Avoid Potential Pitfalls of Physician Employment in a Partnership Track (1 of 2)

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By Thomas W. Lebert II MD, MBA –

Physician partnerships are unlike many other business organizations. A successful medical practice will do a thorough job on the front-end to avoid pitfalls on the back-end.

Upon initial employment a physician wants to know the terms, length of time and buy-in terms to equity ownership (partner). Other than in vague terms partnership is often not addressed in the initial employment agreement. Establishing a sense of fair play through a carefully and clearly defined buy-sell agreement can provide a successful result for new partners, current partners, and those approaching retirement and the transition out of the partnership.

Physician owners may choose to add a new partner for a variety of reasons including sharing the work of a growing practice, adding new or specialized services, entering new markets to name a few. More senior physician partners are often concerned with retirement terms, part-time practice options and buy-out terms.

A financially stable practice is of necessity when adding a new associate/potential partner. This might require the draft of a hypothetical budget utilizing realistic projections of the impact of the new associate. Items of consideration include potential revenue generation, cost of employment including benefits, terms of compensation, and time to break-even point. Any shortfall from projections would have to be covered by the partners in some loss in personal reimbursement, practice reserves or other credit line. In certain cases, these differences might be reclaimed through a hospital relationship via recruitment incentives.

First is the process of selecting the ideal candidate, one fit both for private practice and your practice, one who accepts both the benefits and risks of the practice. Inform each candidate if they are being taken on with the goal of a track to partnership assuming the time spent as an associate goes well. Inform them of what you are offering and include all details of the employment agreement. Explain compensation and voting rights within the partnership agreement. Address the issue of buy-in or purchase of shares in the practice and any related corporate entities including  physical plant and ASC’s.

Are there explicit criteria for the transition to an offer of partnership such as time, duration, productivity thresholds? Is the price of buy-in set in advance or determined at the time of buy-in and by what formula? Resist the urge to pay less than the going rate in exchange for a cheaper buy-in as this can cause resentments and potential harm to your practice. Is there a time whereas an associate can receive a “vote of confidence” to assure the employee of his or her security of being “on-track” to partnership?

For evaluation and solutions, please contact us at www.prohealthstrategies.com

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