Healthcare Entity & Practice Formation
Starting any business can be overwhelming. But for physicians and others establishing a medical practice or health care business, there are additional legal concerns. If you are a healthcare professional starting a medical practice or healthcare business, the first steps you take will set the foundation for your success. Establishing your business structure in a proper manner may be almost as important to your career as providing high-quality patient care.
Our healthcare and business law firm represents physicians and others in the formation and operation of medical practices and healthcare businesses. Although legal, practical and tax factors impact entity formation options for any business, owners of medical practices and healthcare businesses face unique legal considerations in setting up a medical practice or healthcare entity. The changing regulatory environment and the health industry’s combination of a public and private payer system create multiple legal issues that require careful evaluation.
A first step in setting up a medical practice or healthcare business is choosing the type of entity to form. What type of entity will work best for your practice or business will depend on an analysis of multiple factors, including costs, paperwork, potential legal liabilities, tax and other considerations. We can assist you in selecting and forming the entity that is most appropriate for your situation. Options include:
- Sole Proprietorship
- Corporation (including PC or S Corp)
- Limited Liability Company (LLC)
Although sole proprietorship and general partnership are entity options for physicians and healthcare business owners, most health industry professionals decide that an S Corporation or Limited Liability Company provides the best combination of limited legal exposure and tax advantages, without some of the formalities and complexities associated with forming and operating a regular or professional corporation. A primary benefit of incorporating a medical practice is the ability to limit personal liability for certain corporate debts of the business. Generally speaking, while a solo practitioner may have personal liability for the debts of the medical practice, a shareholder or a corporation or LLC member will not. Where a group of physicians set up a medical practice, incorporation can also avoid (or minimize) personal liability for the acts of other physicians in the group. However, incorporating an entity will not insulate an individual physician from his or her own acts of negligence or malpractice.
Professional corporations, known as PCs, are available options to those in certain occupations, including medical professionals (as well as accountants, lawyers and others). PCs usually must be approved by the state agency that licenses the professionals. For physicians in Georgia, that agency is the Georgia Composite Medical Board. And all owners of a PC need to be licensed by the board. Although PCs do not offer the level of personal liability protection of S Corps or LLCs (discussed further below), PCs generally do protect individual owners from malpractice claims filed against other physicians or associates.
An S Corporation is much like an LLC (discussed further below). Net profits in an S Corporation are “distributed” to stockholders, who then add these profits to their personal income for tax reporting purposes. S Corps are similar to all other corporations, except for this tax issue. Other corporate requirements, such as holding regular management meetings, etc., are identical to all other corporations, regardless of whether they are a single stockholder company or a large corporation. The S Corporation is created in the usual manner, and shareholders subsequently “elect” to be taxed as individuals, thereby creating an S Corp for IRS purposes.
An LLC functions like a standard corporation in many ways, including personal asset protection, but it is much less complex to organize, file, document and manage. LLCs combine the best features of partnerships and corporations, offering limited liability to owners, while dividing up profits among the partners. Similar to S Corporations, owners normally receive protection for personal assets regardless of financial or operating problems that may befall the LLC. In most cases, company creditors cannot seize the assets of the owners/partners. Like a classic partnership, LLCs must file an IRS form 1065, which lists the ownership percentages of the partners, for taxable income distribution.
In order to gain the advantages and protections of an LLC, physicians and healthcare professionals must ensure that their LLC is properly created and maintained. Like other states, Georgia enforces additional rules governing proper LLC formation within its state boundaries. We can help you create and maintain your LLC to help ensure you receive all the benefits this entity structure provides. With respect to tax issues, physicians and healthcare business owners should consult with a certified public accountant and/or tax attorney with both general tax expertise and specific experience working on behalf of medical practices.
In addition to entity formation considerations common to any business, physicians face many legal issues and practical considerations unique to the healthcare industry. For example, in forming and operating a medical practice, physicians must now often decide issues that previously did not exist, such as: how to set up an electronic medical records system; how to establish protocols to ensure compliance with HIPAA and HITECH; whether and how to practice “telemedicine”; whether to form a “concierge” medical practice, as opposed to a conventional practice based upon third-party payer steerage; whether to join an “independent physician association,” “physician hospital organization” or other organization; whether and how to participate in an “accountable care organization”; whether to sign a PPO’s “network agreement”; and what all of these choices might entail.
At the Law Office of Kevin O’Mahony, we have extensive experience and expertise representing physicians, health care providers and other professionals in establishing their legal entities and related matters. We are one of the few law firms in Johns Creek and metro Atlanta focusing exclusively on healthcare and business law. We understand the unique aspects of your business and provide services that allow you to devote more time to your practice and spend less time navigating and fulfilling legal requirements. We are here to help you with every step of healthcare entity and medical practice ownership. We also advise clients regarding healthcare provider contracts, employment and insurance issues, leases, and other business matters, including negotiation and preparation of the necessary documents. And we can assist you with buying and selling medical practices. Please call or email us when you are ready to discuss your legal needs.