Options for new physicians who want to own their own practices include a partnership arrangement for that practice. While there are many advantages to going into business with a partner, there are also many considerations for a practice partnership that need to be carefully studied before making the move.
In an interview with MDLinx, employment lawyer Kate Dewberry and business transactional lawyer Dave Krosner addressed some of the issues that need to be considered when contemplating a practice partnership. Dewberry emphasizes that a partnership is a long-term investment so each partner should work to gain a true understanding of the other and then determine whether it is truly a good long-term fit.
Not only is the partnership a financial investment but it also involves time and effort to ensure its success. The arrangement requires investment in compliance and appropriate liability protections given the financial and legal risks associated with noncompliance.
To that end, Dewberry suggests learning as much as possible about that ownership interests the practice partnership will have. For example, some practices own their buildings so the partners will want to ensure they are also legal owners of the real estate entity. When a provider is considering buying into an existing practice, it is especially important to research historical information such as past buy-in and distributions, malpractice claims history, and historical financial statements.
Each partner should also ensure that ownership interest is proportionally acceptable for all physicians participating in the partnership. Again, when buying into an existing practice it can be also vital to gauge the overall financial health of the practice and gain a clear understanding of ownership interests among any other partners involved.
Krosner advises that the physician interested in a partnership arrangement should also evaluate the practice’s future ability to attract additional healthcare providers when necessary. He points out the examples of a practice being remotely located or that has had a history of struggling to hire quality medical professionals that could be considered red flags for the partnership.
Another red flag is when appropriate agreements are not in place, especially for smaller practices. Those agreements could potentially include a shareholders’ agreement or an LLC agreement, depending on the legal entity of the practice. These agreements should address the rights of each partner as an owner, including how, when, and at what value each partner will have their ownership later repurchased.
Having a plan in place for exiting or dissolving the partnership, if and when that becomes necessary, is another critical aspect of the decision to enter into a partnership. An agreement that can also be a red flag is an overly broad non-compete agreement that is connected to the practice ownership.
Overall, the new independent physician would be wise to carefully consider all aspects of a practice partnership before agreeing to the arrangement. There is the opportunity for higher revenue for each partner but there is also the potential for suffering financially from the actions of the entity.
As with most legal matters, it is best to consult an attorney who specializes in healthcare before signing any partnership agreements, to ensure the arrangement is in the best interest of all involved.