Business Issues

Topics Covered on This Page

Structure/Choice Of Entity
Partnerships
Limited Liability Partnerships
Limited Liability Companies
Partner/Shareholder/Member Agreements
Opening A Medical Practice
Closing A Medical Practice
Restrictive Covenants
Employment Contracts
Managed Care Contracts
Arbitration Contracts
Jury Duty

By Kathleen M. Boe, Esq.
English, Carroll, Ritter & Boe, P.C.

One of the first decisions to be made as a business owner is how the business should be structured. The decision should be made only after consulting with an accountant and an attorney. There are several choices for creating an entity through which to do business. The most widely used entities for physicians and other health care professionals are professional corporations, partnerships, limited liability partnerships, or professional limited liability companies. Many factors should be considered in determining which entity is the most well suited for health care practitioners. This chapter discusses the structure of various entities, things to be considered in opening and closing a practice, employment contracts and restrictive covenants, managed care contracts, arbitration contracts and jury duty.  

Structure/Choice of Entity
Regardless of the type of business entity, a physician or health care professional is personally liable for negligence or wrongful conduct while rendering professional services. A professional cannot shield himself from professional liability by creating an entity. However, creating an entity may protect a physician from:

• general business liabilities (e.g. patient or employee accidents);
• liabilities to unsecured business creditors; and
• personal liability for another practitioner’s professional malpractice.

What is a sole proprietorship?
A sole proprietorship is a business owned and operated by one person. The business and the individual proprietor are one and the same. Sole proprietors own all the assets of the business and the profits generated by it. They also assume full responsibility for all of the business liabilities and debts. For this reason, most physicians form an entity through which to operate a medical practice. There are no filings required or contracts required to create a sole proprietorship. However, if the sole proprietor uses a business name, he/she should register the business name as a tradename with the Vermont Secretary of State. A tradename registration costs $40.00 and gives the sole proprietor the right to use the registered business name for five years (and it may be renewed again and again).

What is a corporation?
A corporation is a separate legal person under the law. A Vermont corporation is created under the laws of the state of Vermont. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee major policies and decisions. The corporation does not dissolve when its shareholders change. The greatest advantage to operating a business as a corporation is that the corporation, and not its shareholders, officers or directors, is liable for the debts and obligations of the corporation. While there are exceptions to this rule, generally the owners of the corporation can not be held personally liable for corporate obligations. This is the fundamental difference between operating as a corporation as compared to a sole proprietorship.

How is a corporation created?
A corporation must be created under state law. This is done by filing Articles of Incorporation with the Vermont Secretary of State’s office. When the Articles of Incorporation are received and accepted by the Vermont Secretary of State, it will issue a Certificate of Incorporation.

What is a professional corporation?
A professional corporation is an entity allowed to be used by certain licensed professionals. The key to a professional corporation is that the professionals get the benefit of the corporate form for the business aspects of the practice, but do not get protection from liability for damages caused by the provision of the professional service. This means that if a physician commits malpractice, that physician can be held personally liable even though he/she operates as a professional corporation.

Vermont’s professional corporation statute was substantially revised in July, 2002. The new professional corporation law does the following:

• broadens the ownership of a professional corporation and allows various different types of professionals to incorporate together;
• permits existing professional corporations to remain under the old statute or elect to be governed by the new law;
• authorizes any licensing authority to restrict the professional corporation’s behavior in the interest of public protection; and
• sets out general procedures for the acquisition and disposition of the shares of stock of a professional corporation shareholder.

Are there ongoing administrative requirements of operating the corporate form?
Corporations are required to follow certain formalities including filing documents with the Vermont Secretary of State’s office, the federal Internal Revenue Service, the Vermont Department of Taxes, and the Vermont Department of Unemployment and Training. Every for-profit corporation must file an annual report with the Vermont Secretary of State’s office. Every corporation must hold an annual meeting of stockholders and directors, and must document these meetings in its corporate record book. Every for-profit corporation must issue shares of stock to its shareholders and document the consideration received for the shares of stock.

What is a C corporation?
A “C” corporation is a standard business corporation. A “C” corporation’s earnings are taxed at the corporate level and income to the shareholders is taxed at the personal income tax level.

What is an S corporation?
An “S” corporation is a small business corporation taxed under subsection S of the Internal Revenue Code. The profit and loss of an S corporation normally passes through to the shareholders in proportion to their shares in the corporation. The shareholders report the profit or loss on their individual tax returns. A professional corporation may elect to be treated as an S corporation or may remain as a C corporation. An S election is made by filing IRS Form 2553 with the IRS within 75 days of incorporation. An S corporation has certain limitations including a limit on the number of shareholders (100), a requirement that shareholders be U.S. citizens or resident aliens, and a restriction to only one type of stock. All eligible shareholders must be individuals, estates, certain defined trusts, or certain tax-exempt organizations. Internal Revenue Code section 1361 sets forth complete rules relating to S corporations.

Partnerships
A partnership is an association of two or more persons to carry on as co-owners a business for profit. Vermont’s law provides basic definitions and rules about partnerships some of which can be varied by a partnership agreement. For income tax purposes, a partnership is generally treated as a pass-through entity. The partnership itself does not pay income taxes. The partners report the business profits or losses on their personal income tax returns.

What is a general partnership and how is it created?
A general partnership is an association where each owner has unlimited liability. Many partnerships are created without a written agreement. There are many advantages to using a written agreement, including the certainty the partners achieve about their business relationship. If there is no partnership agreement, then the rights and duties of the partners are controlled by Vermont law (Title 11, Vermont Statutes Annotated, Chapter 22).

What is a limited partnership?
A limited partnership is a partnership formed by two or more persons having one or more general partners and one or more limited partners. A general partner is personally liable for the debts and obligations of the partnership. A limited partner may not participate in the control of the business. Typically, a limited partner is not liable for the obligations of a limited partnership (unless he or she is also a general partner or unless he/she participates in the control of the business). A limited partnership is formed by filing a Certificate of Limited Partnership in the office of the Vermont Secretary of State. The Certificate must contain the following information: the office and the address of the registered agent; the name and business address of each general partner; the name and residential address of the partners, and amount of cash and description of agreed value of other property contributed by each limited partner; the latest date upon which the limited partnership is to dissolve.

Limited Liability Partnerships

What is a limited liability partnership?
A limited liability partnership is a partnership that voluntarily registers with the Vermont Secretary of State as an LLP. Vermont law specifically allows any partnership to register as an LLP. The LLP form shields the individual partners from personal liability for partnership debts. The partner may lose all he/she invested (his partnership interest) but the partner’s personal assets cannot be used to satisfy the debts of the LLP. Thus, a partner in an LLP has similar protection as a stockholder in a corporation. To create an LLP, the partnership must file an LLP registration form with the Vermont Secretary of State. An LLP must end its name with the words “Registered Limited Liability Partnership,” “Limited Liability Partnership,” “RLLP” or “LLP.”

Limited Liability Companies

What is a limited liability company?
A limited liability company (“LLC”) is an entity formed under Vermont law that has elements of both a corporation and a partnership. An LLC is treated like a corporation for purposes of limited liability, and as a partnership (if properly structured) for purposes of income taxation. In order to form an LLC, one must file Articles of Organization with the Vermont Secretary of State. The name of a limited liability company must contain the words “limited liability company” or “limited company” or the abbreviation “LLC” or “LC.”

Can one physician form an LLC?
Yes, in Vermont an LLC may be created by one person and that person shall be the sole member (owner). The LLC will protect the sole member from liability for obligations of the LLC.

What is an Operating Agreement?
An Operating Agreement is a private document that sets forth the governance rules for the LLC. The Operating Agreement does not get filed with the Vermont Secretary of State. Many of the provisions of the Vermont LLC statute can be altered or varied by agreement among the LLC members in the Operating Agreement. The Operating Agreement should specify whether the LLC will be managed by its members or by one or more managers. It should also address the following topics:

• how a new member is added to the LLC;
• how the members vote;
• how a member can withdraw or be forced out of the LLC; and
• who makes tax and accounting decisions for the LLC.

Can licensed professionals create an LLC?
Yes, licensed professionals can form a professional limited liability company; however, professionals are also governed by the licensing laws and by Vermont’s professional corporation act. Section 3012 of the Limited Liability Company Act states that a “limited liability company shall engage in rendering professional services only to the extent that, and subject to the conditions and limitations under which, a professional corporation may engage in rendering professional services.” The name of a professional limited liability company must contain the words “professional limited liability company” or the abbreviation “PLC.”

How will an LLC be taxed?
An LLC can elect to be taxed as a corporation or as a pass-through entity. If the LLC has a single member and elects pass-through treatment, it will be treated as a sole proprietorship. If the LLC has more than one member and elects pass-through treatment, it will be treated as a partnership.

Partner/Shareholder/Member Agreements
Regardless of the type of entity used, if the entity is owned by more than one physician, the physicians should enter into an agreement governing their relationship. If the physicians are doing business as a corporation, they should enter a shareholder agreement. If the physicians are doing business as a partnership, they should enter a partnership agreement. If the physicians are doing business as a limited liability company, they should enter an operating agreement. These agreements should document the following: how decisions will be made; how profits will be shared; how disputes will be resolved; how future owners will be admitted to the entity; and, how owners will be bought out.

Opening a Medical Practice

What issues should be considered in opening a practice?
The first issue is the choice of entity issue discussed above. Once the type of entity is selected, the physicians involved should agree on the terms of the appropriate governing agreements. The physicians should contact the local hospital for information about social supports such as the local community mental health agencies and the local agencies on aging. They physicians should determine what medical services the practice will offer, such as lab or x-ray.

What other issues should the physician consider when opening a practice?
The physician must ensure that he/she has all required professional licenses. The physician will need to obtain office space for the practice, which involves leasing or purchasing property. The type of service being offered by the physician will often determine the type of space and equipment the physician will need. The physicians need to determine what information and communication systems will be used by the practice. If the physician hires staff for the office, the physician practice will need to comply with state and federal laws regarding employees and will need to adopt certain employment policies. The physician practice will need to obtain insurance to protect against various risks, including all risk insurance protecting against damage to the premises and equipment, general liability insurance, and professional liability insurance. The physician should consider advertising the practice. The physician should determine whether the practice will need to obtain the services of a billing company.

If the physician has previously worked for another practice or medical center, the physician should review his/her employment contract and/or personnel policies to determine whether there are restrictive covenants that prevent the physician from practicing in certain geographical areas. The physician may need to obtain medical records of patients from the patients’ former providers. The physician should prepare a consent form that patients can sign.

What resources are available to provide information on opening a practice?
The physician should check various websites for tips on opening a practice and sample forms and contracts, including the websites for the American Medical Association and the American Academy of Family Physicians.

Closing a Medical Practice
The physician must plan ahead before closing a medical practice. The physician must address the following issues in closing the practice: notification to patients; notification to employees; notification to malpractice and general liability insurers; cancellation of contracts with practice management companies or billing companies; termination of equipment leases; disposal or storage of patient records; and disposal of drug samples. Additionally, if the medical practice is organized as an entity such as a corporation or LLC, the physician must wind up and dissolve the business entity after the closure of the practice.

If the physician intends to sell the medical practice, instead of closing it, then the physician will need to have the practice valued and marketed. The physician will need to hire an accountant and attorney for help in structuring the sale and in negotiating the terms of the sale.

How should a physician notify patients?
A physician is generally under an ethical and legal obligation to provide services to a patient as long as the patient needs them. In order to avoid a claim of abandonment, the physician should take several steps to terminate the physician-patient relationship. (Abandonment is defined as the termination of the physician patient relationship at an unreasonable time and without giving the patient the chance to find an appropriate replacement.)

The physician should initially notify all patients by a letter which informs the patient of the date the physician will stop practicing and the method by which patients can obtain their medical records or have them transferred to another physician. Ideally, the letter would be sent by certified mail, return receipt requested, but the cost may be prohibitive. The patient notification should include: a brief explanation of the reason for terminating the patient relationship; agreement to continue to provide medical treatment for a reasonable period such as 30 days to allow the patient to find another physician; and, a consent form which the patient can sign in order to authorize the transfer of his or her medical records to the new physician.

The physician should make a list of patients to whom the notice should be sent. Identifying patients could be done by running a list of new patients and patients whom visited the practice during the prior two or three years. The physician should not send a notice to patients of other physicians that he or she shared call coverage with, or patients whom were seen through a hospital consult.

Should the physician refer patients to another physician?
If at all possible, the physician closing a medical practice should avoid referring patients to another named physician. Such a referral puts the referring physician at risk of a claim for negligent referral. The physician should instead refer their patients to the Vermont Medical Society or local hospital. Additionally, patients who are under the physician’s ongoing care may require additional arrangements.

Are there employee notice requirements upon the closure of a physician practice?
In Vermont, there are no statutory requirements for notifying employees in a particular manner. The physician should review any employment contracts between the physician practice and its employees. The physician should also review any existing personnel policies or employee handbooks to determine the rights of employees. The physician practice must provide written notice of the termination date of benefits. The physician practice may have certain obligations under COBRA.

Is there a risk of notifying employees about a planned practice closure too early?
Yes when a physician notifies his/her employees that the practice will be closing, there is a risk that the employees may immediately search for a new job and leave the physician’s practice prior to the closure date. To avoid this, and provide an incentive for employees to remain at the practice, the physician may want to offer a bonus to any employee who works at the practice until the closing date.

How should the physician handle patient records upon the closure of the practice?
Upon the request of the patient, the physician would send a copy of the patient’s records to a new physician or to the patient. In either case, the physician should retain the original (or retain access to the original). The physician should store the original records in a safe place, such as a commercial storage firm. The physician should ask the storage company to enter into a confidentiality agreement so that the physician meets his/her legal obligation to keep patient records confidential.

How should the physician dispose of drug samples?
When a practice closes, it may still have possession of unused drugs or drug samples. The physician practice should return any unopened bottles to the distributor or manufacturer to obtain a refund if possible. The physician practice may also return drug samples to the drug company representatives who visit the practice. The physician may also check with the local hospital or local pharmacist for suggestions on how to dispose of the drug samples.

Restrictive Covenants

What is a restrictive covenant?
A restrictive covenant is a contractual obligation preventing the physician from competing with the physician practice while the physician is employed by the practice and when the physician leaves the practice. The restrictive covenant may also prevent the departing physician from soliciting employees or patients of the practice. Finally, restrictive covenants often require the physician to keep proprietary information of the practice confidential.

In what document would a restrictive covenant be included?
Restrictive covenants may be included in a number of documents. A restrictive covenant may be in the governing documents for the entity such as the shareholder agreement of a corporation, the partnership agreement of a partnership, or the operating agreement of a limited liability company. A restrictive covenant may also be included in an employment contract.

How does a confidentiality covenant work?
Every medical practice has business and patient records that should be kept confidential. These records include things such as patient lists, referral databases, peer review summaries, utilization review and management data, and employee files. The physician will be prohibited from using or disclosing such confidential information except for practice purposes while with the practice. When the physician leaves the practice, the physician will be required to return to the practice all such written information and keep confidential information concerning the practice confidential.

How does a nonsolicitation covenant work?
A nonsolicitation agreement will typically prohibit a physician from soliciting former patients or recruiting employees of the practice. The nonsolicitation obligation applies for a stated period of time following termination. A nonsolicitation covenant does not prohibit a former patient from seeking out the physician in his/her new practice – rather it only prevents the departing physician from soliciting patients through direct or indirect contact.

How does a covenant not to compete work?
A covenant not to compete typically prohibits the physician from practicing medicine (or the relative medical specialty) within a specified geographic area for a specific time period. The purpose of this type of covenant is to protect the practice from competitive activities in an area which is geographically close to the practice. While there is often litigation involving covenants not to compete, a covenant that is reasonable in time, scope and geographical area should be enforceable. A number of factors are considered in determining whether a covenant not to compete is reasonable, including the population of the area from which the practice draws its patients and the nature of the practice. For example, the covenant not to compete of a rural practice would reasonably restrict the practice of a departing physician for many miles (up to 30); such a broad geographic covenant area would be less reasonable if the practice were located in a large, densely populated city.

What are recommended legal provisions in a document with restrictive covenants?
The agreement should include the rights of the practice to enforce the covenants in the event the physician breaches the covenants. The agreement should provide that the practice is entitled to seek an injunction enjoining the physician from breaching the agreement. In Vermont, the agreement should also state that one day is added to the covenant for each day the physician is in breach. Otherwise, by the time the practice gets a court to enforce the covenant, the time may have expired. Finally, the agreement should provide that the practice is entitled to attorneys fees and cost of enforcement if the physician breaches.

Employment Contracts 

What provisions should be addressed in an employment contract?
Physicians are often employees either of a hospital or a medical practice. The employment relationship should be set forth in a written employment contract signed by both parties. At a minimum, the employment contract should address the following topics:

• the correct legal names of the employer and employee;
• general statement of employment relationship;
• duties of employee;
• term of the agreement;
• compensation and benefits;
• vacation, sick leave, CME;
• billing and compliance;
• reasons for termination;
• governing law;
• restrictive covenants;
• professional liability insurance;
• employer obligations; and
• permissible outside activities.

Brief explanation of the above-referenced components.
Correct legal name of the employer and employee – The agreement should set forth the correct legal name of all the parties. Anyone who is required to perform obligations under the employment agreement should be named and should sign the agreement. When a corporation is the employer, the physician should verify the precise name of the corporation and should verify that the corporation is in good standing in its state of incorporation and the state where it is doing business.

General statement of employment relationship – This section should contain a statement explaining the employer–employee relationship, identifying whether the relationship is full- or part-time, and identifying the general specialty that the physician will be practicing. The agreement should clearly state that the physician is being hired as an employee and not as an independent contractor.

Duties of Employee – This section should state the location or locations where the physician will practice, the number of hours the employer expects the physician to work, and call coverage obligations. This section may contain a specific job description, or may refer to a specific job description that is attached to the agreement as an exhibit. This section should specify whether the employee must maintain medical staff membership at particular hospitals. Some contracts condition the commencement of employment on obtaining privileges at a particular hospital, and make loss of such privileges a reason for termination of the employment contract.

The term of the agreement – This section sets forth the term of the employment relationship. The agreement may be for a specific duration, and may contain renewal options. Some employment agreements automatically renew without any further action by the parties, unless one party gives notice of termination.

Compensation and benefits – This section sets forth the annual base compensation of the physician, and any bonus compensation plan. This section should contain details about how and when the physician is paid. This section should also set forth any other employment benefits the physician will receive such as a signing bonus, retirement plan, medical and disability insurance, etc. The agreement may refer to an employee handbook or personal policies that describe these benefits for all employees.

Vacation, sick leave, CME – This section should set forth the number of days of vacation and sick leave the physician is entitled to in any contract year. These days are often grouped together as combined time off. The agreement should also indicate how much time the physician can take away from the office for continuing medical education (CME) and should designate who pays for the CME.

Billing and compliance – This section usually makes it clear that the employer has the right to set fees, determine write offs, and bill the patient for services rendered by the physician employee. This section also obligates the physician to participate in all compliance programs adopted by the employer.

Reasons for termination – The agreement should state specific events that trigger termination by either the employer or the physician. These include termination for cause and termination without cause. Under for cause terminations, some actions by the physician may give the employer the right to immediately terminate the employment agreement, such as loss of medical license, conviction of a felony, and loss of the right to prescribe medications. Other non performance or bad performance by the physician may result in a notice from the employer with a reasonable time to cure. Some employment contracts contain without – cause termination provisions in favor of both the employer and the physician, giving either party the right to end the employment contract upon a certain number of days notice. The notice period should be generous enough so that both parties can plan for the departure of the physician.

Governing law – The agreement should set forth which state’s laws will govern the enforcement of the agreement. In many cases the applicable state law will be obvious, because the employer has only one place of business. However, if the employer does business in more than one state, the governing law provision becomes important. Contract law and laws governing the practice of medicine differ from state to state, so a choice of governing law in a contract can be an important choice for the physician and the employer.

Restrictive covenants – Employment agreement may contain a covenant not to compete, a non-solicitation clause, and a confidentiality clause, all enforceable against the physician employee.

Professional liability insurance – The employment agreement should address whether the employer is responsible for maintaining professional liability insurance and should set forth the policy limits for the insurance. If the insurance policy is on a claims made basis, the employment agreement should also indicate whether tail coverage is going to be maintained by the employer or the employee upon termination of the employment agreement. While the employer almost always pays for professional liability insurance during the term of employment, there are no set rules regarding which party pays tail coverage. Sometimes the employer pays, sometimes the physician pays, and sometimes the cost of tail coverage is shared. It is important that the agreement makes it clear who has this obligation.

Employer obligations – The agreement should set forth the obligations of the employer. These usually include the duty to provide equipment, medical supplies, facilities, and personnel.

Permissible outside activities – The agreement should state whether it is exclusive, meaning whether or not the physician may practice medicine other than for the employer. Many agreements prohibit the practice of medicine outside of the employment agreement, however permit such activities such as teaching, lecturing, writing, or acting as an expert witness. If the employee will be allowed to undertake these outside medical activities, the agreement should make it clear whether the compensation from such activities belongs to the employer or to the physician.

Will the contract contain the same provisions if the employee is also a shareholder or partner?
No. If the employee is a shareholder in a professional corporation or a partner in a partnership, the employment contract would look different and should interact with the entity’s documents such as the shareholder agreement, partnership agreement or buy-sell agreement.

Is there a sample form that physicians and practices can review?
Yes, the American Medical Association has a model physician employment agreement on its website. The agreement is annotated, meaning that it contains explanations of its various clauses.

Managed Care Contracts
Managed care contracts have become a fact of life for many medical practices. Managed care organizations such as HMOs, PPOs and other plans often present the medical practice a standardized contract without giving the medical practice the opportunity to negotiate terms. It is important that the physicians read the proposed contract and understand the terms before entering into the contract. If the physician practice has a business manager, then the business manager should review the contract. Once the contract is signed, the billing department of the medical practice should be informed of its contents. A copy of the agreement should be kept in a file for future reference.

What resources exist to educate physicians about managed care contracts?
The American Medical Association website contains a recently updated “Model Managed Care Contract” with annotations. The annotations explain the various provisions.

Are there issues that arise in managed care arrangements that are similar to other types of insurance?
Yes, there are certain issues that apply to all types of insurance plans, including managed care contracts. For instance, the physician practice needs to use a provider number when billing in order to get paid. If the practice hires a locum tenens (temporary physician or nurse practitioner), the locum tenens needs a provider number in order to bill for his/her medical services. Physicians who join the practice must be credentialed by insurance in order to bill for medical services they provide. Finally, the physician practice should verify that all insurance plans, including managed care plans, pay for the code that is billed; some insurance or managed care companies routinely lower the codes, often resulting in a lower reimbursement.

What is a managed care plan?
Managed care is a health care financing and delivery system that coordinates the use of services by its members with a goal of containing costs. A managed care organization typically impacts the health care services received by its members by designating a provider network and designating covered health services. A managed care plan uses managed care arrangements. Selected providers contract with the plan. Plan enrollees are directed to participating physician providers. The providers are often paid on a pre-negotiated basis.

Are there other documents in addition to the managed care contract which should be reviewed by the physician practice?
Yes, there is often a provision in the managed care contract that requires the physicians to abide by all the policies and procedures of the payer. The physician should request a copy of the policies and procedures before signing the contract. The physician should inquire whether there are any other written materials that the payer intends to incorporate by reference into the contract.

Why are the definitions in a managed care contract important?
The definitions in a managed care contract often lead to disputes between the managed care organization and the physician. The managed care organization often uses narrow definitions to deny payment. For example, the physician and patient want liberal definitions of “emergency medical condition” and “medically necessary” so that the managed care organization will pay for a broader array of treatment.

The American Medical Association recommends the following definition of emergency condition: “A medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain), such that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention, to result in (a) placing the patient’s health in serious jeopardy; (b) serious impairment to bodily function; or (c) serious dysfunction of any bodily organ or part.” This definition uses a prudent layperson standard. The AMA also indicates that a prudent physician standard would be acceptable. The definition should prevent the managed care organization from making clinical decisions.

Likewise, the AMA recommends a definition of medical necessity that is based on an objective prudent physician standard. Many managed care contracts allow the managed care organization medical director to override the physician’s judgment. Unfortunately, the managed care organization often considers the cost of the treatment in determining whether the treatment was medically necessary.

The definition of the term “payer” is also important. The definition should make it clear that the managed care organization cannot rent or lease the terms of the contract to other entities.

What other problems may arise under managed care arrangements?
Late payment of claims by managed care organizations is a common problem for physicians. When a managed care organization delays payment, it can create financial stress for physician practices. Because the managed care contract is drafted by the managed care organization, it often does not address the issue of prompt payment of claims. The physician should insist on a provision in the managed care contract that requires the payer to pay claims within a reasonable period of time, or request additional information from the physician if the managed care organization does not deem it a clean claim.

Is there a prompt payment law in Vermont?
Yes, Title 18, Vermont Statues Annotated, Section 9418 sets forth the requirements for the payment by health plans for health care services. Not later than 45 days following receipt of a claim, a health plan must either pay the claim or notify the claimant in writing that the claim is contested or denied. The notice must include specific reasons supporting the contest or denial and a request for any additional information required for the health plan to determine coverage. If the health plan contests a claim because the health plan was not provided with sufficient information to determine payer liability, and the health plan has requested additional information, then the health plan shall have 45 days after receipt of the additional information to make a determination on the claim. Interest on past due claim amounts accrues at the rate of 12 percent per annum. This statutory section allows a contract to set forth a different time period for payment, highlighting the need for the physician practice to review the managed care contract before signing it.

Does Vermont have any special laws relating to managed care organizations?
Yes. Title 18, Vermont Statutes Annotated, Section 9414 sets forth the powers of the commissioner of the Vermont Department of Banking, Insurance, Securities, and Health Care Administration (BISHCA) to implement a quality assurance program for managed care organizations. BISHCA Rule 10.000, entitled “Quality Assurance Standards and Consumer Protections For Managed Care Plans,” sets forth detailed rules relating to managed care, including how to file grievances and appeal rights.

Arbitration Contracts

Are arbitration agreements valid?
In Vermont, a written agreement to submit disputes to arbitration is valid, however, the contract containing the arbitration clause must have specific language. 12 V.S.A. §5652 provides that a written agreement to submit any existing controversy to arbitration or a provision in any written contract to submit any controversy arbitration thereafter arising between the party does create a duty to arbitrate, and is valid and enforceable. An agreement to arbitrate is irrevocable, unless both parties agree to revoke the arbitration clause.

What is the special language required for an arbitration clause?
12 V.S.A. §5652 provides that no agreement to arbitrate is enforceable unless it is accompanied by a written acknowledgment of arbitration signed by each party. The acknowledgement of arbitration must be displayed prominently. It is recommended that the arbitration clause be in bold print, in larger print, and underlined. The acknowledgement to arbitrate must provide substantially as follows:

Acknowledgment of Arbitration
“I understand that this agreement contains an agreement to arbitrate. After signing this document, I understand that I will not be able to bring a law suit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead I agree to submit any such dispute to an impartial arbitrator.”

Does Vermont’s arbitration act control when the contract is covered by federal law?
No. The provisions of Vermont’s arbitration act requiring that any agreement to arbitrate be displayed prominently in the contract and be signed by the parties is preempted by the federal arbitration act. Vermont’s statute acknowledges this preemption by providing that Vermont law applies to arbitration agreements to the extent not inconsistent with the laws of the United States. Additionally, Vermont’s arbitration act does not apply to labor interest arbitration, nor to arbitration agreements contained in a contract of insurance.

Does Vermont law address arbitration procedures?
Yes. A contract of arbitration may set forth specific procedures for selecting the arbitrators, use of witnesses, location of the arbitration, and the responsibility of paying the arbitrators fees. If a contract is silent on arbitration procedures, then the statute controls. The arbitration procedure set forth in Vermont’s law is as follows:

• The power of the arbitrators may be exercised by a majority of them, unless otherwise provided by the agreement.
• Arbitrators may issue subpoenas for attendance of witnesses and for the production of books and records. Arbitrators may permit a deposition to be taken.
• An arbitration award should be in writing and signed by the arbitrators joining in it. Each party should receive a copy of the arbitrator’s decision.
• Unless otherwise provided in the agreement to arbitrate, the arbitrator’s expenses and fees, together with other expenses of the proceeding, shall be paid as provided in the award. An arbitration award may direct the payment of attorney’s fees.
• Unless otherwise provided by the agreement, the arbitrator may select the time and place for the hearing.

Jury Duty
Physicians, like other individuals, may from time to time be called for jury duty. Employees of a medical practice, whether or not physicians, may likewise be called to jury duty from time to time.

Who is qualified for jury service?
Vermont law (4 V.S.A. §962) provides that a person shall be qualified for jury service if the person:

• Is a United States citizen who has obtained the age of majority;
• Resides within the geographical jurisdiction of the court in which called to serve;
• Is able to read, write, understand and speak English;
• Is capable, by reason of mental or physical condition to render satisfactory jury service; and
• Has not served a prison term after conviction of a felony.

Can a person be excused from jury duty service?
Yes. However, no person may be automatically excused from jury service. In each case the presiding judge is the person who may excuse a person from jury service. The individual requesting an excuse must show undue hardship on himself or his employer.

Can an employer refuse to allow employees to serve on the jury?
No. Vermont law (21 V.S.A. §499) prohibits an employer from discharging an employee, penalizing an employee or depriving him of any right or benefit of employment because employee has been called for jury duty. All employees are considered to be in the service of their employer while serving on a jury. This means the employees continue to accrue seniority, fringe benefits, vacation time and other employment benefits while serving on a jury.

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About the Author
Kathleen M. Boe is a partner in English, Carroll, Ritter & Boe, P.C., a Middlebury law firm. Her practice involves the representation of small businesses and nonprofit organizations, commercial lenders, and estate and tax planning for individuals. She frequently advises her clients on entity matters, employment matters, and intellectual property matters. She received her B.S. degree in finance from Miami University in 1982 and her J.D. degree from Boston College Law School in 1985. She is recognized by The Best Lawyers in America in the fields of banking law, corporate law and real estate law, and she is recognized by Chambers USA: America’s Leading Business Lawyers in the field of corporate law.

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