Thinking of bringing in a Partner to your medical practice? 5 elements to consider
Adding a Partner to a Medical Practice
Do you run a medical practice and are you considering bringing on board another partner? There can be some great benefits in expanding your practice such as lightening your personal workload, offering more services to your patients or growing your revenue. Bringing in a partner can also be a huge investment from both a financial and professional perspective.
You need to ensure you are looking at partnering with someone who aligns with the culture and values of your practice. Plus, there are a few other considerations to look at when adding a partner to your medical practice, and in this article, we cover off the top 5 elements you will want to consider before adding a partner to a medical practice.
Assessing your current structure
It can be tempting when thinking about adding a partner to your practice to focus on the future and what you want your future medical practice to look like. The first step we recommend considering is to get an understanding of the structure of your practice right now.
You should first analyse the structure that is currently in place because it helps you to determine how, and if, a partner can be easily added to your practice within the existing business structure. For example, if your business is set up in a trust structure, can the new partner purchase additional units?
At this stage of the process, a discussion with your accountant can be really valuable. An accountant will be able to help you look at the tax effectiveness unique to your circumstances and some of the legal protections that different structures can offer your practice.
What the best way forward is, will depend on your individual situation. For example, you might be part of an existing practice that has a number of partners already, and you are looking to bring in someone new into the practice. In this case, the current structure may be sufficient and adding a partner could be a relatively straightforward process. If not, then you may be better off with a change in structure.
Determine buy-in value
The next thing to consider is what type of partner would be best for you to bring onboard, in terms of value. For example, will they pay you to join the practice or will they bring in their own patients in place of payment?
If you are an already established practice that has a lot of patients that will be allocated to the new partner when they come on board, then the new doctor may need to pay for a percentage of the plant and equipment. Whereas if two doctors are coming together, it might be that one doctor who has their own large patient list, moves to a new practice meaning that the first doctor is essentially paying to bring this extra work in.
In general, we see a one off payment is usually made when a partner joins and an accountant can usually work with you to establish what a fair price might be.
Document What Is Agreed
Having everything agreed and in writing is really important. You need to make sure everything you want to be in the partnership agreement is included. A comprehensive agreement will cover important elements that are often overlooked, including:
What will happen if the partner gets sick for an extended period?
What will happen if they want to go on parental leave?
What will happen if the partner decides they want out of the partnership at some point?
What insurances will be needed to manage risk?
While a doctor would usually have their own insurance for their professional indemnity, when joining a practice, extra insurances like workers' compensation insurance and public liability insurance might be needed too. Determining what is required and documenting who is responsible for those payments is important to include in the partnership agreement. So too is the determination of how costs of running or growing the practice are split.
These are just some of the key elements that need to be considered in agreements when adding a partner to a medical practice.
Contracts for adding a Partner to a practice
Some of the common agreements that should be considered when adding a new partner to your medical practice include a Purchase Agreement, potentially a Buy-Sell Agreement, an Owner’s Agreement and a Practitioner Services Agreement to outline expectations. This might feel like a lot, but it is not uncommon for difficulties to occur in relationships, in the absence of a written agreement around service delivery, if a doctor has not performed what might be considered essential, such as taking improper patient notes. This has occurred to a number of our medical practice clients and, in the absence of proper written agreements, there is no easy way to get the offending doctor out of the practice because they hadn't contemplated or agreed on what might happen if someone cannot or does not want to continue the partnership.
Finalise Agreements
You might think this would go without saying, but the next most important step is to make sure you sign all of your agreements. Surprisingly, some partnership agreements are negotiated and drafted, but never actually signed by all of the partners. For an agreement to be enforceable, it needs to be signed. While we hope that there are no issues that arise in the partnership, if there are, you do not want to have an unsigned agreement.
Seek key specialist advice
Adding a new partner to your practice is a big decision and not one to be taken lightly. You should not tackle the process on your own. Make sure you access proper accounting, legal and insurance advice before taking on a partner. Ideally with professionals who work with medical practice owners.
Taking on a partner is a huge professional and legal commitment and the person who you start a business with or who joins your business, may not turn out to be the same person throughout the whole journey. Life is long, and in business, there are a number of elements that can go wrong, and you want to ensure your practice and your patients are in safe hands.
To take steps to determine the documentation required specific to your practice, arrange a time to speak with one of our team, who specialises in assisting medical practice owners minimise their risk and optimise their efficiency. You can do that here.