A medical practice buy-in opportunity is a true validation of the worth of a physician in private practice. A medical practice buy-in is a sign that, after a significant amount of observation, senior physicians deem him or her not just clinically proficient, but also a person worthy of joining in a partnership. It’s hard to imagine a greater accolade.
At the same time, a physician being offered a medical practice buy-in must make sure that the current owners will treat him or her as a peer in matters of corporate governance. The potential partner (or physicians’ attorney representing the physician) should examine the corporate documents, such as bylaws of a professional corporation or the operating agreement of an LLC, to determine if the physician being offered partnership will have the same vote (or any vote) in important decisions. In an entity with fewer owners, it would be appropriate for the new physician to be elected to the Board of Directors, or be appointed a manager of an LLC. For entities owned by many physicians, however, it isn’t unusual for there to be a smaller board of directors or management group. This makes good sense, since it isn’t practical to for a large group of physicians to have to make routine decisions. However, even in large groups, there should be certain decisions that require a majority of the owners to agree to (e.g., bringing in a new owner, selling the practice, assuming debt in excess of a reasonable threshold, etc.)
The physician should also review the shareholders’ agreement, or other documents concerning how owners are bought out. You would expect the medical practice buy-in price to be calculated the same way that the buy-out price is calculated.
If the price is being paid over time, there is sometimes a security agreement on the purchased interest – to protect the current owners if the new physician defaults on the purchase. When representing physicians in medical practice buy-ins, I try to ensure that the security is released as the ownership interest is paid for. Sometimes, all of the shares or membership interests are held as security until the entire purchase price has been paid.
The physician employment agreement is usually different for shareholders/owners as well. When I do a physician contract review for a shareholder employment agreement, I look at all the issues I normally review, but many times the biggest concern is that all the other owners have signed essentially the same agreement. If every owner is signing the same agreement, many sins can be forgiven!
Another concern in a medical practice buy-in is the financial stability of the practice. I usually ask for the latest filed tax returns in order to evaluate the finances of the practice. In reviewing the returns, I look for large, unsecured debt. A mortgage on the practice’s real estate is one thing, but a large line of credit can be worrisome. Did the current owners borrow money just to pay themselves? The last thing a new owners wants to do is assume a portion of indebtedness that doesn’t relate to an existing asset of the practice.
A medical practice buy-in is generally a great opportunity. But physicians must protect themselves when they take this step to assure that they are getting the deal they think they are getting.