Partnership dilemma - help a dentist out

[Tooth Wizard]

Multiple doctor, multiple location dental group. There is much more to this story, but let’s keep it simple:

There is a pot of 2.6M to split between three partners for compensation. Last 12 months:

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices.

Enlighten me. Our group is at serious odds on how to split this money in a fair way. Please refrain from legal questions (yes, we have an operating agreement that needs reworking). I do not want to sway opinions, I can add much more to this story - but want to keep it simple for the forums sake.

In Partner ************************,
Tooth wizard

[triad]

867k/partner or whatever the operating agreement says.

[zlandar]

Sounds like someone wants to split the profit based on individual collections/hours. Other wants to equally split.

Time to have figured that out was writing up the partnership agreement. Doesn’t matter what sounds fair it’s whatever is in agreement.

[Tooth Wizard]

I knew everyone would ask about the operating agreement or what was currently in place. Without going into very thick detail - just assume there is no operating agreement in place. Take the information given and suggest how you would write a new operating agreement if you were a partner in this group.

Thanks all.

[doctorbone]

Eat what you kill. Divide up overhead based on utilization. Partner 3 should pay more overhead because he uses more office and staff.

[Tooth Wizard]

Eat what you kill. Divide up overhead based on utilization. Partner 3 should pay more overhead because he uses more office and staff.

Elaborate DoctorBone.
Are you saying that partner 3 would get 1.7/4.1M = 41.5% of 2.6M?

Also - we have a partner that would say that going between 3 offices and working more days relates to far more HR/PR/management time spent. It seems to me that could offset extra overhead. Thoughts?

[PedsCCM]

I would think (gross - 1/3 * fixed cost - % hours * variable cost) * % collections = pay might be reasonable for an eat what you kill model. 1/3 pot per person would also be reasonable but less my personal preference. HR/admin can be divided however y’all want.

i assume from your posts that you’re the higher producer. What’s your current operating agreement?

[Tim]

The unknown is the overhead. Looks like one partner might have all of one office and a share of the other 2, or not. Gotta tell me the logic behind the expense split. Three offices (or maybe more, it could be 5) generate some sizable expenses to be split. Tell me that and I'll tell you the profit. Sound fair?

[RDB]

I used the be a partner in a multi doc/multi location practice. We ended up at 75% of the compensation pool based on collections, the other 25% split evenly. We had HUGE variation in collections.

[Hank]

Is anyone poaching the best part of the payer mix? (Seeing most or all of the fee for service patients while foisting the Medicaid patients to the junior partner(s)?)

Is there any reason that the front office or the collections person is going after accounts receivable more or less aggressively for one doctor vs. the others? (A spouse who is office manager, treatment coordinator, or billing & collections could make this especially egregious.)

I'm inclined to divide overhead by days worked and profits linearly with collections. You could just spread overhead and profit proportionally with collections. Any expensive materials like implants, bone grafting, or prosthodontic lab fees that one doctor incurs at a disproportionate rate? Arguably 168 hours of rent benefits all doctors. (Do one or two of the dentists own more of the building than another dentist?). Having front office staff to field phone calls during more of the week should benefit all docs. Having dental assistants work more days per week while one doc works almost four days per week and the others work fewer than three days per week would seem to benefit the doctor who works more hours and perhaps he or she should pay more of that cost.

You haven't mentioned hygienists. Who sees the hygiene patients, who performs the dental exams when other docs are out of the office, how many columns of hygiene are you working per day and per week? If the first two docs are working Monday, Tuesday, and then knocking off work earlier or later on Wednesday and the other doc is covering all day Thursday and Friday or maybe even covering Saturday, that's a very different scenario than one doc working 3.75 hours per week and the other docs combined covering Monday through Friday or even the occasional Saturday.

All of this is pretty complicated. Is anyone trying to build up his practice or ramp down from being super busy? Anyone hungry to pay off student loans or build a nest egg for a down payment on a house that seems to keep moving out of reach?

You want to have a mostly eat what you kill practice with some degree of socialized "we're all in this together" incentives. You don't want anyone to be taken advantage of. You want to provide the opportunity for mentorship, growth, and getting faster hand skills (especially for new docs) while maintaining high standards of diagnosis, ethical and effective case presentation and acceptance, and high quality treatment and surgery. Suffice it to say that there are a lot of moving parts here. A good faith desire to negotiate well with the other partners and to create win-win incentives for doctors and staff is key.

Sorry if that's sort of rambling without a clearcut recommendation for how to divide the overhead and collections, but all of this is complicated. (It's more complicated if you throw in key man insurance, buy-in and buy-out clauses, and provisions for building and equipment ownership and possible 401(k) profit share and a defined benefit plan for the practice.) In general, if someone wants to take a productive CE course that will add a new surgical skill and some additional profitable CDT codes, then that doc should be able to have the practice pay for the CE in lieu of salary / draw / cash compensation, but then reap the rewards of the additional procedures he or she now can perform. Not taxable income to the doc taking CE, but an expense to reduce taxable income for the practice.

Sounds like you and your partners should think about this a bit, meet after work over a few drinks, and perhaps give it a weekend or two to think about the best win-win way to structure things so you all can be more productive, swamp overhead costs, and all take home more than you currently do.

[AR]

Here is what I would do.

1. Calculate the exact overhead cost each doc is responsible for. Even this will be debatable, but do your best.

2. Subtract that cost from each persons 12 month collections. This will leave you with an adjusted collections amount for each partner. We will call those numbers X, Y, and Z for Partners 1, 2, and 3 respectively. (i.e. Z = 1.7 million - Partner3's actual overhead costs; perform the same calculation to get get X and Y for Partner1 & Partner2)

3. Pay each partner as follows:

Partner 1 = X/(X+Y+Z) * 2.6 million
Partner 2 = Y/(X+Y+Z) * 2.6 million
Partner 3 = Z/(X+Y+Z) * 2.6 million

[doctorbone]

The key is figuring out how to divide up overhead. Eat what you kill incentivizes hard workers. You can also assume that the partner who works 3.75 days uses more staff than the other partners, thus paying more overhead. You can divide up rent equally because you still have to pay it whether someone’s in the office or not. Can do the same for the front staff.

I don’t think equal distribution is a long term solution. This will breed resentment, especially the doc who’s working more days. I guess you could divide up hygiene revenue evenly since the patients will need cleaning no matter which doctor is in the office.

[Otolith]

Based on your example overhead looks to be about 1.5mil
Based of time worked

Partner 1 pays 25%
Partner 2 pays 32%
Partner 3 pays 43%

I would vote as a group to adjust overhead by 1-5% for managerial positions or working in a location that others don't want to work or is less efficient.

[CordMcNally]

What do the three partners want to do? My guess is that there is not an agreement at this point. It’s going to get messy creating an agreement at this point because at least one person is going to think they’re getting screwed.

[jhwkr542]

50% evenly split + 50% based on collections net of overhead