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Join attorney Dennis Hursh, who brings over 40 years of experience in representing physicians. In this discussion, Dennis delves into the multifaceted world of physicians working in private practices. We explore the motivations driving physicians into the medical field, the character and work ethic that sustains them in high-pressure environments, and the challenges they face, especially regarding partnership promises and contractual agreements. Dennis shares his expert perspective on the pitfalls and red flags in employment contracts, strategies to avoid exploitation, and the key elements of a fair partnership agreement.

Dennis Hursh is a veteran attorney with over 40 years of experience in health law. He is founder, Physician Agreements Health Law, which offers a fixed fee review of physician employment agreements to protect physicians in one of the biggest transactions of their careers. He can also be reached on Facebook and LinkedIn.

He discusses the KevinMD article, “Not all physicians are nice.”

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast, and get CME for this episode by clicking on the CME link in the show notes. Today we welcome back Dennis Hursh. He’s an attorney with 40 years of experience in health law, regular guest on KevinMD. His latest article is titled “Not all physicians are nice.” Dennis, welcome back to the show.

Dennis Hursh: Oh, it’s a pleasure to be here.

Kevin Pho: So Dennis has been on multiple times. Go to KevinMD.com/podcast, search for his name to hear his prior episodes and story. But today we’re going to talk about private practice, which is not something that we’ve talked about together on the show. So tell us about your article.

Dennis Hursh: Well, first of all, before I even go into it, I should say that that article talks about extreme outliers. I’ve represented hundreds of physicians that started at a private practice, eventually were made partners, and did very, very well. The concerns that I talk about in that article are really rare. I’ve probably had it happen to me like a handful of times in my whole career, so in 40 years. So I don’t think this is something you should say, oh, if you’re going into private practice they’re going to mess with you.

But what I’ve seen, and I’ve seen it more recently, I don’t know if that’s anecdotal or what, but I’ve had a couple of physicians that sign a contract maybe even below market income. Even for physician practices, MGMA separates between physician and hospital, and typically a physician practice will start you off at a little less than a hospital would. But I’ve seen people that came in and took really reduced salaries, but they were told that you’re going to make it up when you become a partner, our partners do very well. So they took a reduced income.

There’s a couple of things I’ve seen. One is, we will consider you for partnership in a few years, and the years come and go, and each year it’s just, well, it’s not this year because blah blah blah, and eventually the physician realizes that that year is never going to come, that these people are not going to make him a partner.

I’ve seen others where they say we’re going to consider you for partnership in maybe three years, and two years and nine months they give them the 90-day without cause termination. And I had one recently where we actually were able to track down another physician that had left earlier, and the same thing happened to that physician. So these people apparently just have a business model of bring them in cheap, grind them for a couple of years, and then spit them out, and then go get a new younger physician.

Kevin Pho: Now, in our prior episodes we’ve always talked about negotiating contracts with employed models. Can you contrast the negotiating process with a private practice? And I know that there are some individual cases, but in general, how is negotiating with a private practice different from negotiating with an employed or an academic model?

Dennis Hursh: Well, it’s usually better. It’s usually smaller, they’re usually more flexible, they usually don’t nearly as often say this is our standard contract so you must sign it. So it’s usually better.

I think the only real difference that I focus on is going to be partnership. Am I going to be a partner, when are you going to consider me, what’s the criteria you’re going to use, and what’s the methodology for the purchase price? I think that they have to tell you that going in, or tell you, look, we’re not going to make you a partner. I mean, if you go in knowing that, that’s fine.

Generally private practices do pay a little less than hospitals. I still think private practice is the way to go. People say, well, the big hospital, if things get slow you know that they’ll carry me. They won’t. There’s no free lunch. If you’re not working to their productivity they’ll either cut your pay or they’ll terminate you.

So I think the productivity and the need to sustain yourself is equal in private practice and hospitals, the difference being in the hospital you’re also carrying the burden of all that hospital overhead. The vice president in charge of paperclip reduction, his salary is part of the hospital’s overhead that you’re going to have to somehow overcome. So it’s not that different, other than partnership.

Kevin Pho: So for those physicians in training or medical students who just aren’t familiar with partnership in a private practice setting, can you give us a 30-second primer of what partnership means in a private practice, and what exactly that typically would entail on the part of the physician?

Dennis Hursh: Well, they’re all different, but in general the partners own the business and they get all the money from it. So as a hospital employee, if you’re generating a lot of laboratory work or x-ray work, on behalf of the CEO I’d like to thank you, because that helps my bonus quite a bit. That’s very profitable work, and thanks a lot, appreciate it.

If you own the business, the technical component of the x-ray, the profit from the labs and so on, also inures to you. So typically a private practice physician partner can do better than an employed physician.

And most importantly, you tend to have a little more input into what’s happening. You’re not going to have somebody decide that we need to build a new cardiac lab, so we’re not going to put much money into your department. A private practice is going to be, probably even if it’s a multispecialty group, they’re going to be focused on the bottom line for everybody, and they’re not going to say this group of partners is going to do better than another group.

So I think the biggest thing is, once you own a piece of the entity, ancillaries are huge and can be very profitable. And with Stark, it’s easier to divide that among owners than it is for a referring physician to get some money from it from the hospital. So that’s a big amount of profit, as I said, and also you have control.

And another thing you don’t think about, but when you’re hiring that young doctor out of training and paying him or her a lot less than they’re bringing in, that profit is inuring to you again, not to the hospital. So you kind of pay your dues for a few years in the ideal situation, and then you get into a really nice position where you’re earning more and you have control of your destiny.

Kevin Pho: Are the criteria to make partner typically articulated at the beginning of the contract, in terms of things like buy-in and how long it will take before you’re eligible? Is that all typically negotiated upfront when a physician joins a private practice?

Dennis Hursh: I try to get that in, yeah. I want to know, when are you going to consider? A lot of times you can even get them to sort of talk about, I mean, very few people are going to say, although I’ve seen it, if you bill this much you’re in. That would kind of worry me, because the next person they hire can be a real jerk, and if she’s billing enough, that’s your new partner.

But a lot of times they’ll say, we’ll consider you based on profitability, if it’s a specialist how many people are referring to you, for primary care what your panel is, and a lot of other things. They don’t usually say, it’s not going to be like a hospital profit sharing or quality bonus plan where you get this many points for this and this many points for that, and you can sit with a calculator and figure it out. But they usually do give a broad brush of what we’re going to consider.

There should be a time frame. As I said, I like three years. I’ve seen two, I’ve even seen one, I’ve also seen seven. But there should be a time frame when we’re going to do it, and there should be the methodology for determining the purchase price. Now that might not mean X dollars per share, but it might mean the prior year’s financial statement, we’re going to look and see what the revenue was and divide that by the partners, and that’s what your share will be. So the methodology should be stated, even if the actual dollar amount isn’t.

Kevin Pho: You said earlier that when you negotiate with a private practice there’s some areas where there could be more flexibility in contrast to an employed model. What would be some examples of that?

Dennis Hursh: Pretty much on anything. I mean, a lot of times they’ll say, look, we can cut down patient contact hours a little bit, but we’re going to cut down your salary a little bit. They may say, hey, if you want to be taking call at this hospital we can maybe pay you a little more for that.

So generally everything is on the table. Not that private practices aren’t pushovers either, but they tend to be a lot more flexible, rather than, here’s the contract, this is what everybody signs. Yeah, this may not apply to your department really, but we have it in for everybody. So a hospitalist has a covenant not to compete because that’s in everybody’s contract and we’re not going to change it. You tend to not get those sort of knee-jerk, everybody signed it so that’s what you must sign.

Kevin Pho: So if a physician is considering a private practice contract, what would be some red flags they should look out for to ensure they won’t get exploited?

Dennis Hursh: Well, I prefer telling this to gastroenterologists, but it applies to everybody. You really have to follow your gut. If you walk out of there and those people just gave you a funny feeling, I think you have to understand that, and something’s telling you maybe you shouldn’t be there.

For hospitals I usually recommend a ratings site, but I found for private practices a lot of times you can’t find anything rating a particular private practice. But the most important thing I think is to talk to people that have left in, say, the last six years, and see why they left. And you may find out it’s because they told me partnership in three years, and a couple months before, they terminated me without cause. Or they started saying you’re not productive.

I’ve seen that too, somebody was basically being pushed out, and he was as productive as everybody else in the practice, but the partners kept saying, you’re not really producing, you’re not really producing, you’re not making any money. So he read between the lines and it was pretty clear to him they weren’t going to make him partner and he had to go.

As far as your contract, the things I discussed, and I think it should be in every contract, but certainly in this case, a covenant not to compete shouldn’t apply if they terminate you without cause. So they can’t just say, hey, sorry it didn’t work out, by the way, you can’t work in this area.

So I think those are the biggest things. As I said, the biggest thing to do is talk to people that left, if you possibly can. And I don’t think it’s out of line to say, would you please tell me everybody that’s left in the last six years, I’d like to talk to them.

Kevin Pho: Now, I’m sure you’ve reviewed thousands if not tens of thousands of contracts in your career, both academic, employed, and private practice contracts. Judging from some of the trends, are there questions that physicians should ask themselves to see if they’re better suited to a private practice environment versus an employed environment? What kind of characteristics are you finding that these physicians are selecting themselves for in terms of their practice environment?

Dennis Hursh: The biggest thing I think is academic. I mean, if you really want to do research, yeah, some private practices do that, but by and large they don’t. So if you really just want to do research, I think academic is probably where you have to go.

As between hospital and physician, there are more administrative issues in private practice. If the receptionist quits, somebody’s going to have to go out and look for a new one and interview. You might be dragged into some stuff that you wouldn’t be dragged into in the hospital.

But what I always tell them is, don’t think that because it’s a big organization that if things start going south, in the practice area reimbursement drops in your specialty, anything like that, don’t assume that they’ll keep paying me what they’re paying me now. I think that’s false. A lot of people say, I don’t want to be in private practice because I’ll be totally dependent on what I’m earning. And from everything I’ve seen, it’s no different in a hospital. Might take longer, but it’s no different.

Kevin Pho: One of the things I’m reading about is that private practices are being acquired by private equity firms, and some of the more senior partners tend to make out better in those deals rather than someone who just joined. So what are you hearing on that front?

Dennis Hursh: Well, I’ve dealt with some practices that did kind of tear down the middle on that. But it sort of depends on the shareholders agreement, which is something I ask for when we’re first coming in. Sometimes I get it, sometimes I don’t. I mean, if you think about it, you’re asking me to open the kimono on my business and you’re not even working for me yet, so I can kind of understand why they may be hesitant to do it.

But if you come in as an equal, that’s one of the things I ask, are you going to be an equal partner? A lot of places do make you that. There’s some specialties that are just kind of harder than others. Oncologists and radiologists tend to have like three classes: there’s the founders, and then there’s senior partners, and then there’s junior partners. And the junior partners, if you look at it, might not be much more than an employee with a bigger title.

So yeah, I did represent two practices now where they came in and offered big bucks, but the shareholders agreement was like a fixed amount. So the shareholders agreement said, if you leave we’ll give you, I don’t know, your annual receivables. So the guy’s looking at it. And I’ve seen some that it was great, they bought in for a hundred bucks and when they left they left for a hundred bucks.

So now you’ve got senior partners close to retirement and a private equity company comes in and says, I’ll give you $500,000 for your shares. And the senior partners are all saying, yep, let’s do it, I’ll work for them for a couple years. The junior partners are saying, no, I want to do something else. So I have represented a few partnerships that kind of broke apart when private equity comes in.

But in general private equity is better for the senior partners, just because you do get a fair amount of buy-in money. And if they are hard to work for, you can probably move on. And if you were planning on retiring in five years, you can do five years standing on your head, particularly if you got a big buy-in.

Kevin Pho: So for those just entering private practices, and then they may encounter that private equity scenario, anything that they can do to help protect themselves, short of seeing the shareholders agreement?

Dennis Hursh: Yeah, I always ask, and I’ve gotten it once or twice. Usually you don’t get it, but you don’t get it if you don’t ask. To see if there is a buyout, if I can be treated as a junior partner, and maybe if that’s three years to partnership and they buy us out in a year, maybe I only get a third of what a partner would make, or something like that. I’ve gotten it occasionally, a lot of times I don’t. Most people will say, oh, we wouldn’t even consider selling to private equity. They tell you that right up until the day of closing, wouldn’t even consider it.

Kevin Pho: We’re talking to Dennis Hursh. He’s a health care attorney. His KevinMD article today is titled “Not all physicians are nice.” Dennis, let’s end as we always do with some take-home messages that you would like to leave with the KevinMD audience.

Dennis Hursh: Yeah, I think the biggest thing is figure out who you’re dealing with. If your gut says they’re nice people, it’s good to trust but verify. Talk to anybody that left, and have the right contract terms. The most important one is no covenant not to compete with a without cause termination. But also make sure your agreement talks about partnership, when, how, and whether or not you’re going to be an equal partner.

Kevin Pho: Dennis, thank you again for sharing your time and insight, and thanks again for coming back on the show.