Switzerland and the Anesthesia Group Structure

Mark F. Weiss, JD
The Mark F. Weiss Law Firm, Dallas, TX, Los Angeles and Santa Barbara, CA

Quick! Who's the president of Switzerland?

Anesthesia group leaders seeking to create a larger structure out of existing groups, from an alliance among local groups, to business models for exclusive contracting, to the creation of a true regional or national player, encounter a plethora of problems from the merely difficult (e.g., due diligence) to the moderately troublesome (e.g., power and control) to the pure bottom line (e.g., purchase price).

Those thinking across state lines face a patchwork of laws and regulations governing structure and ownership which creates a sometimes-impermeable barrier to achieving their goal. Yet group leaders generally confine their thinking to the creation of either a fully integrated structure such as a corporate or partnership-type entity, on the one hand, or a loose, separately owned management services organization (MSO)-type structure, on the other hand.

But there are other ways of devising medical group business arrangements, whether purely within a local area, within a single state or across state lines, and Switzerland provides an example.

So, back to the question about the president of Switzerland. Don't know who he is?

Well, in all honesty, there's little reason to know, even if you live in Switzerland, because the president of Switzerland is neither the head of government nor the head of state. His function is to break a tie vote. You see, Switzerland is a federation of self-governing cantons, whose representatives together form a collective governing body.

Which leads us to a Swiss business structure that mirrors this notion of self-governing entities holding themselves out to the world as unified: the "verein" (pronounced "FAIR-ein" and rhymes with "FAIR wine"). A verein is a confederation-type entity, like a partnership of professional corporations or professional associations, but also very unlike a partnership.

In a partnership, the partners conduct a unified business, with each partner having joint and several liabilities. In other words, Partner "X" is liable for the obligations of the partnership even if those obligations were incurred by Partner "Z." And that's still the case if X and Z are themselves medical corporations or professional associations.

So, if Big Entity Partnership, with partner entities in Los Angeles, San Diego, Austin and Allen, is slapped with a $100 million judgment arising from one practice site, the bank accounts of each partner entity are at risk.

In a verein, however, even though the overall organization itself presents a unified structure to the outside world, for example, "Medical Associates of the United States," each of the members is an independent business entity and is not liable for the overall organization's debts. And in similar fashion, no member is liable for the debts of any other member. Therefore, a fictitious "Medical Associates of Canton, New York" is not liable for the debts of the overall "Medical Associates" verein or for the debts of another member, say, "Medical Associates of Canton, Massachusetts." The lack of cross-liability frees the organizers from many of the problems encountered in creating alignment between medical groups.

There's a dramatically lessened need to conduct due diligence as to a potential constituent entity's formation history, finances, known and potential liabilities, and so on. Those concerns are major issues in creating a customary business structure and certainly in any traditional merger or acquisition where the financial and business condition of the target entity impacts the purchase price as well as the desire to do the deal at all.

Because no revenue or profit sharing is typically involved in a verein structure because the verein itself does not engage in business (although there can be a functional equivalent, which is a complex issue outside the scope of this article), there's no need to bring all of the constituent groups and their physicians into a common compensation plan. Matters of compensation, just as matters of profit and loss, and management and control of the local vehicle, can remain exactly as before.

Additionally, because the constituent entities continue to legally exist both before and after joining in the verein as operating entities, there is no crossstate- border restraint on the form of legal entity. In other words, verein members can continue to practice as professional associations in states such as Texas that recognize that form, as well as in states such as California that do not recognize the professional association form but in which verein members could operate as medical corporations (which, in turn, are not recognized in Texas).

As an aside, note that just as a verein is agnostic as to the form of legal entity adopted by the constituent members, it's also agnostic to the profession/ licensure of the individuals practicing via the constituent members. Therefore, cross-specialty, cross-licensure or even licensed/non-licensed business combinations are within the realm of verein structure.

It is important to note that the verein structure lowers the barrier of "trust to entry." It's far easier to trust in a vision if it doesn't require giving up your ownership and local control, and becoming liable for someone else's debts.

Just as is the case with a partnership, a verein shares similarities with an MSO structure. However, there are major differences.

An MSO, in the context of the business of anesthesia, is an entity that is often owned by a third party (e.g., a billing service that has expanded to a broader role) that exists to provide management services to independent medical groups. Those groups generally don't hold themselves out as being affiliated. They generally don't do business under a common brand. In fact, doing so within the context of an MSO presents a significant risk of creating cross liability both among the co-branded independent "clients" of the MSO as well as on the part of the MSO for one or more of its clients.

A verein has no owners. Instead, it is an umbrella-like entity comprised of its independent group members, providing a common brand to share marketing, high-level strategy and so on.

The point of this article isn't that you should organize or reorganize your multi-component medical group as a verein or rush to set up an umbrella entity in that fashion (although it warrants consideration). Rather, it's that there are additional conceivable forms for top-level entity organization other than simply partnerships or corporations.

Many of these structures, such as vereins, can be useful as a first step toward tighter integration as well as for final destinations.

Although alliance type structures in healthcare come with a set of unique compliance issues, from antitrust to antikickback and Stark, and, as a result, are often suspect, with the correct strategy and structuring they present a world of opportunity, whether within a single specialty or, perhaps more interestingly, among multiple specialties, and across the bounds of professional services and facilities and beyond.