Leaving a dental practice / closing a dental practice
By Matt Dickstein
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This article gives a very brief overview of how a dentist leaves or closes a dental practice. The dentist can’t just walk away – leaving or closing a dental practice is more complex than you think.
If you want to learn how to prepare your solo dental practice for sale, read Preparing to sell a solo dental practice.
Both the dentist and the surviving practice should look over their contracts when the dentist leaves. Review managed care contracts, the employment agreement and the shareholders (buy-sell) agreement if you have one. The latter 2 contracts become important if the dentist wants to continue to practice dentistry.
Most dentist employment agreements require a notice period before termination of employment. The consequence of failure to give the contracted notice is that the employer / practice might sue the dentist for breach of contract. Usually the practice wants to recover the costs of hiring a temp dentist to cover for the departing dentist’s absence until the practice replaces him or her. Further, if the practice must pay deferred compensation, the practice might try to offset its damages against the compensation to be paid. Lastly, beware any non-competition or non-solicitation clauses in the employment agreement; for more information see my article – Dentist employment and independent contractor agreements.
Shareholders Buy-Sell Agreement
If the practice has a shareholders buy-sell agreement, check it for any buy-back of the dentist’s shares in the practice. Dental groups frequently require a mandatory buy-back of shares. The buy-sell agreement also will provide for the share price, either by an accounting formula or through an arbitration process. Once again, beware any non-competition or non-solicitation clauses in the buy-sell agreement. For more information see Shareholder buy-sell agreements for dental corporations.
Compensation after Termination
When a dentist leaves a practice, usually the practice will pay compensation after the termination date. First, there is salary owed to the date of termination plus accrued vacation pay. Second, there might be (i) compensation owed for the dentist’s share in accounts receivable or collections; (ii) a pro-rated share in year-end bonuses; and (iii) a pro-rated share in the practice’s contributions to the dentist’s retirement plan.
Word #1 to the wise: The latter 2 items (pro-rated share in bonuses and retirement plan contributions) frequently create timing issues, specifically, whether the termination date falls before or after vesting in the particular payment.
Word #2 to the wise: Consider using an exit / severance agreement (discussed next) to require that the practice give financial data, and permit inspections, that make clear its calculation of post-termination payments.
Exit / Severance Agreement
Exit / severance agreements are useful when a dentist leaves a practice to tie up loose ends and prevent misunderstandings, all of which can lead to litigation. Typical matters for an exit / severance agreement are:
1. The content of any notice that the departing dentist and the practice give to patients and referral sources. Both sides should discuss who is responsible for the mailing, its costs, and the deadline for the mailing. I talk more below about notices to patients.
2. Mutual access to patient records.
3. Who keeps the patient records. Retaining patient records is a significant burden. Your retention period is a product of state law and private contract (e.g. managed care contracts and malpractice insurance policies).
4. The buy-out of shares in the practice and post-termination payments (all discussed above).
5. Mutual liability releases.
6. The departing dentist might buy a malpractice insurance tail.
7. Indemnities in favor of the departing dentist for any guarantees that the dentist gave for practice debts.
Word #3 to the wise: Identify and resolve (as best you can) any personal guarantees that the departing dentist signed to secure financing given to the practice. Guarantees are the wild card when leaving a practice.
A dentist who leaves or closes a practice must notify a host of persons of the change in status.
Notice to Patients. A dentist must give notice to patients of his or her leaving or closing a practice, otherwise face a possible claim of patient abandonment. The notice to patients should be a minimum of 30 days. The notice should specify the date of departure, the dentist’s new contact information if applicable, and who the patients can choose for future dental care.
Dental Records. Be sure to include in the notice a patient authorization form that states where dental records will be stored. For example, the notice might have 2 boxes that can be checked – one that keeps records at the practice, and one that transfers the records to the departing dentist. As I discuss above (at exit / severance agreements), it is best that the practice and the departing dentist agree in advance to the form of notice and the retention of records.
Notice to Malpractice Carriers. The insured (whether the practice or the departing dentist) should notify its insurance carrier of the change.
Notice to Managed Care Plans and Insurance Networks. Get this notice out early, at least 60 to 90 days before the change. If the departing dentist will continue to practice, ensure continuity in managed care plans.
Notice to Licensing Boards. Notify the Dental Board within 1 month of any change in address; use the Board’s “Change of Address Form.” Also notify the Drug Enforcement Administration (for controlled substances) and any specialty practice groups as necessary.
As I mentioned in the introduction, I’ve given you only a brief outline of the topic of leaving or closing a dental practice. It’s a complex topic, so please get competent legal counsel to help you.