They should contact each to learn their membership options following retirement.

Mistake 8 Failing to Involve Professionals

Having professional legal and financial advice throughout the retirement process will be critical to ensure adequate planning and smooth execution. Involving an accountant early on can help the physician assess his or her financial obligations with respect to creditors, vendors, and employees prior to closing. Working in conjunction with the physician’s legal counsel, an accountant should be able to walk the physician through a systematic process of analyzing his or her financial obligations. For example, it is often recommended that physicians tighten their collection practices and closely monitor their accounts receivable and payable in the months preceding retirement. They should also request final statements from each vendor. This process will serve two purposes. First, physicians will have the peace of mind of knowing that they have taken care of the financial obligations owed to their vendors. Second, each vendor will be properly put on notice of the physician’s retirement and, if applicable, office closing. When the physician’s retirement does not involve the closing of a medical practice but only resignation from the practice, it is still a good idea to notify all of the practice’s creditors and vendors of the retirement, especially if the physician is a partner in the practice. Depending on how the practice is organized, such notification can have a dramatic effect on the physician’s personal liability pursuant to the practice’s future debts.

The physician will also want to engage the services of competent legal counsel. Because the health care industry is highly regulated by state and federal laws, it should be no surprise that a physician’s exit from practice is also laced with potential legal pitfalls. Experienced legal counsel can help the physician successfully navigate many such potential problems. When hiring counsel, the physician should seek someone experienced in health care.

Action Step Physicians should contact an accountant and an attorney early in the planning process and give them a complete picture of their particular situation. Physicians should insist that these professionals work together in mapping out a plan, being careful to consider the many unique aspects of their retirement (e.g., does the retirement involve ending an employment relationship; will the practice be closed or will there be a partnership that may or may not continue?).

Mistake 9 Forgetting the “Small Stuff”

Implementing a successful retirement plan involves a number of small, but important, details that must be addressed. It is important that physicians be proactive in thinking through their plans. Among the details that physicians should keep in mind as they plan for their retirement are the following:

Arrange to transfer health and life insurance policies, if applicable.
If closing the practice, make sure the legal entity is officially dissolved with the proper state authorities.
Notify the U.S. Postal Service and forward the mail.
Cancel subscriptions to newspapers, magazines, and journals.
Ask vendors if unopened items can be returned for credit.
Make arrangements with the answering service.
Donate books, journals, and other materials to the local library or charity.
Contact the local Social Security office if the physician is nearing age 62.

Action Step When developing their retirement plans, physicians should ensure that they consider the “small stuff.” Keeping a current “to-do” list can help track progress, facilitate communication with those who are helping, and assist in record keeping.

Mistake 10 Failing to Keep Good Records of the Closing

There are so many issues to address when physicians retire or close their offices that it is easy to forget that one of the most important and helpful steps they can take is to keep accurate and complete records of the retirement or closing process. Such documentation can make a world of difference as they work through the process and can provide an excellent resource if questions or issues arise later. Often many parties are involved in a physician’s retirement or closing, which can make the task challenging. However, that challenge is no more difficult than that of trying to locate all of the relevant materials and parties months or years later if an issue arises.

Action Step Physicians should keep accurate and complete records of their retirement and closing process. They should be certain to communicate this need to all of the parties involved in their retirement. If possible, they should designate a staff member to oversee the process for them.

Conclusion

Retirement should be looked on with great anticipation, but the process of preparing for it must be carefully planned and orchestrated. Physicians approaching retirement must be aware of these potential mistakes and take proper precautions to avoid them.

Additional Resources

American Medical Association, Office of the General Counsel, Division of Health Law, Ending the Patient-Physician Relationship (1998), http://www.ama-assn.org/ama/pub/category/print/4609.html
Arizona Medical Board, Closing a Practice—What Physicians Should Know (1997), http://www.azdocinfo.com/faq/closing
Born, “How to Plan Ahead for Your Retirement,” AMNews (April 19, 2004), http://www.ama-assn.org/amednews/2004/04/19/bica0419.htm
M. Burke, “Malpractice Tails in Employment Agreements,” Physician’s News Digest (April 2004), http://www.physiciansnews.com/business/404burke.html
Jackson, “Who Gets What? Plan for Success by Planning Your Succession,” AM News (Sept. 16, 2002), http://www.ama-assn.org/amednews/2002/09/16/bisa0916.htm
Professional Management and Marketing, Closing Your Practice (2003), http://www.practicemgmt.com/articles/closing_your_practice.htm
J. Roediger, This Practice Now Closed Take Care of Legal, Operational Responsibilities First (2002), http://www.shands.org/professional/ppd/practice_article.asp?ID=235
L. Rogers-Stokes, “Retirement Readiness, Money Is Only Part of the Picture,” Physicians Practice (Sept. 2003), http://www.physicianspractice.com/index.cfm?method=parent&submethod=details&article_id=439&r=