Practice Agreement Guide - Blended Capitation Model

In this section:

Value of Developing a Practice Agreement

Roles and Responsibilities

Practice Agreement Components

Value of Developing a Practice Agreement

Transitioning to the BCM from fee for service funding will require consensus among physicians within a clinic in several areas, including and not limited to philosophy of care, clinical care delivery processes, administrative, cost sharing and financial distribution processes. 

Often the Practice Agreement reflects what is already occurring on a day-to-day basis and allows for them to be captured in a formal agreement. 

The development is an opportunity to consider, discuss and make decisions when there is a positive relationship among the group, rather than waiting for a conflict that requires a decision.

The Practice Agreement is also a recruitment tool; it is provided to prospective associates who may be joining as contractors or owners and allows them to see how the practice is managed, the responsibilities they will have and how service fee income and expenses are distributed.

The process will also allow physicians to deepen their understanding of elements of the BCM such as payment processes and continuity in relation to both external and internal negation.
Because of the sensitive nature of many of the elements of a Practice Agreement it is recommended that clinics seek external facilitation. Facilitation allows all physicians to participate as equals in discussions and decisions.

The Alberta Medical Association (AMA) via ACTT (Accelerating Change Transformation Team) provides support to BCM clinics as part of overall change management support for BCM clinics.

Roles and Responsibilities

The facilitator is responsible for ensuring that physicians have the appropriate information to make informed decisions on how they will practice, distribute service fees, and share costs going forward. The facilitator does not provide legal or accounting advice, however, they may provide examples of prior experiences to support discussions and decisions among the physician group. 

The physicians will be provided with this Practice Agreement Guidance document and the template to complete with the necessary information. Once these drafting notes have been done by the physicians, the physician group will provide this to their legal counsel to draft the agreement.

The physician group will also need to ensure their accountant is aware of any changes the group makes that may have an impact on their corporate and individual financial reporting and tax submissions.

Physicians are responsible for actively participating in the process and responding in a timely manner. It is their responsibility to engage legal counsel to draft an agreement and to liaise with their accountant. 

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Overview of the Process

Development of the drafting notes is generally accomplished in around four hours. If there are any outstanding questions raised by the physicians, they can contact the AMA ACTT BCM team for assistance.

Practice Agreement Components

The Practice Agreement generally has the following components:

• Guiding principles and values
• Form of Corporate structure (See corporate structure section)
• Decision making
• Entering the practice
• Exiting the practice
• Time away from the practice
• Duties of Associates/Partners
• Insurance requirements
• Cost sharing
• Locums
• Service fee distribution
• Acknowledgment of Information Management (IMA) and Information Sharing (ISA) Agreements
• Acknowledgement of Privacy Impact Assessments (PIA)
• Dispute resolution
• Capital contributions and other financing requirements

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In this section:

Getting Started

Examples of Guiding Principles and Values

Getting Started

To complete the Practice Agreement template, you will need to have the following information available:

• Current form of corporate structure. Do you have some form of incorporated company or formal partnership agreement?
• List of physicians who are in the practice and status (if they are owners, contractors or locums)
• Which physicians in the practice have a Professional Corporation (PC)
• Who will be the lead physician/primary contact? (provide a back-up lead)
• Do you lease or own the clinic premises?
• If the building is owned, is it in a separate company?
• If some or all the physicians own the premises is there a lease agreement in place?
• Is there currently a cost sharing formula used by the group and if so, how are costs currently shared?
• How is service fee income currently collected and distributed?
• What are the components of physician income? (clinic, hospital, 3rd party, LTC other)
• Does the practice have an Information Sharing Agreement (ISA) and Information Management Agreements (IMAs) as required in their contracts?
• How are decisions generally made? (voting, consensus, management committee)
• Does the practice hold a pool of excess funds on behalf of the physicians? 

Examples of Guiding Principles and Values

Example 1:

• The Participating Physicians and Locums will provide excellence in patient care with high-quality consultations and timely reporting; and
• Participating Physicians and Locums will continue to strive for improved primary care for the community of XX, Alberta and area;
• Participating Physicians and Locums will treat each other and the Clinic's staff and patients with respect; and 
• the Participating Physicians are dedicated to maintaining a healthy work life balance; and
• the physicians are committed to ensuring all of their efforts and work are in support of their vision and mission statements.

Example 2:

• All physicians who practice at the XX Medical Clinic will become Owner Associates. Ownership helps to ensure we all share a vested interest in our practice, and we remain actively engaged in its management.
• We are a group of family physicians whose focus is providing comprehensive primary care to the community of XX.
• We participate in providing care with the clinic, recognizing that we each may have a specific focus that requires us to provide care within the hospital.
• We share the responsibility of providing care within our Walk in Clinic on an equitable basis.

Example 3:

• At XX, we believe that providing excellent patient care is of primary importance. Although that may require more time spent with patients and perhaps less revenue, that is our ultimate goal.
• Our staff and physicians are skilled and courteous
• We are dedicated to providing comprehensive primary care in an efficient and supportive environment
• All physicians participate in call equitably

Example 4:

• We will provide excellence in patient care with high quality consultations and timely reporting;
• We will treat each other and our patients with respect;
• We are dedicated to maintaining a healthy work life balance; and
• We will embrace innovative solutions to practice management problems

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In this section:

Corporate Structure and Potential Scenarios

Decision Making

Entering the Practice

Exiting the Practice

Time Away

Corporate Structure

There are several corporate structures that a physician group could be currently using:

1. No formal structure: they have a clinic name they operate under and hold a bank account in this name. They likely have operated under this “trade name” for a lengthy period and little of the day-to-day practices have been written down in any form. Alternatively, one of the owners may manage the finances through their own PC.
2. Agent Corporation: this is an incorporated flow through company that issues shares to the owners. A Unanimous Shareholders Agreement includes designating the corporation as the Agent of the owners, the share structure, issue and cancelation of shares when entering and exiting the practice, decision making and may contain clauses that deal with service fee distribution. The Agent Corporation may have Articles of Association or may operate under minimal By-Laws. The physicians practice as independent Associates, receiving their own service fee income and paying expenses based on a cost sharing formula as a cost sharing joint venture. Each Professional Corporation (PC) or individual physician is entitled to claim the CRA Small Business Deduction. The benefits of an Agent Corporation are:
   • The practice carries on regardless of changes in ownership
   • CRA accounts are in the name of the corporation, not an individual physician
   • All staff are hired through the company
   • PC’s of individual physicians will own a beneficial interest in clinic assets if they are held by the Agent
   • Leases may be held in the name of the corporation and guaranteed by each physician if required
   • The Agent Corporation is not subject to GST
3. Partnership: Owners operate as a group and share revenues that do not correlate to their actual billings. Expenses are shared based on a cost sharing formula. The Partnership must share the CRA Small Business Deduction. Unlike an Agent Corporation, income may be retained within the Partnership. Partnerships must be reconstituted whenever there is an addition of a physician or one leaves.
4. Joint Venture Agreement (JVA):  this structure is a formal agreement to practice as associates without a corporation. The JVA sets out the responsibilities of the parties, how costs are shared, income is distributed and generally must be reconstituted each time a new physician joins or leaves. Individual physicians can claim the CRA Small Business Deduction. Care must be exercised in drafting the JVA such that no one physician would be construed as the manager of the Joint Venture and thus attract GST.

It is important to understand how the physician group is currently structured to determine where changes are potentially desired. The corporate structure will determine the method of distributing the Blended Capitation funds. Those in a partnership may share revenues in any manner they choose, those practicing in association must receive all of the revenues they generate personally. 

Potential Scenarios:

1. No corporation exists. Generally, physicians will consider incorporating an Agent Corporation if they receive their own service fee income and share expenses based on a set formula. Under the Blended Capitation Model, income is based on their actual panel and the patients they provide service for directly both on and off their panel. This method of distributing funds will require the clinic to track internal negation and relative clinical care contribution.
   
   
2. No corporation exists and the physicians share the service income based on a formula that does not correlate to their billings and consider themselves to be partners.
   Discussion and a decision made as to whether the physician group wishes to continue to share Blended Capitation funds and would then become a formal partnership and the Practice Agreement would be incorporated into the Partnership Agreement or be an Appendix to the Partnership Agreement
   
   
3. The group has a formal Joint Venture Agreement (JVA) outside of a corporation. They may continue to use this approach, although there are benefits to the group described above to incorporate an Agent Corporation.
   
   
4. A corporation exists and legal counsel needs to be consulted as to whether the existing constating documents need to be amended or developed.
   
   
5. A formal partnership agreement exists, and legal counsel needs to be consulted to incorporate the practice agreement. 

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Decision Making

There are two kinds of decisions in a corporate environment: unanimous and ordinary. Unanimous decisions are ones where all owners must agree. Ordinary decisions are all other decisions. Many physician groups generally make decisions by consensus which is a positive starting point.

1. Unanimous Decisions generally are:
   • Admitting a new Owner or Contractor Associate or long-term locum.
     (Essentially the question is how long could the group live with an unsatisfactory locum? The decision allows the group to approve any locums in advance of them working with the practice.)
   • Long term obligations in excess of a set dollar amount. (what is the long-term impact of any contract on an individual physician’s financial sustainability? Ex: Consider long term cleaning contracts vs leasing a copy machine)
   • Incurring costs greater than a set dollar value. (Consider what is the unplanned amount that any one physician could tolerate in a month and multiply by that the number of physicians in the practice)
   • Changes to clinic staff and compensation. No single physician is able to increase staff wages, offer bonuses or terminate an employee without the agreement of all Owners. (A practice may delegate the recruitment and retention of staff to a manager. This clause would require the manager to have the physician group agree to increases in compensation and the addition or deletion of any position. Physicians will decide if they must be consulted prior to the termination of an employee by the manager.)
   • Changes to the Cost Sharing formula for either an Owner or Contractor Associate
   • Loans in respect of the practice
   • Voluntary dissolution of the practice
   • Changes to the Agreement
   • Removing an associate. (This unanimous decision includes all but the physician being removed)
   • Changes to a physician’s focus of practice. (This is a principal/value discussion. The practice may hold a value of providing a medical home to its patients. A change by a physician to a cosmetic only or sports medicine focused practice would not be in keeping with this value. The individual physician requesting the change would then need to decide if they will continue in primary care or leave the practice.)
     
     
2. Defined Majority for all Ordinary Decisions
   What threshold constitutes a majority will need to be determined by the group. Setting a low threshold (51%) could result in a divisive situation that may cause significant conflict. Setting the threshold too high (80%) may result in decisions not being made in a timely manner or the group not being able to move forward on decisions.
   
   Groups that have a strong level of trust are generally comfortable with a 67% majority. A decision as to what constitutes quorum at a meeting also needs to be determined by the group. Again, a very low quorum may result in a divisive decision. The group will also decide if attendance at meetings may be virtual (advised) and if they will allow proxy voting. 

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Entering the Practice

Physicians may enter the practice as Contractor or Owner Associates or as locums.

1. Probationary Period Owner and Contractor Associates
   Physicians need to consider if they will require new physicians to complete a probationary period prior to formally joining the practice. For a contractor, this period would allow the practice and the physician to determine if they are the right fit. During this probation period the owners may inform the probationary physician of their decision to not continue with the relationship or the probationary physician may inform the owners of their decision to not practice with the group. During this probationary period there is no obligation upon departure. 
   All notices by either party will need to be in writing to either a designated lead physician or the ownership group in general.
   
   Some physician groups already have an informal probationary period, and this can simply be documented. For those who have not previously considered this approach discussion would focus around how long they believe they need to practice with an individual to understand if they are the right fit for the group.
   
   Generally, physician groups set a 3-month probationary period for a Contractor Associate and anywhere from 3 months to a full year for an Owner Associate. The following factors will help in decision making:
   • How difficult is it to recruit physicians to the practice? A long probation period may be a disincentive to a new physician.
   • Is the potential Owner replacing a departing physician or will they be “net new” to the group? This question has financial implications if there are loans or other obligations they may be assuming.
   • There are usually financial incentives, along with additional risks, of being an Owner and a lengthy probation period may be seen as a barrier to moving from a Contractor to Owner status.
       
2. Locums
   Owner Associates will determine what length of time for a locum working in the clinic requires their approval. A week or two may not be an issue, however anything in excess of that time has an impact on the physicians and staff in the clinic. 
   The group will then need to decide who “hires” the locum; the practice, or the individual physician who will be away. This is a critical point as it affects the cost sharing formula and potentially the Blended Capitation Fund distribution.
   
   If the practice hires the locum, they will do so by offering either an hourly or daily rate to the locum net of overhead. The cost of the locum will be included as an expense shared by the owners or added to the negation pool discussed in the Blended Capitation Funds Distribution section.
   
   If the individual physician hires the locum, he/she will enter into a separate agreement in terms of their remuneration which they will pay for privately outside of the practice agreement. The physician on leave from the practice will continue to receive their Blended Capitation payments and contribute to expenses based on the cost sharing formula.

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Exiting the Practice

Physicians may exit the practice under a variety of scenarios. 

• Removal by Unanimous Resolution (less the owner being removed.)
  This rare occurrence would be triggered after all other remedies have been sought. Circumstances that would lead to an Associate being removed would be failure of the Associate to abide by the terms of the agreement after they have been notified in writing of the breach and fail to cure the breach.
  An example would be an Associate who refuses to pay their share of operating expenses for a period of time and does not pay the outstanding amounts after receiving a 10/15/30-day notice letter.
  Other instances may be an owner who continually votes against other owners on decisions that requires a unanimous vote.
  An example would be an owner refusing to agree to any staff increases which may result in a turnover of staff in the clinic or to agree to a purchase in excess of the established threshold which could put the clinic at risk; such as new sterilization equipment or replacement of waiting room furniture.
  Other rare examples are when a physician becomes so disruptive that colleagues or staff refuse to work with them and attempts to manage the situation have been unsuccessful.

• Deemed Withdrawal
  Associates are deemed to have withdrawn from the practice if:

1. 1. The Associate no longer holds a membership with the Canadian Medical Protective Association
   2. The bankruptcy, insolvency, or commission of an act bankruptcy of the Associate or his or her Professional Corporation, (as the shares of the Agent Corporation cannot be assigned, they are automatically surrendered in the circumstances above. A creditor or trustee in bankruptcy cannot be a shareholder of the agent corporation as they are not a physician).
   3. The purported or actual seizure or attachment of any shares owned by an Associate.
   4. The appointment of a Receiver with respect to the Associate or his or her PC or the Associate’s medical practice, business, assets, undertaking, property or debts or his or her PC’s assets, undertaking, property or debts.
   5. The institution of proceeds for the dissolution or winding-up of a Professional Corporation of the Associate (generally this occurs upon retirement or withdrawal from being a practicing physician).
   6. He or she is judged non- compos mentis or incompetent to manage his or her own affairs by a qualified medical practitioner or a court of competent jurisdiction.
   7. He or she dies.
   8. A trustee or guardian is appointed in respect of an Associate pursuant to the Adult Guardian and Trusteeship Act (Alberta).
   9. The Associate is totally disabled or has applied for permanent disability.
   10. The occurrence of the unlawful retention, misappropriation, or theft by the Associate of funds or any other property belonging to the Corporation or Partnership.
   11. The occurrence of any act which may or does result in: (i) the making of an order by the Court of competent jurisdiction purporting to deal with the Associate’s Shares pursuant to the Family Property Act (Alberta) or other similar legislation; or (ii) the granting of a divorce application or marriage annulment under the Divorce Act (Canada) or (iii) the granting of a family property order under the Adult Interdependent Relationships Act (Alberta).
   12. His or her license to practice medicine in the Province of Alberta is revoked, or he or she is otherwise not permitted to practice medicine for a period in excess of three (3) months. (the length of time may be altered based on the physician groups discussions).
   13. The Associate is sentenced to a jail term
   14. The Associate has disappeared and his whereabouts are unknown for a period of six (6) months.
   15. The failure by the Associate or his or her Professional Corporation to obtain, perform or carry out any of her, her or its obligation as set out in the Agreement and where the failure continues for thirty (10/15/30) days after written notice that is pursuant to a Unanimous Resolution (excluding the Associate withdrawing) demanding that such default be cured.

• Voluntary Withdrawal
  An Associate may wish to withdraw from the Agent Corporation/Partnership/JVA for any number of reasons. When an Agent Corporation is in place, the Unanimous Shareholders Agreement will set out what notice period and obligations the withdrawing shareholder will have. A Partnership Agreement and JV Agreement will have clauses that set out the notice period required to withdraw from the Agreement and the departing physician’s obligations.
  
  
  • Contractor Associates
    Withdrawing Contractor Associates must provide notice in writing of their intention to withdraw from the Agreement.  The physician group will need to determine the amount of notice they require. Generally, groups require three (3) months' notice.
    
    They will need to decide if the Withdrawing Associate will be allowed to take time away during the notice period for any reason other than an illness. Generally, physicians will not allow a Withdrawing Associate to take vacation, participate in CME or be away for any reason other than illness during the notice period.
    
    They will need to decide that if the Withdrawing Associate does leave the practice prior to the notice period ending, whether they will be responsible for overhead costs. If the decision is yes, the costs are calculated as the average monthly cost for the past 12-month period. To ensure there is some protection for Owner Associates, Contractor Associates may be required to provide a deposit of 1-3 months estimated costs which would be used to offset costs during the withdrawal period and any remainder returned to the physician at the end of the 3 months. Should the departing physician's costs be in excess of the deposit, they will be required to pay the difference.
    
    Withdrawing Contractor Associates are responsible for:
    • Storage and transfer of his or her patients’ medical records as set out in the Information Sharing Agreement
    • Notifying the EMR vendor of their relocation or retirement
    • Any trailing EMR license fees or other payments
    • Notifying patients of their departure from the Clinic
    • Notifying diagnostic service provider or other vendors
      
      
  • Owner Associates
    Withdrawing Owner Associates must provide notice in writing of their intention to withdraw from the Agreement.  The physician group will need to determine the amount of notice they require. Generally, groups require six (6) months' notice.
    
    They will need to decide if the Withdrawing Associate will be allowed to take time away during the notice period for any reason other than an illness.
    
    They will need to decide that if the Withdrawing Associate does leave the practice prior to the notice period ending, whether they will be responsible for overhead costs. If the decision is yes, the costs are calculated as the average monthly cost for the past 12-month period.
    
    In addition to overhead. the group must consider whether the withdrawing Owner Associate will continue to be responsible for any lease obligations and their share of any outstanding loans past the notice period. This is specific to each individual group and there is no “general approach”. The physician group may continue to hold the individual responsible or they may release them from the lease and continue to require loan payments. They may release the withdrawn Owner Associate from his or her obligations when a replacement Owner is found that will assume their obligations. This is a critical decision as it will affect practices who may later undertake loans for leasehold improvements, EMR equipment upgrades or other significant expenditures.
    
    Withdrawing Owner Associates, or their estate, are responsible for:
    • Such Owner Associates proportionate share of principal and interest of any loan obligations as set forth in the Loan Agreement (this clause will depend on the decision of the group around Loan and Lease payments)
    • Storage and transfer of his or her patients’ medical records as set out in the Information Sharing Agreement
    • Notifying the EMR vendor of their relocation or retirement
    • Any trailing EMR license fees or other payments
    • Notifying patients of their departure from the Clinic
    • Notifying diagnostic service provider or other vendors
    • Signing all required documents to transfer his or her shares in the Corporation (not applicable to a partnership) for cancellation.

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Time Away

All Associates should take a vacation leave from the practice during any fiscal or calendar year. Physicians are required to participate in CME training on an annual basis and require time away to attend events, training or seminars. The physician group must decide on the total amount of leave allowed and in what increments and when it will be taken. It is recommended that a minimum required vacation leave should be instituted to promote mental health stability.

The group may already have a set amount of time they allow or require physicians to be away. Other practices may not set an amount of time, and everyone is free to take as much or as little time as they choose. The way Blended Capitation Payments flow means the clinic receives funding on a bi-monthly basis regardless of whether the physician is present in the clinic. Fee for Service payments occur only when a physician provides services directly to the patient. This is a significant paradigm shift for physicians moving to the Blended Capitation Model. This model allows physicians to take “paid vacation”. Consideration needs to be given to calculating internal negation which is explained in the Blended Capitation Distribution section of this guide.

Most physician groups set a leave amount of between six (6) and eight (8) weeks annually which may or may not include CME time.

The physician group will need to determine if there is a notice period required to the group of the intention of an Associate to be away.  This varies from two (2) weeks to three (3) months depending on the groups size and ease of the remaining Associates to cover the practice of the physician who is away or the ability to secure a locum for coverage and ensure any call schedules are filled
The group will need to decide how requests for leave in excess of the set annual amount will be managed. Will the decision be an ordinary decision or require unanimous approval? Will there be a maximum length set? For example, how would the group treat a request for a 3 month leave that would allow an Associate to participate in a humanitarian project or take an extended 3-month vacation?

The group will need to decide if there will be limits to the length of leave during high/peak seasons such as Christmas, New Year, Spring Break and July and August. Groups generally limit the leave to no more than 2 weeks and rotate years off if there are requests for the same time by several members of the group. As well, they will need to decide if there is a limit to the length of time any one physician may be away. This varies between practices, with most generally limiting to 2 weeks to 1 month of consecutive leave, but this may differ if your team has physicians from overseas. 

The group will need to discuss how expenses will be handled during the absence of a physician. In a Fee for Service (FFS) environment, physicians share of expenses is generally tied in some fashion to their presence in the clinic and the amount they bill for services. If there are no billings then generally there are no expenses or they are reduced to a minimum amount. In a Blended Capitation Model, where the physicians are practicing as associates, the funds are received regardless and are directed to the appropriate physician and the regular cost sharing formula is applied. For those practicing as associates, internal negation may be waived while a physician is on approved leave. This approach is fair and equitable when there is a set amount of time allowed for all to be away from the practice.  If there is no set limit, consideration needs to be given to setting the negation period to be fair and equitable. 

Associates will agree that they will ensure appropriate coverage of their practice during any and all absences. To meet College requirements, each physician will provide a plan that sets out how their practice will be managed in their absence and provide it to each other. 

Maternity/Paternity leave also needs to be discussed. How many months will a physician be allowed to be away for maternity/paternity leave? Will they be required to secure a long-term locum to cover their practice or will the practice be responsible for finding the locum. Will the locum be funded in the same manner as the physician on leave or will they be paid an hourly or daily fee net of expenses? 

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Duties of Associates/Partners

The Practice Agreement sets out responsibilities of Owner Associates. Discussion and decisions need to be made that include:

• Duty to assist in Clinic Administration – will owners agree that they will provide incidental or focused administrative and management services on a rotation basis? If so, any remuneration for these services will be by Unanimous Resolution. Many clinics simply divide the work, and each owner provides these services without remuneration. Other practices, especially those which are larger, may have only a few of the owners in these roles which are paid for out of clinic operating expenses. Consideration can be given to using administrative stipends for those practicing as associates to provide some equity to new associate owners who are developing a panel or as an alternative, providing a reduction in overhead to new associates for a certain period of time while they build their panel.

Insurance

Practices should be carrying general liability insurance regardless of their corporate structure. In addition to general liability the group must discuss and decide on the following insurance options.

• All Associates and Locums must agree they will secure CMPA membership and to provide evidence of the associated coverage upon request. While this seems a given, in any year there are some physicians who let their insurance fall through the cracks.
  
  
• Disability Insurance: will the owners require each of them to carry disability insurance? Disability insurance replaces income which could be used to offset expenses due to the clinic. Under the Blended Capitation Model, a physician who is off on short term disability would not necessarily receive their capitation funds and would therefore not pay any associated expenses. If the physician were to privately hire a locum, they would continue to receive their share of funds and pay expenses from the funds received. This is not an easy choice as some physicians are not eligible and some who are older find the premiums cost prohibitive especially if they are working part time.
  
  
• Overhead Insurance: this coverage is available to owners only and comes into play if there is an interruption in the ability of a physician to pay overhead such as a flood in the clinic or they experience an illness that prevents them from working.  

Cost Sharing

All practices will have a current method of sharing costs. Common approaches include a set percentage of billings with a fixed minimum monthly amount for Contractor Associates and the remainder shared by Owner Associates based on billings, shared equally, shared based on the time in the clinic, shared based on a fixed and variable rate. In Partnerships, this same approach may be undertaken, or they may share costs based on a set daily or per clinic overhead rate. Another option is for Contractors to be paid a per diem or per clinic rate that is net of overhead, and the overhead is deducted from clinic earnings and shared based on the Partnership Agreement. 

Under FFS if a physician is not billing (are away) there may be no or reduced overhead paid during their absence. As well, those who do not complete their billing in a timely fashion may skew overhead amounts from month to month. The shift to Blended Capitation still requires shadow billing to be completed, however, Blended Capitation Funds flow bi-weekly to the clinic. With the changes to how income is received and distributed the physician group may choose to review their cost sharing formula. 

Common Costs will be shared by the group based on the formula chosen by the Owner Associates. In the Partnership Agreement, Common Costs will be defined as will excluded costs. Excluded costs generally include following:

• CMPA fees
• Individual physician automobile costs
• CME expenses
• Other Insurance specific to the individual physician
• Equipment or staff used solely by an individual physician.  An example would be a physician who does allergy testing.  His/her supplies would be considered to be exempt costs and paid solely by him/her

The physician group will need to discuss and decide how much time will be given to receive monthly period expense reports (usually within 10 days of the month ending) and how long after the report is received to pay their share of the period expenses. This will vary from clinic to clinic. 

For Contractor Associates, Owners should consider having all Out of Basket, uninsured and third-party fees paid to the Agent Corporation.  All overhead would be deducted, and the balance paid along with their share of the Blended Capitation funds to the Contractor Associates on a regular basis. This approach will ensure that the Owners will always have access to the overhead due to them through the notice period if the Contractor has served notice to withdraw from the practice. 

Owners will also need to discuss and determine what fees will be included as Clinic Billings when computing overhead. The definition of Clinic billings varies substantially between urban and rural practices. Owners need to determine what fees collected outside the clinic will be subject to overhead. Examples are hospital billings, Long Term Care billings and external out-patient clinic billings. Usually, if the billing is done by the clinic, then the billings are included in the overhead calculation although there may be a reduced overhead charged for billings that are earned outside the physical clinic. 

It is often helpful to develop several scenarios for the Owners to consider based on the past 12 months that show what a revised cost sharing formula would mean to them as individuals and as a group. 

Blended Capitation Fund Distribution

Distribution of Blended Capitation Funds will closely follow the corporate structure of the practice. Partnerships have the greatest flexibility as to how funds will be disbursed as they are free to share the funds among the group. Options include:

• Contractor Associates in a Partnership
  • Contractor Associates may receive a daily gross rate or a daily rate net of overhead, an hourly gross rate or an hourly rate net of overhead. The rate may be corelated to their panel or to the number of patients seen during a half or full day.
    
    
• Owner Associates in a Partnership
  • Owner Associates may initially receive a daily gross rate or a daily rate net of overhead, an hourly gross rate or an hourly rate net of overhead. The rate may be correlated to their panel or to the number of patients seen during a half or full day. Residual Blended Capitation Funds less all remaining Common Costs would then be distributed to the Partners based on their Partnership Agreement.
    
    
• Physicians practicing in Association
  • Physicians practicing in Association must receive their Blended Capitation Funds as they are earned to maintain their independent status and not be considered to be in a partnership.
    
    All physicians will receive the bi-monthly capitation payments attributed to their panel. Adjustments will then be made to account for external negation, and internal negation and internal contribution. (see Definitions Section). It is often helpful for physicians to see a variety of scenarios that consider these factors to help them understand clinic negation, their own negation and their own contribution. 
    
    

Out of Basket, Uninsured and 3rd Party Fees Distribution

These fees are directly attributable to each physician and are paid to either the individual physician or their PC or directly to the clinic. For Contractor Associates their share of overhead attributable to them is deducted prior and the net amount is then paid to them on a regular basis. Owner Associates practicing in Association would have these amounts flow directly to themselves or their PC. 

Compliance with internal Agreements, Policies and Procedures and CPSA Medical Standards and Guidelines

All Associates entering into a Practice Agreement will agree to comply with the Clinic Information Sharing Agreement, Clinic Policies and Procedures, CPSA Medical Standards and Guidelines, the Clinic PIA and all Information Management Agreements.

Dispute Resolution

Practices may find themselves in a situation where a conflict related to the agreement cannot be resolved through discussions. Generally, the first approach would be to seek mediation to resolve the conflict. The next option would be to seek arbitration which would see an external arbitrator(s) determine the solution. Results of an arbitrator’s findings are binding. With few exceptions, physicians should thoroughly discuss the option of arbitration.  When a conflict has come to a complete impasse, it is unlikely that the relationships among the group will be repaired when one side is in a “winning position” and the other side is now in a losing position”. Practices at this stage of their relationship rarely stay together and they need to consider whether the costs of arbitration and the strain on their relationships are worth the result. 

In practices that have only two Physician Owners or Partners arbitration is a necessary component to resolve an impasse. Again, it may result in the dissolution of the Partnership or one of the Owners withdrawing from the Agent Corporation. However, it is important that the ability to use arbitration is limited.

Capital Contributions and Financing

In either corporate structure, consideration must be given to the need for Capital Contributions and Financing. 

• Agent Corporations
  These corporations are flow through corporations whose net income at the end of any one fiscal year is nil. To maintain cash flow, Owner Associates may contribute by way of a non-interest-bearing loan to ensure sufficient funds are on deposit to support operations.
  
  Agent Corporations may also issue a request for Capital Contributions to finance leasehold improvements or purchase equipment. This section will be drafted by their legal counsel along with the provisions for any loans taken out in the name of the Agent Corporation.
  
  
• Partnerships
  Partnerships are not restricted in holding retained earnings. Depending on how earnings are withdrawn from the Partnership they may choose to have non interest bearing loans to ensure sufficient funds are on deposit to support operations. Partnership Agreements may also allow for a request for a Capital Contribution to finance leasehold improvements or purchase equipment. This provision and any loans taken on by the Partnership will be drafted by legal counsel. 

Other

There are a number of other provisions that will be dealt with by legal counsel that pertain to the Agent Corporation such as shares and any prohibited acts related to the shares and shareholders, meetings, bank accounts, accounting and reporting. Legal Counsel will also draft the Unanimous Shareholders Agreement for the Agent Corporation. Legal Counsel will also discuss indemnity among the Associates. 

The Partnership will not require a Unanimous Shareholders Agreement, however, there will be provision in the Agreement for partner meetings, bank accounts, accounting and reporting that will be dealt with by legal counsel. Legal Counsel should also discuss Indemnification provisions between Associates.