Starting joint practice

[wcinewbie]

After seeing all the very bad partnership deals, I'm considering starting a private practice with a friend and colleague. Has anybody here done that before? Pearls and pitfalls?

Specifically, what are the different ways we can structure the corporation? How do we borrow money for start up costs? Does each doctor bring a separate pot of money to the table or do we take out a loan together? We are ophthalmology which is very equipment intensive so I think we would really benefit from a joint venture. We're considering opening in a busy metropolitan center so while we will be facing a lot of competition, we also will be able to pull from different niches.

[CordMcNally]

You can structure however you two agree but just make sure you spend just as much time on the dissolution as you are on the creation.

[mkintx]

More physicians should be starting their own private practice, so kudos to you. In Texas, the Texas Medical Association has a whole practice management staff that you can use for help with practice start up/consult. Maybe your state medical association has something similar? https://www.texmed.org/Template.aspx?id=4052

[wcinewbie]

That is awesome. We are actually looking at texas. How much does TMA charge?

[mkintx]

That is awesome. We are actually looking at texas. How much does TMA charge?

I think it varies based on what you need them to do. My friend used them to start up her practice and said it was great though.

[DavidGlennCPA]

I can only speak to the accounting/tax side of things but here's what I can offer -

Entity Choice - A common arrangement is to have the practice itself be an LLC or PLLC (depending on the state) and the practice is then owned by each doctor's entity (LLC or PLLC). When the numbers make sense, each doctor's entity can elect to be taxed as an S-corporation. It probably won't make sense until year 2 or 3 for the doctor entities to be taxed as an S-corp. This gives the practice flexibility to make allocations and distributions how they want while providing the benefits and S-corp can offer to certain situations.

Allocations vs Distributions - You need to decide how income/loss will be allocated and how any cash will be distributed. Know that these are two different things.

[wcinewbie]

Thank you for the tips DavidGlennCPA. Why is it common for practices to structure that way with the practice level corporation an LLC/PLLC and presumably owned 50/50 by individual doctor's LLC? Why not have the owner's own the practice directly since presumably the LLC prevents liability from moving upwards?

Is the accounting/tax side necessarily the same as medical / liability side? My spouse and I were drawing out a potential corporate structure of the practice itself being a corporation jointly owned with my practice partner taking an owners management fee (a percent of collections which would then be split by ownership 50/50). This company would then contract with our individual LLC/medical practice to provide management services and after direct and indirect overhead were assessed, the remainder would go back to the individual doctor's practice as the production component. Is this legal? The hope is that this corporate structure would shield each other from potential malpractice, fraud, or other liabilities spreading affecting the other partner and allow us to conduct our practice and business in whichever way we each feel most appropriate.

Any ideas who to talk to about this, how much it might cost, and whether this is something TMA may be able to advise on?

Thanks.

[Tim]

Not so sure but the advice you are seeking has multiple components:

• Medical practice - want independence
• Business - want independence
• Location- want shared expenses
• Liability- want independence

“The hope is that this corporate structure would shield each other from potential malpractice, fraud, or other liabilities spreading affecting the other partner and allow us to conduct our practice and business in whichever way we each feel most appropriate”
TMA or this forum can give you inputs on sources for tax and practice.
Like terms of entry, terms of overhead split, profit split, tax benefits and terms of exit.
You need legal advice and insurance advice for your potential liabilities. Even in Texas with its tort reform, it is difficult to use corporate strategies to avoid liability for controlled entities. Only an experienced an attorney certified in health in the state can give you advice. Just to point out, for the risks you mentioned, only a judge has the last choice. You seem to be wanting independent practices with some shared services (expenses).
One can view that as contract law, not a partnership. Consult a healthcare attorney.

[wcinewbie]

Thanks Tim. I think the line between partnerships and just straight contracts can be / are blurred. Were thinking about not just sharing location but administrative staff, insurance contracts, malpractice (is malpractice per doctor cheaper with more doctors?), equipment, emr, etc. We would then be free to run our individual medical practices however we'd like, how many techs to have, how much to pay them, how to bill, whether to comanage (whether to pay optometrists for referrals), whether to try cash pay Medicare patients for covered services, etc. I've heard of malpractice cases where the plaintiff sues both the doctors and the employer. Logically in the situation I describe the plaintiff would have no claim against the management company (all they provide is administrative services). Would this corporate setup not provide any increased liability protection? It is not practicing any medicine nor does it control the practices.

Would it be possible in this corporate structure to offer different benefits to the different doctors? (Each doctor would work for their own llc). Conversely, could the doctors participate in the corporate practices benefits like health insurance?

[Tim]

No clue. An attorney would need to advise on the liability exposures. Because they are related and controlled entities, it’s a legal liability question.
Deserves a legal opinion.

[wcinewbie]

With regards to start up costs, anybody know what kind of loans are available for joint startups? What is typical?

[Tim]

Personal funding is the best financial choice (that comes with risk and rewards).
SBA loans or hospital funding are the most reputable sources.
https://fundbox.com/resources/guides...nancing-loans/