As a doctor or a dentist, are you currently thinking of partnering with at least one other member of your profession? If so, you’re not alone. As many as one out of every five new dentists, for example, eschew the thought of private practice and choose instead to enter into group medicine directly out of dental school. Despite the apparent benefits, however, that 50-50 partnership that looks so attractive on the surface may prove to be less successful financially than you might anticipate.
Here are some things to consider.
Do You Plan to Split Everything 50-50?
In a true partnership, each member shares equally in the expenses and profits. Unfortunately, when those partners are members of the medical community, a 50-50 split can cause problems. In particular, all parties to any such proposed arrangement need to evaluate potential difficulties concerning such matters as:
- Decisions regarding the practice. In multi-member partnerships, will final determinations rest on unanimous consensus or could a reliance on majority rule risk the alienation of dissenting partners?
- Compensation methods. Participants will need to decide whether to split net profits equally or in a weighted manner based on production.
- Expenses. Will the partners share in operational expenses, or will expenses be split based on the amount of production?
- Terminations and withdrawals. In a best-case scenario, a medical partnership agreement will permit terminations only in extremely limited circumstances or if one partner loses his license to practice. Having a well-established buy-sell agreement will help determine when and how a partner can terminate his or her role in the partnership.
- Buyouts. Will a terminated partner receive a buyout, and if so, what form will it take? Will the buy-out be paid for by cash from the remaining partner or through an insurance policy. When will payment need to be made to the terminated partner?
- Restrictive covenants. If one partner should choose to leave the practice, a restrictive covenant will keep him from competing in a specified location for a predetermined length of time. In addition, the leaving partner may be restricted from soliciting staff members for a period of time after termination.
A deadlock provision can serve as a critical component of your partnership agreement. It will dictate the handling of any potential future disputes and can be particularly crucial in a state like California where no laws exist to direct the outcome of internal disagreements.
Who Takes the Blame When Something Goes Wrong?
In a true partnership, each participant is legally responsible for the actions of the others. When the partners happen to be doctors or dentists, a guiltless and uninvolved individual could be held vicariously liable for the misdeeds of a partner in a malpractice suit.
The concept of vicarious liability is one that holds a medical professional responsible for any injuries caused by another person with whom he has actual or imputed legal ties. Although the dentists or doctors in question may simply be sharing office space, an injured party determined to sue may name them all as part of a group practice. Patient confusion of this nature is most likely to arise when the partners in a medical office:
- Engage in co-branded advertising.
- Share the same receptionist, nurse, or hygienist.
- Identify themselves on printed material or signage as “Drs. A, B and C.”
- Greet phone callers with an expression like “Dr. Smith’s and Dr. Wesson’s office,” thereby implying a formal alliance.
In a similar fashion, a medical professional who co-signs a lease could find himself vicariously liable if one of them should somehow fail to honor the terms of that document.
Who Gets the Patients if the Deal Goes South?
With the turnover rate of doctors and dentists ever increasing, it is vital to set some rules in place to cover unexpected departures. Such a backup plan will ensure a smooth transition in the event that one participant should leave the practice unexpectedly.
To stem a drop in profits and forestall a loss of patients, the partnership agreement or buy-sell agreement should clearly specify:
- Who will inherit the departing partner’s patients.
- How much notice will be required.
- The terms of an existing non-compete clause.
- The specifics of any payout.
- The handling of related accounts receivable.
This contingency plan should mainly center on the needs of the patients. Any confusion on their part could result in their defection to a medical professional outside of your group practice.
Avoiding Problems in Medical Partnerships
While compatibility between the participants’ personalities and capabilities is a vital consideration, the deciding factor in making or breaking any potential partnership lies in its original partnership agreement. At Odgers Law, we take pains to ensure that this contract covers every possible scenario and agreed-upon means of handling all issues that may arise. The partnership agreement is of vital importance to all who invest their money and resources in a new joint venture. Call Odgers Law today at 858-869-1114 to ensure that you get yours done right.