06 Aug The Practice Give-Away

Unfortunately, the following story plays out year after year. It goes like this…

Years ago, you decided it was time to bring an associate into your practice. You interviewed a number of candidates until you found the “ideal” associate for your practice. Of course, you didn’t know whether or not things would work out, so you both decided it would be best to work together for a while without a formal contract. The cost of a contract seemed so unnecessary at this early stage, and anyway, you are both professionals, what is there to worry about?

The associate was quite comfortable with the working arrangement. After all, he was not having to go into debt to start a practice. If the arrangement failed to make him enough money, he would not lose any of his personal funds. No risk, no pressure and no practice management responsibility made this arrangement a perfect situation for the associate. And, since you still owned your practice and you were still “in control”, you were quite comfortable with the arrangement as well.

Your staff really liked this young doctor. You felt that bringing him into your practice was a major plus. And, things could not have been better. You began to take a little more time off without losing money because of the profits you were making from the associate’s production. Your associate was getting busier and the practice was steadily growing. New patient flow was increasing rapidly because the associate was attracting patients from his generation so younger patients were beginning to come back into your practice. Your existing patients really liked the associate a lot as well and most did not seem to mind that you were not in the practice as much as you used to be. It didn’t bother you when you realized that you and your staff were referring to your associate as your partner, even though he really was not a partner. After all, you still “owned” the practice and were still “in control.”

As more time elapsed and the associate’s speed improved, you began to take even more time off. You took up golf and also began to hunt and fish again. Appearing to have unending energy, your associate easily picked up the potential production dropoff that would have been created by your decrease in clinical time.

Enjoying more and more free time and seeing the practice continue to grow, you were even more convinced that the associate was the perfect addition to your practice.

You were very pleased with his attitude, his work habits, his eagerness and desire to learn, his overall treatment of the patients and his great relationship with your staff and your patients. You became increasingly sure that the associate was the right “heir apparent” to take over your practice when you were ready to sell.

For whatever reason (typically because of informal past chats with the associate), one day you decided that the timing was right to have a discussion with your associate about having a formal agreement drawn up that would clarify your working relationship and also the specifics on how your associate would acquire your practice one day. However, you were surprised to discover that the associate was not very enthusiastic about the idea. He said: “I think everything is running smoothly and I love it here, why bother with an expensive contract to state what we both know is destined to happen anyway?” He reassured you even more by telling you that the two of you were on the exact same page about him buying the practice when you were ready to sell. You thought about it and were happy with this verbal commitment. Since everything was indeed running smoothly, you decided not to push the issue. After all, why rock the boat? Your clinical time was way down and your income was way up. And, you still “owned” the practice and you were still “in control.”

The relationship continued to be great for several more years now and you decide that it is the time to reward your associate by selling your practice to him. You and he talk and you reveal your plans to him. You show him that you had recently had the practice appraised and also revealed what you felt was a fair price and terms for a sale to him (which was lower than the appraised price).

To your complete shock, your associate tells you that he had also been considering this and he might be interested in buying your practice, but only on HIS terms and at HIS price. He also tells you that he would only be buying your practice out of “the goodness of his heart” since he really did not need to buy your practice due to several reasons:

• He explained that he already had a relationship with all of the patients he brought into the practice and does not have to buy that part of the practice anyway. He explained that these patients didn’t know you at all.
• He explained that if you should quit practicing, he felt like many of YOUR patients would relocate with him if he decided to move on. He had met and treated all of them at one time or the other. He said he could simply send a notice to all the patients of the practice informing them of his new practice location.
• He further explained that, in his opinion, it is very unlikely that any other doctor would buy your practice because they would fear that he would take most of the patients with him. He stated that your practice had very little, if any value, to anyone other than to him.
• He also told you that he had a good idea that the staff would follow him if he decided to set up a practice down the street (probably already knows this to be true).

And, finally he told you that he feels he is in a prime position to “negotiate” a great deal for himself. He felt that he can set the practice price and that you will have no choice but to accept.

You sat their in complete shock trying to comprehend what you had just heard! You remember thinking to yourself that the associate was both ungrateful and conniving. You asked yourself: “How could he do this to me after all I have done for him?”

As shocking as this would be to any of us, realistically, we must try to understand the associate’s perspective. A long-time associate like this one feels that the host doctor has made a fortune from the associate’s labor for years. In addition, the associate’s friends, family and advisors have been telling him that he should leave and open a practice of his own. They have told the associate how selfish of the host it would be to not just turn ownership of the practice over to the associate, instead of selling the practice, after all the service the associate had given the host through the years. The associate begins to figure he has already paid for the practice in terms of “sweat equity.” So, in the associate’s mind, he is neither conniving nor ungrateful; he truly believes he is right!

What the host doctor never realized is that while he still technically owned the practice, his associate was gaining ownership over the patient base because the host was becoming less and less of factor in the practice! The true value of a practice is in the relationship between the doctor and the patients, not in the equipment and building. The host made it very easy for the associate to develop those strong ties to the patients.

This patient relationship is compounded by the fact that when patients see two doctors working together, they generally perceive the new doctor as a “partner.” The associate is usually younger than the practice owner, so patients think this new doctor will ultimately take over their treatment when the current owner retires. This perception is probably even promoted by the associate and perhaps even the staff as a means of preparing the patients for your eventual retirement.

As previously stated, this scenario happens year after year. It happens to unsuspecting doctors as well as those who were made aware of the risks beforehand by PARAGON. Of course all of this could have been prevented with a contract between the doctors. But for some reason, no one believes it will happen to them. Would you not like a better scenario for you and your practice? There are many good ways to bring on your “heir apparent” that do not jeopardize your practice value. Call PARAGON today for a complimentary consultation and we will show you how to avoid this problem!