Top Considerations When Forming an Independent Practice Association

Top Considerations When Forming an Independent Practice Association

Physicians are increasingly joining forces to form independent practice associations or IPAs. While forming an IPA can have benefits, it is important to recognize that there are numerous legal issues that must be addressed.

Risks and Benefits of Forming an Independent Practice Association

Faced with rising costs and declining reimbursements, independent physicians are increasingly looking for business arrangements that can relieve some of the burdens of operating a practice, while still maintaining their independence.  For physicians that don’t want to pursue an affiliation with a hospital system, an IPA can be an attractive solution.

In basic terms, an IPA is a legal business entity that is organized and owned by a network of independent physician practices. The IPA contracts directly with health care providers so that it may then contract with one or more managed care organizations (MCO) to make the services of such providers available to enrollees of the MCOs.

For physicians, banding together can be an effective means to reduce overhead and increase bargaining power when negotiating contracts with MCOs, employers, and accountable care organizations (ACO). IPAs also have many other benefits, including:

• More efficient practice management
• Lowered compliance costs
• Enhanced political power within the medical community
• Greater interaction and collaboration with peers
• Improved facilities and technology infrastructure
• Continued financial and management autonomy
• Greater ability to provide coordinated care
• Shared services, such as payroll, bookkeeping, benefits management, and patient communication

IPAs, however, are not without risks. When considering an IPA, physicians should be mindful of the following:

• Lack of financial guarantees, which can result in monetary losses
• Conflicts of interest between financial gain and optimal patient care
• Restrictions on collective bargaining by physicians under the Federal Trade Commission Act
• Potential for antitrust allegations given that joint contracting with MCOs by competing providers through an IPA may be considered illegal price-fixing absent sufficient financial and clinical integration

IPA Formation Requirements Under New York Law

Under New York law, IPAs may be formed as a limited liability corporation (LLC) or corporation (S-Corp, C-Corp or not-for-profit). Formation of an IPA requires consent and approval from the Department of Health (DOH), the State Education Department (SED) and the Department of Financial Services (DFS) prior to filing a certificate of incorporation with the Secretary of State.

To form an IPA, the DOH requires the following:

1. The name, address, and telephone number of the proposed IPA.
2. A photocopy of the executed Certificate of Incorporation or Articles of Organization, which must be legally acceptable to the Department pursuant to 10 NYCRR § 98-1.5(b)(6)(vii)(a) and (c), and must contain the language required by 10 NYCRR § 98-1.5(b)(6)(vii)(b). The instrument must also include the date on which it was executed.
3. The IPA name should include the words, “Independent Practice Association,” or the acronym, “IPA.” This applies also to any assumed name that an existing approved IPA proposes to use. In such case, the proposed executed Certificate of Doing Business Under an Assumed Name must be submitted to the Department for review and approval before filing.
4. The names, addresses, and occupations of the Principals of the IPA. If the IPA is to be a business corporation, provide the names, addresses, and occupations of the stockholders, directors, and officers. If it is to be a limited liability corporation, provide the names, addresses, and occupations of the members and managers. For a not-for-profit corporation, provide the names, addresses, and occupations of the directors, officers, and members.
5. A list of the health care and insurance affiliations of the Principals. For example, for individuals, list positions as officer, director, stockholder, partner, manager, and/or member. For corporations or limited liability companies, list entities in which the company is a stockholder, member, joint-venturer, or of which it is a subsidiary through stock ownership.
6. If any of the proposed IPAs Principals is a corporation or limited liability company, identify all other states in which it is licensed or approved to operate an HMO, IPA, PPO, or to provide health services or insurance. Provide a copy of the Principal’s Certificate of Incorporation and Application for Authority to do Business in New York, if applicable. If the Principal is a limited liability company, provide its Articles of Organization and Operating Agreement.
7. If the proposed IPA will be a limited liability company, provide the Operating Agreement.
8. Identify the types of providers the IPA will make available (e.g., individual physicians, professional corporations, hospitals, etc.).

Key Takeaway for Physicians Considering an Independent Practice Association

Whether you are considering forming or joining an existing IPA, it is important to recognize the business and legal implications. Before making the leap, we encourage you to consult with experienced counsel who can help you analyze the risks and benefits of an IPA and determine the best path forward.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Jeffrey Cassin, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.