Questions To Ask A New Partner Prospect
by Keith Borglum

Most new physicians join a practice without first giving it a thorough history and physical. Here's a checklist of questions to ask about any new partnership or office sharing prospect.

How many newly trained physicians eagerly join up with a seemingly thriving practice, only to find after a year that it's not at all what they expected? Plenty, in my experience. On top of that, what if the new physician tries to leave and finds out that she's expected to pay "her share" of a large new piece of office equipment? By asking all the pertinent questions up-front, before you join the practice, you can save yourself a lot of aggravation. First, it will help you to avoid joining the wrong practice. Secondly, knowing your rights in the practice ahead of time will help you or your partners avoid dragging each other to court several years down the road.

The checklist (at the end of this article) is a good starting point for the physician considering a practice, and can be adapted to fit almost any partnership or space sharing situation. I'll go over each point in detail to help explain how it might apply to your next interview.

Compatibility

First and absolutely foremost is compatibility between you and the practice itself-the physicians, the staff, the systems. Does it feel like a comfortable environment for you? If you can't stand the partners now, chances are you won't be able to stand them a year from now. I strongly encourage all new physicians to visit a practice for at least a half-day or full day so you can give people a chance to show their true selves, rather than their "interview personalities". Even the most successful business will not overcome the incompatibility problem.

Check References

Here's another step that many new physicians skip and later learn to regret. Call the medical director or chief of staff of the hospital where the physician has privileges and say that you're considering joining the practice. If the feedback is positive, you'll know it. If it is lukewarm or guarded, you'll be able to read between the lines. Will the physician be offended that you're "checking him out"? Absolutely not. You asked him for his references, he should expect you to contact them. I've also noted that references should be checked on both sides.

Carefully assess the financial health of the practice. Ask the partners for a copy of their recent income and expense statement. This type of report can be easily generated by a practice. If they won't share the statements, don't join. If they can't produce them ask yourself whether you're walking into an antiquated practice with no interest in becoming modern. Or, ask to speak with the practice's accountant and have that person go over the numbers with you. For an unbiased opinion, you can have an independent practice management consultant analyze the income and expense statement.

Is the practice growing, or declining? Is the partnership in need of a new associate because it's overwhelmed, or because it's slowing down and the incumbent physician is looking to retire and have you buy it off his hands?

Division of income and expenses

This is rarely a straightforward issue. Are you going to be an employee for a time, or a true partner? Most practices pay a base salary plus a percentage for productivity: for example, $90,000 base plus 30% of all gross receipts over $200,000. By offering these incentives the practice is asking you to demonstrate an ability to manage volume and build a practice. Are the incentives reasonable, or set so unrealistically that no newcomer could expect to reach them? Check our the turnover history of other associates in the practice to see if there's a revolving door after one year.

Basic formula-subsidies, deferrals, security: Will the members of the practice share income equally? This is sometimes not a good idea, because it rewards lack of productivity. How are expenses going to be divided up? Will the practice subsidize your expenses, or waive your expenses for the first year? What kind of security is there? If you decide after a few months that the practice is not for you, can you walk away without obligations? Or will you be expected to pay for some major overhead items? Some physicians include in their contracts a right to leave within the first year with a 30-day notice with no obligations.

Hospital Financial Assistance: Also, find out if the local hospital will subsidize recruitment of new physicians. Many will offer an income guarantee for the first year, and pay any difference between gross receipts and income. Some hospitals will provide relocation expenses. If you accept the terms, what are your obligations to the hospital?

Compensation to doctors for administration: For every hour of time spend in patient care are at least 6 to 10 minutes of administration. Is compensation built in to cover administrative time?

Shared Purchases in the Future: Would the office equipment be better off in an antique shop? If so, what are the plans for major purchases in the future, and to what degree are you expected to foot the finances for these purchases?

Excluded Income: One of the partners spends 24% of his time on staff at a nursing home, another is compensated by the hospital for her role as medical director. Is this considered income for the practice, or excluded? For the sake of fairness, many practices throw everything into the same pot, focusing on how the physicians' time can best benefit the group.

When Paid/Reserve Deposit: When are expenses paid? Are there any reserves in case the building needs new plumbing? Are there deposits on leased equipment that would go back to a particular partner upon its return? If so, would you get a portion of it if you made half the equipment payments?

Disability/Death Obligations: An area where your lawyer would obviously be involved-what happens to the practice in the event of one partner's death or disability? Whose property is it, and what does that property consist of?

Other financial issues

Equity Balancing and Documentation: How do you balance any equity that already exists? This is applicable when two practices are merging. The practices should be appraised, by the same appraiser. If the equity in Doctor A's practice is judged to be worth $50.000 more than the other, Doctor B might compensate Doctor A with more stock. Furthermore, if ownership of the equipment is not to be totally shared, that "what's mine and what's yours" should be documented.

Buy in/Payout Formula: Are you expected to eventually buy into this practice? Is one partner planning to retire and expects to be bought out by the other partners? If so what kind of payout would be expected?

Transferability of HMO Contracts: A very important consideration that many overlook is the transferability of any HMO or managed care contracts. What if a practice gets the majority of its patients from one or two health plans, but the plans are closed to accepting any new physicians? Don't just accept the word of the partners that you will be accepted into the managed care plan, get it in writing from the plan itself (phone confirmation is not usually safe). Some plans actually have too many doctors and are waiting for some to retire to thin the ranks. If you cant' confirm your acceptance, you may have to keep looking for another practice.

Compensation for Call Coverage/Nonmember Plans: If two or more groups of doctors join up to form a partnership or corporation, how can their retirement plans be linked? How will existing equity in other retirement plans be affected? In these situations, most practices would consult a benefits administrator or benefits attorney to link the retirement plans.

Sublet Full Services: If you are subletting office space, are you arranging to sublet the full services of the space, including instruments, paper and office supplies, electricity and other utilities?

Governance and decision making in the practice

Structure, Length/Duration, and Minority Rights: Who is in charge of the practice? Is there a senior doctor, or a president? Are there elections to determine this individual? How long do they retain this role? Many practices rotate this position on one-year intervals. What are the decision making rights of the physicians who do not have seniority?

Disagreements/Arbitration: If there are disagreements in the way the practice is run, how are they handled? Is there a protocol for arbitration?

Reporting/Meetings; What is the frequency of staff meetings? I often recommend that the key medical staff in a practice hold a status meeting every week, or a the least every two weeks. Less than that, and communication gets lax. Furthermore, all staff should try to get together in the same room at least once a month.

Relative in the Practice: It is not uncommon to encounter a physician whose wife has served as his office manager for the past 30 years. I have found that these arrangements with work very well (usually if the physician is solo)-or very poorly. With more than one physician in the practice, it is simply not possible for Mrs. Old-Timer to be fair and unbiased toward both doctors. How does the practice fire a family member? If you're considering joining a practice with nepotistic tendencies, suggest that the new physician should have the right to terminate the family member on a no-fault basis-no hard feeling, no repercussions-should it become necessary.

Management Responsibilities: Speaking of firing employees, what are your management responsibilities? Hiring and firing of employees? Reading all contracts? Who deals with the hospitals? Who's in charge of systems?

Restrictive Covenants: Some physicians leave a practice to stake their own territory in the community, only to find that their contract had a "restrictive covenant" prohibiting them form practicing within a 10-mile radius. Actually these laws vary from state to state, and may not be enforceable, so check with your attorney.

Systems

Access to Office and Hours: You're a night owl, but you find out that the lights in he building go off at 7:00 pm. Will you have free access to the office space, or is occupancy restricted to particular hours?

Access to Personal Space: Is you personal space an office, a cubbyhole, a bare spot on a desk? Some physicians function very well sharing a desk in a noisy environment-others need those four walls and a door to get through the day. Make sure you've seen what your personal space will be.

Personnel Issues: Is there a handbook for personnel? Is the office understaffed and the addition of a new doctor expected to make up for some administrative deficiency? Do employees have clear job descriptions? Importantly, do the supervisors handle the employees professionally, or are they at risk for a lawsuit in the making. If you observe a situation appearing to be sexual harassment, for example, bear in mind that you could be cited in a lawsuit even if you just joined the staff.

Call and Hospital Privileges: These are the questions that most physicians do think to ask. How many nights will you be on call, and will you get privileges at the area hospitals?

Patient Distribution: Patient distribution refers to how patients are divided up in the practice, and who gets new patients who call for an appointment. Do you alternate? Will all the new patients be referred to the newest physician on staff?

Phone Numbers: If the practice splits up, who gets to keep the phone number? This may sound petty, but many practices have gotten into bitter misunderstanding about this very subject.

Fee Schedules: How will the fee schedules of the practice by determined? Do you have a say in what the fees are and how they are set? Is the practice's schedule in keeping with the area, with the facilities? A practice management consultant would be able to help you address some of the letter questions.

Malpractice Insurance: Your attorney should help you evaluate the group's malpractice insurance coverage and whether it si adequate before you join the practice.

Training Schedule for New Doctors: Simply put, who's going to show you the ropes? Or are you just expected to absorb things through osmosis?

Practice Promotion: Last but not least, how does the practice plan to promote itself? Is there a plan for marketing or attracting new patients?

Many or all of these questions will be applicable to you when you seek out a partnership, corporation or even space-sharing arrangement. Can you expect the practice to be able to address all these questions in one sitting? Probably not, but the list serves as a starting point and may inspire the partners to sit down and work out some necessary details. I have consulted with countless physicians who didn't realize any of these issues could come back to haunt them in the future.

If the practice has a document that spells everything out on paper, wonderful! It's more likely that they may have the bare bones of an employment or partnership contract, 95% legal-ese and often out of date. You can work with your lawyer or a practice management consultant to list everything on the document that could impact you in the future.

If the partners in the practice balk at this kind of detail or say, "We'll work out all of that later," your response could be, "To be comfortable going ahead, I really need to know these answers." If you're a detail oriented person and they're not, the practice may not be a good fit for you.

Checklist for New Associate or Space Sharing Arrangement:

Use this checklist during interviews with practices where you are considering a partnership or space-sharing agreement. By covering all the bases up front, you will do much to avoid unnecessary conflict down the road, advises management consultant Keith Borglum. This checklist is adapted from his book Medical Practice Forms, available from McGraw Hill at 800.544.8168.

Compatibility

• Reference checks both ways

Financial

• Division of expenses
• Basic formula
  • Subsidies, deferrals, security
  • Hospital financial assistance
  • Compensation to doctor for administration
  • Formula for shared purchases in the future
  • Excluded income or expenses
  • When paid, reserve, deposit
  • Disability, death obligations and practice purchase rights
• Equity balancing
• Document equity contributions ongoing
• Buy in/payout formula
• Compensation for call coverage
• Nonmember plans
• Linked entity retirement plan issues
• Sublet full services
• Governance and Decision Making
  • Structure
  • Length/duration
  • Minority rights
  • Disagreements/arbitration
  • Reporting/meetings
  • Relatives in the practice
  • Management responsibilities
  • Restrictive covenants
  • Systems
  • Access of office and hours
  • Access to personal space
• Personnel
  • Handbook
  • Needs
  • Job Descriptions
  • Supervisor behavior and risks
• Call/privileges
• Patient distribution
• Phone numbers
• Fee schedules
• Malpractice insurance
• Training schedule for new doctors in office systems
  

Article for: Life In Medicine, September 1995 reprinted with permission

Author Keith Borglum is a consultant and medical practice appraiser with Professional Management and Marketing, 3468 Piner Road, Santa Rosa California 95401.

Keith is one of the few consultants in America to be accepted as a member of all of the following; the Institute of Business Appraisers, National Association of Healthcare Consultants, Society of Medical Dental Management Consultants (90-94), American Medical Association's Doctors Advisory Network, American Academy of Family Physician's Network of Consultants, and the American College of Physicians Managed Care Advisory Consultant Network.

Phone 1-707-546-4433 for consulting and appraisal information.

Permission is granted to reprint or quote any portion of this article provided that the author, firm, phone and city are named and two copies of the quoting journal are immediately mailed to the author at 3468 Piner Road, Santa Rosa CA 95401.