Preparing to take on a new partner

The average doctor bringing in a new partner has no training on how to hire. Nonetheless, physicians should know how to handle hiring because "it affects their bottom line, their sense of happiness and the care of their patients,” according to Jeff Brown, MD, a board-certified family practitioner who specializes in geriatrics as a medical director, and is also a consultant for the California Medical Board.

Brown, who also writes a financial blog called “Take as Needed,” observed that a variety of things can impact the cost of bringing on a new partner. Why you are hiring affects cost, Brown explained. “Which specialty also has a profound effect on the cost. In-demand specialties will cost more [in terms of compensation] and it will take a lot longer to find that person,” Brown said. Time is also a factor; the longer it takes the more it costs, he noted.  Location matters as well. If you are in a desirable location, such as an urban area near a large medical center, it may be easier to find someone than in a rural area, Brown added.

A practice in a less desirable location may consider using a recruiter or a practice consultant to aid them in the hiring process.  However, Brown warned that, “when practices delegate, they should be careful. I have used a number of practice consultants, and they can be very useful, but when they bring you someone it doesn't necessarily mean that you are going to mesh with that person.”

“Hire in haste and you fire with regret,” commented Brown. Sometimes doctors leave under messy circumstances, he added and “it may literally take years to recover.”

Hopefully, the practice has put into place a good contract so that problems won't arise after the hiring process, said Margo Williams, a senior associate in the American College of Physicians Center for Practice Improvement and Innovation. “Don't take shortcuts in legal fees. I have heard too many stories that practices get the short end of the stick because someone didn't read the contract well or didn't have an attorney look at it -- or they didn't have good advice and now they are stuck.”

“The cost of legal fees for bringing on a new partner varies significantly from about $1,000 to $15,000 depending on how complicated the contract is and how much negotiating it requires,” said Jeffrey B. Sansweet, Esquire. Sansweet, who has been practicing healthcare law for 26 years, noted, “I would say the ballpark average cost for the practice is about $5,000.”

In the case where the contract is not well-drawn there could be an argument over who is supposed to pay for what, explained Sansweet. That could lead to a lawsuit, he said, ringing up significant expenses ranging from about $50,000 to $200,000.

Sansweet said important issues that should be documented in a partnership arrangement include:

  • buy-in;
  • buy-out;
  • compensation formula;
  • division of net income;
  • malpractice insurance;
  • signing on as a guarantor;
  • restrictive covenants;
  • governance and voting;
  • minimum amount of notice; and
  • termination and definition of cause.

Brown believes that not only do physicians have little experience with how to hire a new partner, but they also have little understanding of how expensive it can be.

“Medical schools need a class on fundamental medical economics and all residents should have a class taught by experts on the basics of operating a small business,” he said. His primary advice: “Hire for personality and character. You can teach someone to do what you need them to do.”

Williams added that is important to spend time with the prospective partner and help him or her understand the “culture and philosophy” of the practice. Spouses of prospective partners should meet as well. Williams added that the hiring physician should consider whether the new partner will fit into the community.

For more information on drawing up a partnership arrangement click here.