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  • Private Practice Contract - Please Review


    Hello, I am a GI fellow in the West Coast, received a contract offer that I am hoping for advice with.

    Job Description: GI Private Practice, low to medium cost-of-living area in Southwest US (according to bestplaces.net, the area is 35% cheaper than Washington D.C. and according to smartasset.com, it is about 5% cheaper than Minneapolis). The area is great for raising families (have 3 young kids) and I have close relatives and friends there. I like the partners, and there is a lot of ancillary support in the clinic.

    Call: About 1:10. Cover a few hospitals in area. Probably, moderately busy but not horrible.

    Initial salary: $410k. No bonus. It appears that all of the partners make equal amount regardless of their production (see below), so I don’t think they really track production on a per-provider basis.

    Other benefits: Relocation expense of $5k (no signing bonus), Annual personal expense fund of $10k that would get reimbursed (includes CME registration and travel, books/journals, vehicle [not exactly sure how that works, but needs to be used for business]). In addition, not related to the $10k expense fund, the following expenses are completely covered: License fees, malpractice including tail, health insurance with $0 premium

    Retirement Plan: Unclear. There is a 401k but not sure when I can start putting money into it. Not super concerned about this right now, I can always figure out my own saving vehicle until partnership.

    Partnership: 18 months, includes buy in to ASC and real estate. Buy in must be completed over 2 years –but as soon as partnership achieved, can start getting the dividends even if buy in is not complete. Equal pay among all partners, which reportedly is approximately $750k per year. Buy in amount itself is unclear to me, but I heard might be around $700k, and it seems I can defer my bonus to pay the buy in thus it would not be taxable (need to clarify this).

    Non-compete –1 year. Void if they don’t offer partnership or terminated without cause. (I don’t really care about this; not a lot of other groups in the city, so if I were to leave before partnership, I would either have to move to a new city or do locums for a year, neither of which I want to do. As a negotiating tactic, could I increase it to 24 months in exchange for something I really want?)

    Other info; Spouse would also be making likely ~$100k. No other offers. Few to no other options in this area, so not sure if I can or would get another offer. (I realize this is a bit of an issue)

    Overall thoughts/questions: I am fairly happy with this offer, and definitely plan to negotiate but not sure but of course have standard reservations primarily related to PE-acquisition. As has been discussed many times on this forum, unlikely that much can be done about that but at least my non-compete would be null if partnership is not offered. Have reached out to Contract Diagnostics already.

    Please let me know if you have any additional questions, and thanks for your input.
    GastroMastro
    Member
    Last edited by GastroMastro; 12-06-2019, 02:42 PM.

  • #2
    I'd like to preface with the fact that I'm not GI so have no idea how the actual numbers compare but...


    Originally posted by GastroMastro View Post
    Overall, it is well-run practice and cannot imagine practicing in a better environment.
    You have no way of knowing this at this point.

    Originally posted by GastroMastro View Post
    It appears that all of the partners make equal amount regardless of their production (see below), so I don’t think they really track production on a per-provider basis.
    At least in EM, I find that no production incentive can breed laziness and resentment. Humans need some incentive.

    Originally posted by GastroMastro View Post
    Retirement Plan: Unclear.
    This needs to become crystal clear.

    Originally posted by GastroMastro View Post
    Buy in amount itself is unclear to me, but I heard might be around $700k
    This also needs to become crystal clear.

    Comment


    • #3
      Originally posted by CordMcNally View Post
      I'd like to preface with the fact that I'm not GI so have no idea how the actual numbers compare but...




      You have no way of knowing this at this point.



      At least in EM, I find that no production incentive can breed laziness and resentment. Humans need some incentive.



      This needs to become crystal clear.



      This also needs to become crystal clear.

      Thanks for your comments. Fair enough on the "well-run practice" comment; I took that out. That being said, what I meant was "it is exactly the type of practice environment I want to be in".

      As for the buy-in, my understanding is that no one ever gives the actual buy in amount until the practice is valued at time of buy-in, so how could this ever become "crystal clear" at time of contract signing?

      Comment


      • #4
        Originally posted by GastroMastro View Post

        As for the buy-in, my understanding is that no one ever gives the actual buy in amount until the practice is valued at time of buy-in, so how could this ever become "crystal clear" at time of contract signing?
        Seems a little shady. Who does the practice valuation? That doesn't sound cheap and seems unnecessary. Do they give you a copy of the complete report and is it done by a neutral entity? If you don't get a copy of the report then I'd bet they just kind of make up a number and go with that.

        Also, the answer of "that's how we have always done it" is not a good answer.

        Comment


        • #5
          Glad you're getting a contract review. Cord makes some good points. Do they put the call expectations 1:10 in the contract? Before you become ptr in anything, you also need to know the buyout/transfer provisions.

          Equal amounts with no expectations can backfire. Not uncommon for the senior partners to expect to slow down, get same $$, and take less call. That w/b a concern for me, seen it happen.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

          Comment


          • #6
            The value of a share of a practice is always changing. You can ask them what the estimated buy-in would be right now. They should be able to give you a ballpark of the value of their assets minus their liabilities. You can ask what the last partner bought a share for. Our partnership spun off some real estate last year. That division of assets reduced the value of a share of one of partnerships. We also just added an MRI, so things change.

            Regardless, they should be able to tell you how the value is calculated in the past and if they are planning on using the same calculations in the future.

            To me, the offer looks pretty good. The most important thing is the culture and if the practice is what you are looking for lifestyle-wise. For a private practice, it appears to be a pretty good offer.

            Comment


            • #7
              Originally posted by CordMcNally View Post

              Seems a little shady. Who does the practice valuation? That doesn't sound cheap and seems unnecessary. Do they give you a copy of the complete report and is it done by a neutral entity? If you don't get a copy of the report then I'd bet they just kind of make up a number and go with that.

              Also, the answer of "that's how we have always done it" is not a good answer.
              The practice valuation is done by the accountants (contracted by but separately from the practice) but the real estate is appraised by an independent appraisal company. I don't know about the report part - there would be a separate parter contract at the time of buy in so I would have to due a separate due diligence at that time.


              Comment


              • #8
                Originally posted by jfoxcpacfp View Post
                Glad you're getting a contract review. Cord makes some good points. Do they put the call expectations 1:10 in the contract? Before you become ptr in anything, you also need to know the buyout/transfer provisions.

                Equal amounts with no expectations can backfire. Not uncommon for the senior partners to expect to slow down, get same $$, and take less call. That w/b a concern for me, seen it happen.
                They don't actually put the call in the contract, which I will ask them to do.

                As I mentioned the partner contract would be separate at time of buy in. For the buyout, basically, you can buy out any time, and you are forced to buy out at time of retirement (ie, can't hold on to those dividends to give to your spouse/family).

                The senior partners, if they don't take call they have a contractual penalty for their take home bonus, so fortunately that is accounted for.

                Comment


                • #9
                  Originally posted by HandFellow View Post
                  The value of a share of a practice is always changing. You can ask them what the estimated buy-in would be right now. They should be able to give you a ballpark of the value of their assets minus their liabilities. You can ask what the last partner bought a share for. Our partnership spun off some real estate last year. That division of assets reduced the value of a share of one of partnerships. We also just added an MRI, so things change.

                  Regardless, they should be able to tell you how the value is calculated in the past and if they are planning on using the same calculations in the future.

                  To me, the offer looks pretty good. The most important thing is the culture and if the practice is what you are looking for lifestyle-wise. For a private practice, it appears to be a pretty good offer.
                  They do go into extensive details on how it is calculated, in the contract. I believe the last partner bought in for about the 700k I mentioned. Ultimately I will make sure they give me a ballpark, but not sure how valuable that is given that a) it wouldnt be in contract b) assets can change

                  Comment


                  • #10
                    Originally posted by GastroMastro View Post

                    As for the buy-in, my understanding is that no one ever gives the actual buy in amount until the practice is valued at time of buy-in, so how could this ever become "crystal clear" at time of contract signing?
                    The methodology and basis of the calculation can be defined.
                    Equal compensation leads to the assumption of equal work.
                    Fear of PE, consider an acceleration clause for change of control.

                    The "unknowns" do not need to have a specific answer, the goal is to have in the contract you are going to get a fair shake and how that is determined. Don't just blow it off. Ask for clarity of your expectations in writing. Without it in writing, "fairness" can be very one sided.


                    Comment


                    • #11
                      Originally posted by Tim View Post
                      The methodology and basis of the calculation can be defined.
                      Equal compensation leads to the assumption of equal work.
                      Fear of PE, consider an acceleration clause for change of control.

                      The "unknowns" do not need to have a specific answer, the goal is to have in the contract you are going to get a fair shake and how that is determined. Don't just blow it off. Ask for clarity of your expectations in writing. Without it in writing, "fairness" can be very one sided.

                      Since several posters have commented/inquired about the buy-in calculation methodology, I will try to summarize what is in the contract:
                      Sum of all bank account values, accounts receivable, investments, and original price (minus one-half of the depreciation) for all tangible assets, this value is multiplied by the percentage of ownership I am buying into (ie, x0.10 if there are 10 partners).

                      How much more specific would one want/need to get in the associate contract?

                      Comment


                      • #12
                        Devils advocate: FMV is not necessarily close to book value. Are the financials subject to any CPA review? I am NOT telling you this is poor wording. Accounts Receivable may be uncollectible (disputed items never written off), investments may have gone south and have a greatly impaired value and represent only the original cost, fixed assets may not reflect the physical assets on hand, may have old items still in use that are no longer being used and simply have not been written off.
                        This may be 100% a fair method, but you have no assurances that it is the lower of cost or market or of value. I am sure you have heard the term "cooking the books".
                        The mechanics are there, but no assurance of accuracy. Even a statement of fair valuation would be prudent as well as access for review. It very well may be a non-issue.
                        Just an example of due diligence you would need to do when buying a business (100% or10% it's real money buying in.

                        Comment


                        • #13
                          Originally posted by Tim View Post
                          Devils advocate: FMV is not necessarily close to book value. Are the financials subject to any CPA review? I am NOT telling you this is poor wording. Accounts Receivable may be uncollectible (disputed items never written off), investments may have gone south and have a greatly impaired value and represent only the original cost, fixed assets may not reflect the physical assets on hand, may have old items still in use that are no longer being used and simply have not been written off.
                          This may be 100% a fair method, but you have no assurances that it is the lower of cost or market or of value. I am sure you have heard the term "cooking the books".
                          The mechanics are there, but no assurance of accuracy. Even a statement of fair valuation would be prudent as well as access for review. It very well may be a non-issue.
                          Just an example of due diligence you would need to do when buying a business (100% or10% it's real money buying in.
                          All good points - regarding the accounts receivable, they have a clause for taking into account "bad debts" and reimbursement limitations of payers.

                          Again, how much negotiation on the terms of buy in can one really do now anyway? This is NOT a buy in agreement, but just an associate agreement. There would surely be a separate buy in agreement.
                          GastroMastro
                          Member
                          Last edited by GastroMastro; 12-06-2019, 05:30 PM.

                          Comment


                          • #14
                            Weird how they calculate their asset value at time of buy in. Why not purchased value minus depreciation?

                            The equal share thing breeds laziness. I’d want a substantial percentage of my pay coming from production.

                            Do you determine how often or hard you work or is that determined for you?

                            Comment


                            • #15
                              Originally posted by ENT Doc View Post
                              Weird how they calculate their asset value at time of buy in. Why not purchased value minus depreciation?

                              The equal share thing breeds laziness. I’d want a substantial percentage of my pay coming from production.

                              Do you determine how often or hard you work or is that determined for you?
                              Thanks for your response. As I mentioned a few posts ago, they DO use purchased value minus depreciation, but the amount of depreciation would be calculated at time of buy-in date. However, you have a good point, they can project that depreciation out in the future because they use "straight line depreciation". Either way, are people on this forum actually getting a hard number for their buy in value at time of the initial, associate (employee) contract? Assets change. maybe they buy more assets in the time between now and my buy in. I am not arguing with your logic, just trying to honestly ask: Is it really that hard to believe a practice would wait until buy in before telling the buy in amount? If I were in their position, I would not commit to a buy in value at time of associate initial contract.

                              As for your question about how hard one works, they have a standard interval for all scopes across all partners, and for all clinic patients. So, I guess it is determined for me, but from what I saw when I visited, I was pleased with the workflow. As for breeding laziness, that is a concern of mine, but two things: 1)If they're making 750k+ a year, they're doing something right. How much more money do you need? 2) More importantly, there is NO competition for patients between partners and for the "good insurance" patients either. Isn't that something to be valued? I'm sick of competing for scopes between my co fellows, I don't want to do that my entire career!

                              Comment


                              • ENT Doc
                                ENT Doc
                                Physician
                                ENT Doc commented
                                Editing a comment
                                Valid points. The only way to counter the laziness issue is to fix people into specific schedules. If they have found the solution to that problem then so be it. Just understand that your capacity to determine your own destiny is thus limited.
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