If you’ve built your own private practice, you know what a labor of love it is. You’ve likely poured countless hours and blood, sweat, and tears into getting it off the ground and making it resemble your vision for your ideal practice. If you’re lucky enough to have had it become highly successful, you may have hired other employed physicians or other clinicians, or looked to acquire or merge with other practices. In some cases, this may entail adding others to the ownership or partnership structure of your solo private practice. This is understandably tricky, as you want your arrangement to reflect the hard work you’ve put in as well as protect yourself and your practice, but also be fair to those that are helping its success and ensure the future of the practice’s growth. Below, we’ll cover some things to consider as you pursue this transition, as well as some tips for doing it successfully and fairly.
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What are the benefits to adding partners to your solo private practice?
While many who start their own private practices have a degree of “founder’s syndrome” in that they know they were the ones who put in the initial hard work necessary to get the practice off the ground, there are limits to being a solo owner. For one, it can be lonely to be in charge of and responsible everything, and have to make the all of the decisions all the time without input from others that know the practice as well as you. Secondly, if you’re looking to expand your practice beyond what you can accomplish yourself or with employees, oftentimes that will require giving someone a vested interest in your business’s success.
As such, there are many things that may push you in the direction of wanting to add more partners to the private practice that you started. These situations include:
The clinician you have hired or are looking to hire is asking for a pathway to partnership
As an effort to retain a physician that brings a lot of value to your practice and is interested in growing it alongside you
Looking to ease the administrative burden on yourself as the owner
Looking to distribute the financial overhead and/or risk of running and growing the practice
Wanting someone else who’s as invested in the growth of your practice as you
Wanting to open a second location and needing someone to head up that office who has a stake in its success
To form a pathway to eventually turning the practice over to someone else as you transition to retirement or look to decrease your workload
Bringing a new skillset to your practice that will expand the services you are able to offer within your practice
What are some challenges that come with bringing on a partner?
When you’re used to doing things yourself and being the sole decision maker, bringing on a partner instead of an employee may result in growing pains. Since a partner has ownership stake, both personally and legally, they will be entitled to have their voice heard in decisions, and full transparency about their investment. This may require some getting used to and putting yourself in the other person’s shoes, as well as bending or compromising on your own vision for the practice.
What should you look for in a potential partner for your private practice?
Acknowledging the goals and challenges above, first and foremost, the person you are considering bringing on as a partner should share your goals and be a person that you can trust. Bringing on a partner in a private practice, particularly in a solo private practice, is a little like getting married. You will go through all the highs and lows of private practice ownership together. This should be someone that you enjoy interacting with, whose opinions you respect, and who will love the practice and its patients in the same way that you do.
What are logistical and legal considerations when bringing on a partner in your private practice?
These are several things that need to be addressed prior to bringing on a partner, not necessarily in order.
Determine how much of the practice you’re willing to give up
This is perhaps the hardest part for you as the current sole owner. You’ll have to dig deep into what you’re comfortable with. You don’t want to regret giving up control later, but you’ll have to balance that with what you think will recruit and keep the talent that you want by giving an appropriate incentive to build the practice with you. While instinctively, you may want to retain majority ownership, this may deter others from joining your practice. On the other hand, you will likely want to have some recognition of the work you’ve already put in.
Remember that there are ways to get creative about this, in that even if the shares are split evenly, you could have specific clauses in your contract that give you things like veto power, ultimate say in whether the practice can be sold and to whom, or control over who is brought on as a future partner. You could also have different terms for buyout if the practice is sold to reflect the number of years each partner put into the practice, or tiered ownership within the practice revenue streams, etc. While the cleanest way is always for every partner to be exactly the same, this may not fit a situation in which someone has grown the practice for 15 years and a new partner is coming on fresh. You could also structure the agreement to shift percentage of ownership over time instead of giving immediate 50% vesting into ownership of the practice. Talk with a healthcare attorney that reflects your interests and can guide you, as well as other physicians who have been in similar boats to find out what worked for them and what created conflict or regret later.
Determine the valuation of the practice
This can be one of the trickiest parts of the process. Getting a fair and objective valuation of what your practice is worth will enable you to start determining how much of the practice you’re willing to give up and at what cost, so many people recommend starting here before engaging in the discussion of what the buy in process will look like. There are firms that are experienced with this and can help with this process to ensure transparency and fairness for both parties and both parties should be comfortable with who is chosen to do this work (or each hire their own for an independent valuation).
Determine how the buy-in will be structured
There are several ways to grant ownership into a practice. Many times there’s a buy-in cost that is determined based on the valuation, but other times, partnership is earned in sweat equity rather than an upfront payment, and often, it’s a hybrid of both.
Sweat equity can also take many forms depending on the person that you’re bringing on as partner. If they have an existing practice elsewhere and you’re bringing them in as a merger or acquisition, you may offer them partnership based on what they’re bringing to the table based on their existing patient panel or practice resources.
If the person you’re bringing on was an employee for you beforehand or is joining the practice without bringing a practice along with them, you may decide that they have to work as an employee for a certain number of years and establish a partnership track that may also have a buy-in number or other metrics associated with the partnership offer.
Figure out if you’ll need to change the structure of your business entity or benefits to accommodate the change in ownership
When you start your own practice, many of the rules and structures are set up to reflect a solo owner, and that may include how the finances flow through to your personal tax return or retirement benefits. If your practice is set up as a PLLC, a corporation, a trust, or a partnership, there will be different avenues to giving someone a share. It’s important to work both with an attorney familiar with physician private practices such as a healthcare attorney and your accountant to make sure that the entities don’t need to be restructured, and that it doesn’t affect your payor contracts, taxation, or other legal paperwork in a negative way.
Create clear documentation and contracts outlining the terms and conditions of partnership
This is critically important, especially in situations where things are not 50/50 and split down the middle, but always. You’ll want the contract to outline things like:
What percentage ownership is owned by both parties
How decisions are made, including what voting rights are and if somebody has more of a say or veto power than the other
What happens if somebody wants to exit the partnership and what the buyout process looks like
How overhead will be split
What each partner’s roles are if there are different responsibilities delegated to each
How profits will be split
What happens if one partner is doing more work than the other, or if one partner needs to take a leave of absence for personal or sick reasons, such as parental leave
How do you determine dilution of shares if future partners are brought on
How distributions will be made, when, and what determines their size
What benefits will be offered
Bonus structures, if applicable
How practice resources will be allocated
How call is structured
How much vacation is allowed
Minimum work hours or other factors that go into retaining partnership
These are just some of the many things that may need to be covered in your documentation and contracts, and it will be key to work with a healthcare attorney familiar with private practices. There are likely several documents that will need to be created in addition to the partners contract, such as a purchase agreement or buy-sell agreement.
Get appropriate insurance to cover each other’s risk
Oftentimes, partnerships will do things like get life insurance on each of the partners so that if something happens to one, there is not increased financial burden on the other partner. There may also be other insurance policies you want to look into as you expand the scope of your operations and there is more shared risk in the form of malpractice and liability for the practice. Working with a business insurance agent familiar with private practices can go into some of your options.
Create clear procedures for changing the terms of partnership
There are many situations where your first agreement won’t be your last agreement, or terms will need to be altered because of unanticipated situations that arise. Ultimately, you’re making the best arrangement now based on what you know now for the situation as it exists now. However, your personal or professional interests may change, new partners may come on, you may add new locations, or your business may need to branch out in different ways.
While to some degree this is inevitable and will require some flexibility and/or negotiation on the part of both parties, you want to make these situations as straightforward as possible and avoid expensive legal disputes. We’ve covered some of these above that should be included in the partnership agreement, but highlighting some common situations you should account for:
How terms of the partnership agreement can be changed if necessary
Buy out procedure terms and conditions, as well as required notice
How new partners coming on will be addressed within the ownership structure and share dilution
If there is somebody that has ultimate say over whether the practice can be sold (important in this age of private equity and consolidation)
If there are differing conditions for things like “senior status” where hours or overhead responsibilities can be modified
How detailed do partnership agreements need to be?
In general, the more details you include, the better. Your partnership contract should be treated almost like pre-marital counseling or prenuptial agreement in some ways, where you want to set expectations and friendly and fair terms that protect both parties while you like each other, but make a break or confrontation less messy. Legal fees are expensive, as are constant rewrites of the contract. The more scenarios that are discussed and documented ahead of time, the less you avoid misunderstandings that can really erode away at happiness within the partnership or cause personal fights amongst the partners. You’re in this together for the long run.
Conclusion
As you can see, there are lots of details to be hashed out when thinking about bringing on a partner, especially when you’ve been used to running things yourself and on your own terms. Take your time to discuss scenarios that may come up with both your attorney and your future partner to ensure you’re comfortable with the situation. Don’t be afraid to get creative in your agreement to address individual concerns. Ultimately, you’re taking a leap of faith whenever you make this jump, but having a thoughtful plan will mitigate many of the risks and allow you to focus on the exciting part - growing your practice!
Additional resources for physicians in private practice
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