In the healthcare sector, partnerships among professionals are integral to providing quality patient care. However, like any business venture, medical practices are not immune to disputes among co-owners. As lawyers for medical practices, we hold a firm view that prevention or protection is far preferable to engaging in dispute resolution after the fact.

For years You Legal has promoted the benefits of medical practice owners putting their agreements in writing by creating a Partnership Agreement, Shareholder’s Agreement, Unitholder’s Agreement, Equity holder’s Agreement or other similar agreement. Nevertheless, conflicts, disagreements and disputes have the potential to arise among medical practice owners, regardless of the existence of such agreements. Navigating these conflicts becomes especially challenging, particularly when the parties are working together day to day in a business. The repercussions of this conflict may extend beyond the interpersonal dynamics, impacting the overall business itself, staff morale, and potentially jeopardising the quality of patient care.

Understanding the Reasons Disputes Occur

Understanding why disputes occur between partners of a medical practice is an essential first step towards avoiding conflict. One common reason for disputes is diverging visions for the practice. When individuals form or join as co-owners of a medical practice, they each bring their unique perspectives on how the practice should operate and evolve. Over time, these differences in vision can become increasingly prominent, leading to disputes if not properly managed.

For example, we had one client who ran a clinic and had a big vision for the business, they wanted it to grow and flourish. Their business partner, however, was very happy with the status quo, they had some family considerations, including a sick child and they were unwilling to invest the profits into the growth, as they felt they needed distributions rather than growing a bigger practice, which they saw as potentially a bigger headache to manage.

Financial disagreements are another significant catalyst of disagreements between owners. Conflict can occur regarding the distribution of profits, budgets, financial contributions, or investments. Similarly, perceptions or instances of unequal workload distribution can lead to disputes.

At times, a breach of fiduciary duties, or perceived breach, can cause discord. This can happen when an owner is suspected of placing personal interests above the best interests of the practice. Issues of trust and accusations of dishonesty can quickly escalate, posing a significant risk to the stability of the practice, and these allegations are often very difficult to back away from. These conflicts can lead to heightened emotions and when emotions are high it can make resolving disputes more challenging.

Navigating Conflict

Establishing proactive strategies to prevent disputes from arising or escalating can save your practice from unnecessary tension, fractured relationships, and potential legal costs down the track.

So, what steps can you take to prevent a potential co-owner dispute? Follow these four steps to assist you manage disharmony in your medical practice.

1. Creating and Reviewing Your Owner’s Agreement

You would be disappointed if we did not say that step one is a well-crafted owner’s agreement, it serves as the foundation for any medical practice. This document should outline the rights and responsibilities of all parties and, most importantly, include clear provisions for dispute resolution. When disputes arise, co-owners should revisit this document to understand the agreed-upon terms and procedures for conflict resolution. A comprehensive Owner’s Agreement should consider, but is not limited to:

Determining how major decisions will be made and how responsibilities are shared between parties;
Establishing a framework for the equitable sharing of profits among partners;
Defining protocols for the entry and exit of shareholders/unitholders;
Clarifying ownership rights concerning patient records, intellectual property and referral relationships;
Outlining ongoing funding arrangements to sustain the practice’s operations; and
Consider restraints of trade to ensure a fair business environment.

In addition, it is crucial to review and update practice policies and owner’s agreements regularly to adapt to changing circumstances. This proactive approach can help prevent potential conflicts by addressing issues before they escalate.

2. Establishing Effective Communication Channels

Step two is to develop communication rhythms in the medical practice. Regular and open communication is another key measure to help to prevent disputes. This includes not only discussing the day-to-day operations but also fostering a culture where practice owners feel comfortable voicing their concerns, ideas, and aspirations for the practice. Encouraging these discussions can help to surface and address any brewing issues before they escalate into major disputes.

3. Clearly Defined Roles and Responsibilities

Step three is clearly defining roles and responsibilities within the practice, ensuring this is clear can also prevent misunderstandings and potential disputes. When each owner knows what is expected of them and where their responsibilities lie, the potential for conflict reduces significantly.

Consequently, incorporating these proactive conflict prevention strategies will not only assist in preventing disputes but also cultivate a positive atmosphere among medical practice owners.

4. Leverage an Expert

Step four is to engage an expert at the appropriate time. When should you engage the assistance of a lawyer in a shareholder’s dispute? If conflict persists and internal resolution efforts have proven insufficient, engaging with lawyers can provide valuable guidance in navigating through the options for dispute resolution, ensuring an approach that aligns with the specific needs of the medical practice ownership. Waiting until disputes escalate can lead to prolonged tension, potential legal complications and damage to the overall functioning of the medical practice.

As we have always maintained, engaging legal assistance to prepare a comprehensive Owner’s Agreement allows to pre-emptively address and mitigate potential disputes before they arise. This proactive approach not only strengthens the business’s legal foundation but also contributes to a smoother, more collaborate working relationship among co-owners by setting clear expectations and guidelines from the outset.

Want to know more? Reach out to You Legal’s expert team today so we can review and update your agreements for you to ensure their legal compliance and appropriateness for your business.

Interested in purchasing a Shareholder’s Agreement for your Medical Practice? You can find our Fast Track Solution here.

Our team has extensive experience in providing legal advice and insights into best practices for preparing Partnership, Shareholder and Unit Holder Agreements. We have assisted many practices. To discuss how we can help you, contact our team here contact our team here, and we will put you in touch with the best professional for your needs.

Your Prescription for Conflict: Navigating Disputes Among Owners in Medical Practices