Most new physicians join a practice without first giving it a thorough history and physical. Here is a checklist of questions to ask about any new partnership or office sharing prospect.
How many newly trained physicians eagerly join a seemingly thriving practice only to find after a year that it is not at all they expected? In my experience, plenty. On top of that, what if the new physician tries to leave and finds out that she still is expected to pay “her share” of a large new piece of office equipment? By asking pertinent questions up front, before you join the practice, you can save yourself a lot of aggravation. First, it will help you avoid joining the wrong practice. Secondly, knowing your rights in the practice ahead of time will help you or your partners avoid dragging one another to court several years down the road.
The Space-Sharing Checklist is a good starting point and can be adapted to fit almost any partnership or space sharing situation.
First, and absolutely foremost, is compatibility between you and the practice itself: the physicians, the staff and the systems. If you even mildly dislike the partners now, chances are you won’t be able to stand them a year from now. I strongly encourage all new physicians to visit a practice for at least a half-day or full day to give people a chance to show their true selves, rather than their interview personalities. Even the most successful business will not overcome an incompatibility problem.
Another step that many new physicians skip and later regret: Call or visit the medical director or chief of staff of the hospital at which the partner or partners have privileges; say that you are considering joining the practice. If the feedback is positive, you will know it. If it is lukewarm or guarded, you can read between the lines. Will the physician be offended that you are “checking him out?” Not if he has nothing to hide. You asked him for his references; he should expect you to contact them.
Carefully assess the financial health of the practice. Ask the partners for a copy of their recent financial statement. This report can be easily generated by a practice, in fact, it should regularly be generated by a practice. If the partners won’t share the statement, don’t join. If they can’t produce it, ask yourself whether you are walking into an antiquated practice with no interest in modernizing. Or, ask to speak with the practice’s accountant and have that individual go over the numbers with you. For an unbiased opinion, you can have an independent practice management consultant or CPA analyze the income and expense statement.
Is the practice growing or declining? Is the partnership in need of a new associate because it is overwhelmed, or because it is slowing down and the incumbent physician is looking to retire and have you take it off his hands?
Division of Income and Expenses
This is rarely a straightforward issue. Are you going to be an employee for a time or a true partner? Most practices pay a base salary plus a percentage for productivity (for example: $90,000 base plus 30 percent of all gross receipts over $270,000). By offering incentives, the practice is asking you to demonstrate an ability to manage volume and build a practice. Are the incentives reasonable or set so unrealistically that no newcomer could reach them? Check out the turnover history of other associates in the practice to see if there is a revolving door after one year.
Basic Formula. Subsidies, Deferrals, Security: Will the practice’s members share income equally? This is sometimes not a good idea, because it rewards lack of productivity. Some physicians include in their contracts a right to leave within the first year with 30-day notice, obligation-free.
1. How are expenses going to be divided? Will the practice subsidize your expenses, or waive your expenses for the first year?
2. What kind of security is there?
3. If you decide after a few months that the practice is not for you, can you walk away without obligations, or
4. Will you be expected to pay for some major overhead items?
Hospital Financial Assistance: Will the local hospital subsidize recruitment of new physicians? Many will offer an income guarantee for the first year and pay any difference between your actual income and the guarantee. Some hospitals will provide relocation expenses. If you accept the terms, what are your obligations to the hospital? Loan forgiveness is taxable income.
Compensation to Doctors for Administration: Every hour of time spent in patient care requires at least six to 10 minutes of administration. Is compensation built in to cover administrative time?
Shared Purchases in the Future: Would the office’s equipment be better off in an antique shop? If so, what are the plans for major purchases in the future and to what degree are you expected to foot the costs for these purchases?
Excluded Income: One of the partners spends a quarter of his time at a nursing home, another is compensated by the hospital for her role as medical director. Is this considered practice income? For the sake of fairness, many practices throw everything into the same pot, focusing on how physician time can best benefit the group.
Paid/Reserve Deposit: When are expenses paid? Are there reserves in case the building needs new carpeting? Are there deposits or buy-outs on leased equipment that would go back to a particular partner upon the equipment's return? If so, would you get a portion of it if you made half the equipment payments?
Disability/Death Obligations: An area in which your lawyer would obviously be involved is asking what happens to the practice in the event of one partner's death or disability? Whose property is it, and what does that property consist of? Does an insurance policy exist on key partners to help the practice get through a death or disability?
Other Financial Issues
Equity Balancing and Documentation: How do you balance existing equity (i.e., when two practices merge)? Use the same appraiser; if the equity in Doctor A’s practice is judged to be worth $50,000 more than the other practice, Doctor B might compensate Doctor A with more stock or cash. Further, if equipment ownership is not totally shared, then “what’s mine and what’s yours” should be documented.
Buy-In/Pay-Out Formula: Are you expected eventually to buy into this practice? Is one partner planning to retire and expects to be bought out by the other partners? If so, what kind of payout would be expected? Are the formulas updated annually, for example, for Medicare reductions? If you are expected to buy-in to the practice in the future, know the formula and qualifications before starting day one of employment. “Predatory” practices routinely employ new physicians at reduced compensation with the opportunity to apply the discount to buy-in, only to fire the new physicians at buy-in time.
Transferability of HMO Contracts: A very important consideration that many overlook is the transferability of HMO or managed care contracts. What if a practice gets the majority of its patients from one or two health plans, but the plans are closed to accepting any new physicians?
Don’t just accept the word of the partners that you will be accepted into the managed care plan, get it in writing from the plan itself (phone confirmation is not usually safe). Some plans have too many doctors and are waiting for retirement to thin the ranks. If you can’t confirm your acceptance, you may have to keep looking for another practice.
Compensation for Call Coverage/Non-member Plans: If call is distributed unequally or between physicians in differing plans, how is fairness achieved?
Retirement Plan: Do you know the answers to the following questions:
1. Does the practice have a retirement plan and do you qualify? If so, when?
2. If two or more groups of doctors join to form a partnership or corporation, can their retirement plans be linked?
3. How will existing equity in other retirement plans be affected?
In these situations, most practices would consult a benefits administrator or benefits attorney to link the retirement plans.
Sublet Full Services: If you are subletting office space, are you arranging to sublet the full services of the space, including staffing, instruments, paper and office supplies, electricity and other utilities? How is payment calculated to be at market rate?
Governance and Decision-Making in the Practice Structure, Length, Duration, and Minority Rights
Consider the following:
· Who is in charge of the practice?
· Is there a senior doctor or a president?
· Are there elections to determine this individual?
· How long does he/she retain this role?
Many practices rotate senior leader positions at one-year intervals. What are the decision-making rights of the physicians who have seniority? As a minority shareholder, do you have any rights?
Disagreement Arbitration: If there are disagreements in the way the practice is run, how are they handled? Is there a protocol for arbitration in writing?
Reporting and Meetings: What is the frequency of staff meetings? I often recommend the key medical staff in a practice hold a status meeting every week, or at the least every two weeks. With fewer meetings than that, communication gets lax. Furthermore, all staff should try to get together in the same room at least once a month. Does the practice have access to a room that would accommodate a full staff meeting?
Relative in the Practice: It is not uncommon to encounter a physician whose spouse has served as the office manager for the past 30 years. These arrangements work either very well, usually if the physician is solo, or very poorly. With more than one physician in the practice, it is simply not possible for a family member to be fair and unbiased toward all doctors. How does the practice fire a family member?
If you are considering joining a practice with nepotistic tendencies as other than as a simple salaried employee, request the right to terminate the family member on a no-fault, no hard feelings, no repercussions basis, should it become necessary.
Management Responsibilities: Speaking of firing employees, consider these questions:
1. What are your management responsibilities? Would they include hiring and firing of employees? Reading all contracts?
2. Who deals with the hospital?
3. Who is in charge of systems?
4. Who checks the financial statements?
Restrictive Covenants: Some physicians leave a practice to stake out their own territory in the community, only to find that their contract had a restrictive covenant prohibiting them from practicing within a set radius of the old practice. Laws vary from state to state and may not be enforceable; check with your attorney.
Access to Office and Hours: You are a night owl, but you find out that the lights in the building go off at 7 pm. Will you have access to the office any time, or is occupancy restricted to particular hours?
Access to Personal Space: Is your personal space a private office, a cubbyhole, a bare spot on a desk? Some physicians function very well sharing a desk in a noisy environment; others need four walls and a door to get through the day. Make sure you have seen what your personal space will be.
Personnel Issues: Do you know the answer to the following:
1. Is there a handbook for personnel?
2. Is the office understaffed, and is the addition of a new doctor expected to make up for some administrative deficiency?
3. Do employees have clear job descriptions?
4. Most importantly, do the supervisors handle the employees professionally, or are they at risk for a lawsuit? If you observe what appears to be sexual harassment, for example, bear in mind that you could be cited in a lawsuit even if you just joined the staff.
Call and Hospital Privileges: How many nights will you be on call, and are you eligible for privileges at the area hospitals?
Patient Distribution: How are patients allocated in the practice and how are new patients distributed? Do you alternate being assigned new patients? Will all the new patients be referred to the newest physician on staff?
Phone Numbers: If the practice splits up, who gets to keep the office phone number? This may sound petty, but many practices have gotten into bitter disagreements over this very issue.
Fee Schedules and Coding: How are practice fee schedules determined? Do you have a say in how they are set? Is the schedule consistent with the geographic location? Is the office coding legally and appropriately? A practice management consultant would be able to help you address some of these questions.
Malpractice Insurance: Evaluate the adequacy of the group’s malpractice insurance coverage.
Training Schedule for New Doctors: Simply put, who is going to show you the ropes? Are you expected to absorb things through osmosis?
Practice Promotion: Last but not least, how does the practice plan to promote itself and you? Is there a plan for marketing or attracting new patients? What is the budget?
Many or all of these questions will be applicable to you when you seek out a job, partnership, corporation, or even a space-sharing arrangement. Can you expect the practice to be able to address all these questions in one sitting? Probably not, but the list serves as a starting point and may inspire the partners to sit down and work out some necessary details. I have consulted with countless physicians, both employers and employees, who didn’t realize any of these issues could come back to haunt them.
If the practice has a document that spells out everything on paper, wonderful! It is more likely that the practice has the bare bones of an employment or partnership contract, 95 percent of which is legalese and probably out of date. Work with your lawyer or practice management consultant to list everything on the document that could affect you in the future.
If the partners balk at this kind of detail or say, “We’ll work out all of that later,” your response could be, “To be comfortable going ahead, I really need to know these answers.” If you are a detail-oriented person and they are not, the practice may not be a good fit for you. You could always start a new practice from scratch across the street if you insist on that town.
Keith Borglum consults on practice start-up, productivity, profitability, marketing, management, staffing, practice appraisal and sale, and mergers. Mr. Borglum is frequently quoted in medical business journals and authored The Medical Practice Forms Book for McGraw Hill. He was a Trustee of the CAFP Foundation and is a Director of the National Association of Healthcare Consultants and is on the AAFP FP-Assist consultant panel. He can be reached at www.practicemgmt.com.