A decision earlier this summer by a Florida appellate court could have a significant impact on physician practice management companies and physicians who are eager to terminate relationships with them.
Florida's First District Court of Appeals upheld a 1997 Florida Board of Medicine ruling that declared illegal a contract between PhyMatrix, a now-defunct PPM previously based in West Palm Beach, Fla., and a group of Brandon, Fla.-based physicians led by Magan Bakarania. The contract required the physicians to pay PhyMatrix a base fee plus 30% of their net income in exchange for marketing, advertising and other efforts to increase the size of their practice.
PhyMatrix has since exited the PPM business and now does business under the name Clinical Solutions in Providence, R.I.
The physicians, who had concerns about working with PhyMatrix, brought the contract to the Board of Medicine in 1997 to find if it complied with state regulations. The board and then the three-member appeals court found the contract violated a state fee-splitting statute, which prohibits payments in exchange for patient referrals.
As a result, PPMs doing business in Florida may have to restructure physician contracts. Meanwhile, physicians who have been frustrated by poor management and declining revenues under PPMs may interpret the decision as a go-ahead to lawfully terminate contracts.
"I think (the decision) is going to have a very large impact, because a number of doctors who are stuck in these arrangements have waited for the outcome of the Bakarania case before pulling their heads out of the sand and standing up for their rights," says Alan Gassman, a Clearwater, Fla., attorney who represents Bakarania and the other physicians involved.
Allen Grossman, deputy section chief for the Florida attorney general's office, who represented the Florida Department of Health before the appeals court, says a number of PPM contracts contain similar marketing and advertising components.
"When they first got started, they would try to teach the doctors how to run their businesses better. It's when they took the percentage arrangement and added to the agreement, 'Oh, by the way, we're going to get you more patients,' that's when it begins to become more problematic," he says.
PPM attorney Bill Painter, partner with Baker, Donelson, Bearman & Caldwell in Jackson, Miss., says most PPM contracts involve payment for some marketing consultation.
"But it was atypical to expressly say, 'We're going to undertake to increase your number of patients and expand your patient business,' " says Painter, who was not involved in the Bakarania case.
The Florida Board of Medicine is not the only body skeptical of such contracts.
Last year, the HHS' inspector general's office issued an advisory opinion in response to a similarly structured management service contract.
In the opinion, the office determined that percentage compensation arrangements for marketing services may violate federal anti-kickback statutes, which prohibit payments for referrals. Violation of the statute could lead to fines of $25,000, imprisonment for up to five years, or both, and possibly exclusion from the Medicare and Medicaid programs.
Painter says the HHS report and the board's decision has created a "slippery slope" for PPMs trying to do legitimate business.
"That means every marketing activity--hiring an ad agency, having a brochure done, putting an ad on TV--suddenly, you're in violation of the anti-kickback statute," he says.
Painter also cautions against doctors' interpreting the Florida decision as a green light to terminate contracts at will.
"Don't assume this decision is a clear judicial decision that the contract you have with a management company is void under Florida law," he says.
However, he says, the case could give unhappy physicians "another arrow in their quiver" to get out of PPM contracts.
In other ongoing legal action, PhyMatrix sued the Brandon physicians for breach of contract after they terminated their contract in 1998. That litigation is pending, but Gassman predicts the ruling from the court of appeals will boost the physicians' case.