Lawyer for Physicians, Medical
Corporations and Group Medical Practices
Bringing a new partner into a medical practice
In this suite of articles, I explain the basic
corporate, business and contract law issues for medical
corporations and group medical practices in California.
I explain things from both sides, that is, the perspectives
of both the individual physician and the group practice.
The articles in this suite are:
This article gives an outline of how to
bring a new physician into a medical practice.
I go from common sense to legal advice, from the
physician’s purchase of ownership to the parties’ exit
strategy to unwind the relationship.
Culture Fit
Before anything else, think hard
whether the new physician will fit in with the practice’s
culture. The primary
risk is that the existing group and the new physician might
not fit together. For
example, the group and the physician might differ on the
required coverage hours or the handling of employees.
Compensation
A medical group’s compensation structure is the most
important part of its culture.
The hardest thing to get right and keep right is a
group’s compensation structure.
Every group has its own compensation structure
ranging from “eat what you kill” to equal shares.
I give a common formula for fixing compensation in
Physician
employment agreements and independent contractor agreements.
I talk about compensation structures for medical practices
in general in
Compensation
structures for a group medical practice.
IMPORTANT
-- Have an attorney run the compensation arrangement through
the federal and CA Stark and Kickback laws. See
Stark and Anti-Kickback laws re the compensation structure of a group medical practice.
Buying into the
Practice
After salary, think ownership.
Frequently the practice asks the physician to wait a
period of time (e.g. one year) before the parties discuss
the buy-in. This
ensures that the new physician fits-in before buying-in.
Physician employment agreements sometimes have
clauses for the physician’s purchase of ownership in the
practice. Usually the
clauses are vague and non-binding, and only express the
parties’ expectations on the subject.
If the physician’s buy-in is a material part of the
deal, however, specify these deal terms:
- The ownership percentage that the physician
will obtain
- The purchase price
- The period over which the physician will pay the
purchase price
- The extent of the physician's participation in
control decisions for the practice, e.g. is the
physician on the board of directors?
Corporate Structure
The new physician must buy into
something, and
usually that something is a medical corporation.
The medical corporation’s structure should protect
both the incoming physician and the existing group.
You need to shield each physician from two kinds of
liabilities: (1) liabilities arising from the acts of the
other physicians in the group, and (2) general liabilities
of the medical corporation (such as real property and
equipment leases, etc.).
At the same time, the corporate structure must
comply, to the letter, with the laws and regulations that
govern physicians including the federal and CA Stark and
Kickback laws.
Group Liabilities
If the existing physicians are liable for group
debts, be clear about the liabilities for which the new
physician will become responsible. Will the new physician
guarantee existing loans or leases?
Will the new physician step into a capital call?
Exit Strategy
Now that you’ve structured the entry of
the new physician, structure the exit.
The existing physicians and the incoming physician
all need an exit strategy.
The most common exit is the termination of the
physician’s employment (see
Termination clauses in physician employment and
contractor agreements) plus the buy-back of his or her
equity. The practice
also might give severance pay to the departing physician.
This is where a buy/sell agreement comes
in. A buy/sell
agreement is essentially an agreement for exiting a
practice. A buy/sell
agreement works like this – the agreement names certain
trigger events for buy-back (e.g. termination of employment,
death) then it either requires or permits the buy-back of
the physician’s equity on the occurrence of that specific
event. Then the
agreement sets a price for the buy-back.
For more on
buy-sell agreements for a physician practice, see
Shareholder
buy-sell agreements for medical corporations.
This article only gives a short roadmap
about bringing a new physician into a medical practice.
There is a lot more to this subject than introduced
here. Before you do anything, get competent legal counsel
to help you.
Call me to schedule a
legal consultation: 510-796-9144
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