Under California law, there are minimal formal rules for closing a medical practice. However, due care should be exercised when selling, closing or departing from a medical practice. There are several important items which should be considered and planned in advance. The list given below is not complete, but it should be helpful. Even thought this is written for physicians, the same concepts can be used for all types of health care providers.
1. NOTIFICATION OF PATIENTS
Notifying patients helps with the transition from the current physician to the new treating physician, but it also reduces the liability of "patient abandonment." Therefore, to ensure this occurs with a minimum of disruption in continuity of care, the physician terminating the physician-patient relationship should notify patients sufficiently in advance.
We recommend a written notice sent our a minimum of 30 days before the transfer or closing of the office. Put forth in writing that you plan to close your office and on what date so that they will have sufficient time to obtain another physician. It is also suggested that, in the letter of notice to the patients, you enclose a form for the patient to sign authorizing the release of records should they wish to request that a copy of their records be sent to the new physicians of their choice. A list of all patients notified should be retained in your files.
You can save postage, in the case of current patients, by inserting the letter with a monthly statement or billing; letters to other patients will have to be mailed separately. For patients you cannot reach and to avoid any claims of patient abandonment (especially where patients are low-income and move frequently), you also may wish to place an announcement in one or more of the local newspapers.
2. RETENTION OF MEDICAL RECORDS
Medical records, including case histories, treatment records, x-rays, laboratory reports, correspondence with physicians and others, should not be destroyed until the statute of limitations has expired with regard to each patient. This is because the physician's record and liability insurance policies could be your chief source of defense in a future law suit.
The Statute of Limitations in California allows actions involving adults to be initiated within one year from discovery of the injury, but not later than three years from the occurrence. For retained foreign body cases, the statute is tolled until the claimant discovers or should have discovered the injury. These time limitations also apply to minors six years of age and older. In the case of a minor under six, the action must be filed within three years of the date of the injury or before the minor’s eighth birthday, whichever time period is greater.
While there are no specific statutory requirements pertaining to the general preservation of medical records, physicians are advised to retain their records for at least 5 years following the death of a patient 10 years after the most recent discharge of a patient or 15 years after the most recent discharge of a minor patient. The most prudent case is to keep records indefinitely but studies show that 99% of malpractice claims are filed within 10 years.
There are specific record retention rules relating to certain categories of patients. These rules include but are not limited to the following: Medi-Cal patients (3 years after last date of service); prescription books (3 years); patients for whom you have dispensed Schedule II through III (3 years); workers compensation medical-legal reports (5 years); OSHA rules (30 years); and others depending on contracts with HMOs, malpractice carriers, etc. Check with your legal counsel for more detail.
The patient has a general right to know what is in his medical records and thus you should make it known where such records can be obtained. Copies of records can be given to the patient or forwarded to another physician of the patient's choice with the consent and at the request of the patient, in writing.
3. DESTRUCTION OF MEDICAL RECORDS
If you decide to destroy medical records, use a method that will preserve the confidentiality of the records. It is a violation of California confidentiality laws to negligently abandon, destroy or dispose of patient records. Burning or shredding is recommended. The safest course is to shred any medical or confidential records, keep records of what is shredded, use a reputable service or have a responsible employee perform the shredding, and obtain certificates of destruction.
4. DISPOSAL OF DRUG STOCKS
The Regional Administrator of the Drug Enforcement Administration has jurisdiction over the State of California with regard to disposal of unused controlled substances. The following procedure has been approved as a guide to physicians:
The physician's DEA number (Controlled Substances Registration Certificate), unused Government order forms and controlled drugs should be disposed of as soon as possible. The registration certificate and unused Government order forms (DEA-222c) should be returned to the Drug Enforcement Administration. Procedures for destruction of controlled substances may be obtained by calling the Los Angeles Divisional Office.
5. SALE OF MEDICAL PRACTICE
If you are selling your practice, you should make certain that the buyer is a physician or health care provider licensed, or eligible to be licensed, in California. You want to be careful so that you do not sell to an unlicensed person. Avoid any claims that you have aided and abetted the unlicensed practice of medicine or similar charges. Any licensing information can be obtained from the appropriate State of California Board or Committee or the Department of Consumer Affairs.
6. YOU CANNOT SELL MEDICAL RECORDS
Under California law, records relating to patients cannot be sold. However, the sale of a practice may include, as one of its terms, unlimited access to the records of those patients who seek the services of the purchasing physician. Obtain legal advice on how to transfer patient files legally. The prohibition agains the sale of medical records is part of the same law that makes it illegal to receive any remuneration for the referral of a patient.
7. MALPRACTICE INSURANCE
Your policy should be examined to determine whether it is written on an OCCURRENCE or a CLAIMS MADE basis. Consult your insurance agent. If the policy is written on a CLAIMS MADE basis, only those claims made while the policy is in force will be covered and you should either continue your coverage or purchase coverage extension to protect you until all statutes of limitation have run.
8. ACCOUNTS RECEIVABLE
Not all of your patients will have paid their bills by the time your practice is closed. It will be necessary to have someone available to accept, record, and deposit payments received after the official closing of your practice. You may wish, after a suitable waiting period of three or four months, to turn those accounts still unpaid over to a reputable collection agency. If your accounts receivable is part of the sale of your practice, ensure that the terms are clear as to who has the right to collect.
9. LEGAL IMPLICATIONS AND TAX ASPECTS OF CLOSING/SELLING PRACTICE
It is recommended that you work closely with your attorney, accountant or business manager on the legal and tax issues involved in selling and/or closing a practice. This issues include, but are not limited to: the contract for selling your practice, any covenants not to compete, payment for the sale and how to handle any potential breach, obtaining security (such as a deed of trust or assignment of an insurance policy) for carrying a note on the sale, patient record retention issues, legal structuring issues and tax aspects of closing or selling your practice.
10. INCOME TAXES
Copies of your income tax returns and all supporting documentation, including ledgers and accounting records, should be preserved until the Internal Revenue Service can no longer assess additional tax. For Federal returns filed on time and containing all correct and pertinent data, this is usually three years; for returns where gross income has been understated by 20 percent or more, it is six years.
11. PAYROLL TAXESFinal returns and payments of all Federal and Social Security taxes must be made after the last employee has been terminated and the last payroll paid.
Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates. They focus their practice on the representation of individuals, businesses and professionals, with an emphasis on health care professionals.
