Chapter 2 Medical Practice Management: medical laws and ethics for the healthcare professional by Lewis


an insurance contract by which a bonding agency guarantees payment of a specified sum to an employer in the event of a financial loss to the employer caused by the act of the specified employee: a legal obligation to pay specific sums


Healthcare providers are paid a fixed monthly compensation for a range of services for each health mantenance organization (HMO) member in their care.

Complementary medicine

The practice of medicine that complements traditional medicine with alternative medicine


A corporation of a number of different companies operating in a number of different fields


A medical expense that is a member's responsibility; usually a fixed amount of $25 or higher


a cost charing arrangement in which the member pays a set amount towards covered services before the insurance carrier will make any payments


Pays providers for each service performed


A term reffering to managed care primary care providers responsible for referring members to specialist (usually within the same plan) with the intent of matching the clients needs and preferences with the appropriate and cost effective use of those specialists' services.

group practice

Type of business management in which three or more individuals organize to render professional service and share the same equipement and personnel.

Health Maintenance Organization (HMO)

A type managed care plan offering health-care services from participating physicians and providers to an enrolled group of persons for a predetermined fee per member.

Integrative medicine

The practice of medicine that accounts for the whole person (body, mind, spirit, and lifestyle) using all appropriate therapies, both traditional and alternative.

Joint Venture

A type of business management formed by hospitals, physicians and other providers, and clinics to offer client care.

Managed Care

A type of health care plan; generally one of two types, namely HMO or Preferred Provider Organization (PPO)

Opt-out option

Memebers or clients can seek treatment from providers outside the healthcare plan but pay more to do so.


Type of business management involving the association of two or more individuals who are co-owners of their business

Pay for Performance (P4P)

A type of managed care that encourages providers to improve the quality of their clients' care; reimburses them for their progress towards a fixed goal.

Preferred Provider Organization (PPO)

A type of business agreement between a medical service provider and an insurer organization in which the fees for specific services are predetermined for an already established group of clients assigned to or selected by the provider.

Professional Service Corporation

Specific type of corporation in which licensed individuals organize to render a professional service to the public. Such licensed individuals include physicians, medical providers, lawyers and dentists.

Sole Proprietorship

Type of business managment owned by a single individual.

Sole Proprietorship

Oldest form of business that is the easiest to start, operate and dissolve. Can be the most expensive to establish. Common management choice for providers in complementary and integrative medicine.

Advantages to sole proprietorship

simplicity of organization; being one's own boss, being the sole receiver of all profits ( this may be generally be larger than any other forms of management), having lower orgaizational costs, greater flexibility in operation and fewer government regulation.

Disadvantages of Sole Proprietorships

provider may have difficulty raising sufficient capital to begin the business. He/she typically performs all or most of the managerial functions in the business. Works more than the typical 40 hour work week. Profits may be insufficient at a later time to allow for expansion. No one is available to cover the work load if there is a family crisis or illness.


This agreement should be written and reviewed with an attorney and should include the type of business to be preformed, or services conducted, the type of partnership being established, length of the partnership agreement and the capital invested by each partner. Also included should be how profits and losses are to be shared, how each partner is to be compensated, limitations on monetary withdrawsby a partner, asccounting procedures to be followed, procedures for admitting new partners, dissolution of partnership and signatures of partners involved in the agreement.

Advantages of Partnerships

Has more finacial strength, partners a likely to bring managerial skills and share the workload, organization of the partnership remains relatively simple.

Disadvantages of a partnership

there are two or more people to make the decissions, if one partner lacks sufficient funds to cover losses the other partners must make up this deficit, if partnership fails usually one partner can be liable for all the partnership debts regardless of the size of investment. There may be personality differences.

Professional Service Corporation

Providers in a _______ remain personally liable for their acts of medical malpractice; however they are not liable for the professional acts of their colleagues. Designed for professioanl persons as medical providers as lawyers, dentists, and accountants.


Service Corporation


Professional Corporation

PSC, Inc

Professional Service Corporation, Incorporated


Professional Association


the most intricate of all forms of medical practice and can be formed by one or more individuals

Advantages of Professional Service Corporations

Fact that contributions to pension or profit sharing plans can be made for all employees as well as provider. Such funds are deducted by the corporation from its taxable income, are invested and accumulated in tax-free trusts until future time of disbursement.
Medical reimbursement plan. medical and dental expenses are deductible to the corporation and employee. Group term life insurance. May also provide liability premiums for their provders and employees.

Disadvantages of Professional Service Corporations

May be more expensive to operate than other forms of organizations. Providers often have problems finding time to perform the business functions required to run the corporation.

Four main types of group practices

1. Single Specialty
2. Multispecialty
3. Primary care group
4. Hospital Managed Medical Groups

Single Specialty

Type of group practice providing services in only one field of practice or major specialty, for example a group of pediatricians joining together in a practice


A type of group practice providing services in two or more fields of practice or major specialty, for example a group of obstetricians/gynecologist and pediatricians joining together in practice

Primary care group

A type of group practice providing services by obstetricians/gynecologists, pediatricians, family practitioners, and internists

Hospital managed medical groups

a type of group practice providing all the services of a group practice but owned by the hospital.

Fee for service basis

Group medical practices operate on some form of ______ basis through incurance coverage, preferred provider arrangements or even private pay with the same type of business arrangement as a sole proprietorship, a partnership, or a professional service corporation.

Advantages of a group practice

providers include shared financial investment for diagnostic and therapeutic equipment, the opportunity for consultation with other providers, little administrative responsibility for the practice and more family and recreation timebecause providers cover for one another.

Disadvantages of group practices

Not every individual has the personality to function well in a group setting. A provider cannot act totally independent of the group and may feel a loss of freedom, although work hours may not be long, the income although guranteed may not be as high. may lead to personality clashes and differences of opinions.

Kaiser Foundation Health plan

one of the largest not for profit HMO in the country. In this form of management, groups contract with clients to provide comprehensive healthcare and preventative medicine for premiums paid that entitle the subscriber to service during the duration of the contract.


the HMO may make use of the concept of a PCP, (often referred to as the ____) as a method of controlling costs. In this sittuation, all medical care sought by a client must be channeled through the PCP, and any referrals are made within the HMO provider list.

Managed care

is any arrangement for health care in which an organization, such as an insurance company, and HMO or another type of doctor-hospital network, acts as an intermediary between the person seeking care and the provider. No provider can practice without feeling the effects of this system.

Blue Cross

first provided insurance for hospital costs in the early 1930's

Blue Shield

Introduced soon after Blue Cross to cover office and physician costs. Both Blue Cross and Blue SHield were driven by union contracts in the automobile industry.


____ were introduced to emphasize preventative halth care, assure providers they would recieve payment for their services, and ultimately begin to contain costs.

Physician-hospital organizations (PHOs)

combine hospital and group medical practices in order to offer clients a "one-stop shopping approach." The primary reason for forming this is the concept that combined services are more attractive than individual services would be.

Multiple Service Organization (MSO)

can be owned by providers, hospitals, a totally seperate party, or any combination of the three. Developed to preform office management services. Often provides secretarial and office services, billing and collections, group purchasing, and computer servicing. Allows providers to focus on client care and permits management service to run the business side of the organization.

Business License

Some communities require a business or occupational license before allowing a clinic to be opened for the practice of medicine.An annual renewal fee may be necessary.


the provider or the organization the owns the ___ is responsible for keeping up the grounds and the building. If persons are injured on these premises the providers may be legally responsible. Therefor they should carry liablity insurance for the premises.


providers may want to carry nonowner liability insurance on their ____ to cover accidents while performing some duty related to business.

Fire, Theft and Burglary

Providers may want to carry insurance to cover ____ to cover building as well as equipment. Two types of fire insurance are the most common, a coinsurance plan and a second plan that covers not only the loss but the replacement of such equipment.

Accounts Receivable

some providers may also want insurance to cover their ___, which would be nearly impossible to recover in the case of fire or loss.


Providers may wish to ____ employees who are handling financial records and money in the ambulatory healthcare setting. This is an insurance contract with an agency whereas purchase of a said amount in an employee's name ensure that providers will recover the amount in the event of a loss, incase the employee embezzles funds.

The sole Proprietor
a. is owned by two or more individuals
b. is the oldest form of business
c. usually only has one medical assistant
d. works a standard 40 hour work week
e. none of the above

answer is b
the oldest form of business

A partnership
a. is an agreement that should be in writing
b. has more financial strength than a sole proprietorship
c. usually has one medical assistant
d. does not protect personal financial loss
e. only a, b, ans d are correct

answer is E
is an agreement in writing
has more financial strength than a sole proprietorship
does not protect personal financial loss

Professional service corporations
a. allow deductions from taxable income to make contributions to pension plans
b. are relatively inexpensive to establish
c. can only be formed with at least three providers
d. are only established for multispecialty practices
e. only and c are correct

Answer is A
allo deductions from taxable income to make contributions to pension plans

A health msaintenance organization
a. is one type of managed care
b. often identifies a gatekeeper for each member
c. always provides services under one roof
d. only a and b are correct
e. none are correct

answer is d
is one type of managed care
often identifies a gatekeeper for each member

Joint ventures are created
a. to provide better insurance coverage to clients
b. to avoid paying taxes on shared income
c. are designed to be profitable and advantageous to both entities
d. in order to perform office management services for providers
e. as a preferred provider organization

answer is C
are desegned to be profitable and advantageous to both entities

True or false
a copayment is a members medical expense paid to the provider

answer is True

True or false
SC, PSC, PA ans PSC,Inc are all identification letters for professional service corporations

Answer is true

True or false
Captitation gives providers a Variable monthly fee for services provided to HMO members under their care

Answer is False
They are not a variable fee but a fixed fee paid to the provider.

True or False
PHOs are physician-hospital organizations designed to provide slients with "one-stop shopping" for services.

The Answer is True

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