I have previously written that “not all physicians are nice.” Some physicians (a tiny minority) in private practice hold out the promise of partnership, paying physicians below-market wages until they get to the golden ring. Then, they terminate these physicians before they are made partners. As I noted then:
I have been representing physicians for over forty years, and the vast majority of the people I work with are genuinely nice. Overworked, stressed, sometimes distracted, yes, but most physicians entered the profession because they were sincerely concerned about people and wanted to help. Medicine can be a truly thankless job, and the vast majority of physicians do not pursue it solely for the money. Unfortunately, this characterization of physicians is not universal.
Recently, I have seen two disturbing variations of this fact.
In one case, a physician was made partner, but the “partnership” was a farce. A practice consisting of two partner physicians brought an employee in as a “partner.” The new physician paid over $60,000 for her partnership interest.
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Paying for a partnership interest is not objectionable. After all, a partnership interest represents a share of the business (practice), and the business is worth something. It owns equipment, has accounts receivables, etc.
What was objectionable was the employment agreement the physician signed. In general, the employment agreement was typical for a partner in a medical group practice. Each of the partners got to “eat what you treat” minus overhead expenses and expenses directly attributable to that physician. What was not at all typical was that the two existing partners, before bringing in the new partner, declared a bonus to themselves for their “valuable professional and administrative services provided” in prior years. The total bonus was $325,000.
It would have been extremely unfair if the physician had agreed to pay one third of this bonus. But that was not what the physician agreed to. Instead, the physician agreed to pay 100 percent of that bonus herself, through a reduction in her pay of over $9,000 per month. Needless to say, the physician was receiving a pittance for her services.
But that was not all the physician agreed to. If she left the practice, she agreed to continue to be responsible for one third of the cost of all office leases until a substitute sucker physician could be found.
If you think having partnership held out to you and then suddenly withdrawn is a nasty trick, how are you going to feel about becoming a partner under these circumstances?
A second case I was recently involved in had a physician who had worked for the practice for two years presented with a “partner employment agreement.” The physician’s title was “partner.” Other than this title, however, the physician had no ownership interest in the practice, no voice in the practice, and no share of any income from the practice other than what she generated.
The good news was that she could tell her mom that she was a “partner.” The bad news was that she was still an employee in every sense of the word. On the plus side, the practice did not require a buy-in for the title. When reviewing the contract, I discussed all these downsides. I was tempted to suggest that the title be changed to “Emperor,” but I did not feel that was a concession that we really needed from the practice.
These cases demonstrate the need to carefully evaluate a physician employment agreement with a private practice, especially when buying into a medical practice.
The takeaway here is not that physicians should avoid private practice. Instead, physicians should go into these transactions with their eyes wide open. Trust your gut as to if the current partners seem like people you would be comfortable with as partners. The good news is that the vast majority of physicians in private practice are genuinely nice people, and, in almost all cases, partnership will be more financially and emotionally beneficial than working for a health system or private equity.
Trust but verify. Before joining a private practice, ask to see the current shareholder/partner employment agreement, and the shareholders agreement or operating agreement, as the case may be. Be aware that this may not be provided. (After all, you are asking to see the financial details of the owners’ lives before you even start to work at the practice!) But it is important to do your due diligence before getting into a situation which can be devastating for your future.
It may be self-serving on my part, but I genuinely believe that hiring competent legal counsel to review these documents could be one of the best investments you ever make.
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 found on YouTube and LinkedIn.
Dennis is a frequent lecturer on physician contracts to residency and fellowship programs and has spoken at events sponsored by numerous health systems and physician organizations, including the American Osteopathic Association, the White Coat Investor, the American College of Rheumatology, the American Health Law Association, and the American Podiatry Association.
Dennis has authored several published articles on physician contractual matters on forums such as KevinMD and Medscape. He is also the author of The Final Hurdle – A Physician’s Guide to Negotiating a Fair Employment Agreement, which is considered the go-to resource on physician contract negotiation.
