Among the slew of operational decisions involved in medical practice transactions, human resource matters call for careful consideration. In physician-owned practice sales it’s common for the purchaser to retain some portion — or all — of the original practice providers. When shifting existing personnel into new employment agreements or updated service contracts, it’s well-advised to mindfully establish fair market value compensation, and to heed full compliance with the Stark Law and Anti-Kickback Statute (AKS). Purchasers who frame compensation arrangements based on anticipated clinical productivity and with zero ties to the value or volume of patient referrals will be on the right track. Recent events highlight the importance of this matter.
In a complaint filed March 4, 2021 in the Trumbull County Common Pleas Court, a family medicine physician of more than 20 years, Dr. Adil Jaffer, related his account of dealings with Boston-based Steward Medical Group (SMG). Dr. Jaffer, who sold his Warren, OH family medicine practice to SMG in 2018, laid out his transition from owner, to employed physician, to his eventual firing in late 2019, and the notable events that occurred during and since this period of time. Primarily, he alleged that upon receipt of the initial employment package, he expressed concerns to SMG officials that their salary offer seemed unusually high for a family medicine physician in the region. According to Dr. Jaffer, SMG management dismissed his salary concerns without pause.
Dr. Jaffer stated in the filing that he carried on with his medical duties as an employee of SMG just as he had before the sale of his practice. This included his experience-based system of referring patients to the tried-and-true specialists he deemed suitable (many of whom were not affiliated with SMG). Dr. Jaffer further alleged that shortly after SMG assumed leadership of his practice, he encountered criticism by SMG officials of policy violation for failing to refer patients exclusively to physicians within the group network. Nevertheless, Dr. Jaffer stuck to his practice of basing referrals solely on his own determination of best options for meeting patient needs, regardless of affiliation.
The complaint further expounds claims that Dr. Jaffer received intensifying pressure from management in weekly meetings, where SMG officials articulated that his inflated salary was intended to motivate him to keep his patient referral stream “in house”. Dr. Jaffer expressed that he was not opposed to referring patients within the SMG network — that he simply based his decisions on his best judgement of individual patient preferences and needs, without bias or preference for any particular physician or group. Furthermore, he attested that he explained to SMG management that he could not legally accept the higher salary as payment for referrals. Ultimately, Dr. Jaffer was fired by SMG in December of 2019, during a meeting in which he alleged the SMG medical director cited his failure to confine referrals to practitioners under the SMG umbrella as the sole reason for his termination. Dr. Jaffer has claimed violations by SMG of Stark, AKS, and Ohio state laws regarding continuity of care and unlawful retaliation and termination, and now seeks punitive and compensatory damages.
In summary, some related fair market value reminders:
· Prices paid for physician-owned practice sales should be based on fair market value and commercial reasonableness for the purchasing entity, in absentia of downstream referral value or volume. Post-transaction compensation for selling physicians and providers should reflect the fair market value of the anticipated post-transaction clinical productivity and/or other contributions.
· To support fair market value compensation for physicians and advanced practice providers, and for guidance in valuing medical practice assets, reach out to a healthcare valuation consultant for an opinion of fair market value and commercial reasonableness for provider employment agreements and/or service contracts.
 As summarized from the complaint: upon their approach of Dr. Jaffer, SMG, believed to be driven by private equity investment interests, was operating several healthcare facilities in various regions throughout the United States, and was eager to gain a foothold in the Northeast Ohio market.