Physician Partnership, Shareholder, and Joint Venture Disputes in New York and New Jersey
Physician partnership, shareholder, and joint venture disputes come in many forms, ranging from traditional disputes among physicians who are partners/shareholders of the same medical practice to joint venture and cross-practice agreements involving the delivery of specialized services and potential fee-splitting, overhead reimbursement, and facility fees. Although these disputes come in many forms, the most actively litigated relate to:
Traditional Physician Based Partner / Shareholder Disputes
These disputes relate to physician partners/shareholders who each own a direct equity interest in the medical practice. These disputes commonly involve claims related to disproportionate distributions, contract claims based on performance and billing requirements, revenue and profits received from non-group related practice revenue, and issues of corporate governance and lock-out. These disputes will largely invoke and depend upon well established principals of corporate shareholder and partnership laws with some variation unique to physicians. If you are faced with this type of litigation, information and factors that you should be aware of and discuss with your lawyer include:
- Contractual Rights. The terms of the partnership, shareholder, or member operating agreement (if you have one) for your medical practice will play a critical role in the resolution of your partnership dispute and the options available to you. Agreement provisions related to arbitration rights, voting control, dissolution, and non-competition covenants must be thoroughly evaluated before adopting any plan of action.
- Fiduciary Duties and Obligations. Fiduciary duties and obligations are court imposed obligations imposed on all partners. That is, as a partner, shareholder, or member of a medical practice, legally, you are imposed with (and entitled to from your physician partners) a fiduciary duty and obligation to act for the best interests of the underlying medical practice and to avoid acts of self-dealing. Fiduciary duties and obligations play a critical role in physician partnership disputes.
- Healthcare Regulation. Unlike other professions, application of healthcare regulation may significantly impact may be a simple partner dispute in any other profession. This regulation, depending on your litigation goals, may serve a tactical role in your negotiations and eventual settlement. Consider that simple regulations such as HIPPA privacy requirements and requirements respecting doctor-patient relationships
- Joint Venture / Specialized Partnership Agreements. The term "specialized agreement" is extremely broad and refers to those non-traditional joint ventures and working relationships that are extremely common and, many times, necessary to support and maintain a quality medical practice. These agreements most commonly involve working relationships between cross-specialities and typically involve a form of fee-splitting, which in many cases is designed to allocate the costs associated with overhead and administrative expenses. Many times these agreements are designed to stabilize billing, amortize fixed overhead expenses, and legitimately expand revenue. An example of a joint venture partnership relationship includes agreements, such as those between a Gastroenterology group and an Anesthesiology group respecting the provision of anesthesia services during endoscopy procedures. Factors that you must evaluate and be aware of include:
- Type of Agreement: Oral or Written. Due to the uncertainty about "joint venture" agreements, poor legal counseling and fear over fee-splitting regulations and prohibitions, many times joint venture type partnership agreements are comprised of oral statements or poorly drafted written documents. These cases and claims typically boil down to a compilation of oral statements and promises and written documents in the form of letters, cashed checks and emails. If you are seeking to enforce rights under a joint venture agreement, it is important to understand that you do possess legal rights and options even if you are just relying on oral representations and promises. To demonstrate your case and your claims, establishing a prior history, pattern, and practice of conducting business will be critical. Emails, cancelled checks, invoices and all written documents will serve as significant evidence.
- Fee-Splitting. The issue of permissible and prohibited fee splitting is a topic that is frequently raised in physician based joint venture / partnership agreements. Most commonly, the party who billed for services, received funds and, now refuses to remit payment will commonly raise violation of the Education Law or impermissible fee-splitting as a defense to payment. That is, although they may acknowledge the agreement and sums due, they claim that the law prohibits enforcement of the agreement. If you are faced with this potential defense, consider that if you are a licensed physician, your claim for payment may nevertheless be enforced. Consider the decision of Judge Emily Pines (Supreme Court, Suffolk County) wherein the Court rejected an anesthesiologist's "illegal fee-splitting defense" to a gastroenterologists claim for fees associated with endoscopy based anesthesia services. In rejecting the anesthesiologist's motion for summary judgment (seeking dismissal of all claims for fees on the grounds that the payment of said fees constituted illegal fee-splitting), the Court held:
Additionally, Defendants argue that Plaintiff's breach of contract claim is based in an illegal fee splitting agreement, rendering the alleged contract void as against public policy. Defendants contend that Education Law Section 6509-a subjects a physician's license to revocation, suspension or annulment for participation in a fee splitting agreement as same constitutes professional misconduct, and that 8 NYCRR 29.1(b)(4) states that unprofessional conduct includes permitting any person to share in the fees for professional services.
Assuming that there was an oral contract between the parties to split the fees generated from [defendant's] provision of of anesthesia services at plaintiff's facility, defendants have failed to demonstrate that the agreement was illegal and therefore unenforceable. Rather, such an agreement does not appear to violate Education Law Section 6530(19), which defines professional misconduct as including "Permitting any person to share in the fees for professional services other than: a…professional subcontractor or consultant authorized to practice medicine…
Island Gastroenterology v. Island Anesthesiologists, 2012 N.Y. Misc. LEXIS 2449 (2012)
If you are a physician faced with a dispute regarding a traditional partnership or joint venture, it is critical to understand your options and an effective course of action. Start, with definitive written instruments such as partnership and fee agreements and speak to your attorney about applicable regulation and an effective strategy for your case.
To learn more about effective courses of action for dealing with partnership dispute, order a complimentary copy of "The New York and New Jersey Partnership Dispute Guide". If you wish to speak with our firm regarding your dispute, call 1.800.976.4904 or contact us through our web form.
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