Having advised physicians, dentists and other healthcare professionals for many years, I have been afforded the opportunity to see many changes in medical and dental practices, and the healthcare marketplace generally.

Back in the 1990’s, hospitals buying up primary care practices was the rage.  In some markets the competition for such practices was so heavy that the offers often became too great to refuse.  Many sold to Hospital A and then either got their practices back or moved to Hospital B a few short years later if things as to the first transaction did not work out as well as hoped.

That market reality caused many privately owned practices to look at their own internal buyout arrangements and change them to be larger than they used to be.  Unfortunately, too many of those practices have not reviewed things for many years.  They might be sitting on a ticking time bomb.

Here are a couple of examples:

• A multi-doctor primary care group had been very successful for many years. The doctors were happy, got along well and were making a good living.  No one had looked at the inter-doctor agreements for a couple of decades.  Senior was ready to retire and told his partners he was going to retire in a year.  He wanted to give his partners and friends plenty of time to plan.   The doctors then dug out and looked at the documentation.  Dr. Senior was pleased with the buyout terms as set forth in the agreements.  The three remaining doctors became very concerned.  They sincerely worried that if those provisions were followed, the practice would not be able to survive.  The buyout in the agreement did not reflect the realities of today.  This caused much angst and bad feelings.  Dr. Senior was technically and legally correct in asking for what the documents stated.  But the others sincerely believed that those payments would bankrupt the practice.  This situation could have been avoided if the “Partnership” documents were periodically reviewed and discussed by the doctors with knowledgeable and experienced healthcare advisors.  It is better to do that before someone states he or she is leaving, so that a more objective and less emotional evaluation and decision may be made.  Once someone states he/she is leaving, the divergence of interests colors things and amplifies the differences.
• Some groups have no signed agreements in place. That is a lawsuit waiting to happen.  What if one of the partners becomes ill?  For how long will he/she be allowed to remain as a partner and for how long will he/she be paid?  With no legally-binding contract in place, there are no buyout, no non-compete, no specific notice requirements, etc. in place.  I cannot urge strongly enough that each group practice needs to have up-to-date agreements in place to reflect the realities of today and avoid unnecessary problems.

• Some practices involve related entities. For example, assume there is a dental practice P.C. and an LLC which owns the real estate in which the practice is housed.  For discussion purposes, say the same three dentists are partners of each entity.  Say Dr. B dies and, by contract her heirs/estate must be bought out of the dental practice entity in a fair and predetermined fashion. That is excellent.  However, what if the LLC operating agreement is silent as to what will happen to Dr. B’s equity interest in the real estate LLC upon her passing or other leaving of the dental practice?  Do the remaining practice owners want the spouse of Dr. B to continue to own 1/3 of the realty entity (having a 1/3 vote and sharing in 1/3 of the economic benefits without any longer helping to pay the rent)?  What if Dr. B’s spouse wanted out but Drs. A and C did not want to buy him out of the real estate LLC?

The bottom line is that there is no “one size fits all” answer.  The key is to openly and frankly discuss things, arrive at the answer that best suits the particular group in question and then execute documents that properly reflect the deal.

Once that is done, it is still important to periodically openly and constructively discuss these important “Partnership” matters.  Once a decision is made, the documents should be prepared and executed so that all is properly in place and current.

Vasilios (“Bill”) J. Kalogredis has been advising physicians, dentists, and other health care professionals and their businesses for over 40 years.  He is Chairman of Lamb McErlane PC’s Health Law Department.  bkalogredis@lambmcerlane.com; phone, 610-701-4402; or fax,
610-692-6210.