Introduction
Many physicians join a medical practice expecting to become a partner after a few years. However, when private equity buys your practice before partnership, that promised path to ownership can vanish overnight. Physicians can face renegotiated contracts, reduced benefits, or lost partnership opportunities. Understanding the risks and protecting your interests before signing an employment agreement is essential. This post explains the risk to employed physicians in private equity buyouts and what steps you can take to safeguard your career.
Understanding Private Equity Buyouts in Medicine
Private equity (PE) firms invest in healthcare practices to generate profits, often by consolidating practices, increasing efficiency, or restructuring operations. While PE buyouts can provide capital and operational support, they also change the governance and ownership structure of a medical practice. This can be a problem for an employed physician who is “paying their dues” and expecting to be made partner in a few years. When private equity buys your practice before partnership, this purchase effectively eliminates the opportunity they were promised. Being aware of this risk before joining a practice is critical.
The Risk to Physicians Expecting Partnership
When private equity buys your practice before partnership, physicians can face several challenges:
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Loss of Promised Ownership: Partnership agreements may be restructured or canceled.
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Contract Renegotiation: Employment contracts can change, potentially reducing compensation or benefits.
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Impact on Career Trajectory: Physicians may miss long-term equity or decision-making opportunities.
Real-World Examples of Partnership Loss
Many physicians have joined private practices with partnership promises, only to have those promises disappear after a PE acquisition. This highlights the importance of proactive contract review.
I recently represented a physician who was very happy in the practice. The physician was a few months away from partnership. The practice was owned by private equity when the physician joined, and the physician was on track to be offered partnership. In this entity, partnership meant that the practice would pay the new partner several hundred thousand dollars as a bonus, to allow a buy-in into the private equity entity.
Unfortunately, as often happens with PE, the entity which owed the practice was being purchased by another PE firm. Not only was partnership “off the table”, but the current partners each received several hundred thousand dollars for their interests. The employed physician was offered a mid-five figure “bonus” as an enticement to execute a new employment agreement.
Issues to Watch in Physician Employment Agreements
When negotiating physician employment agreements with a private practice, physicians should be sensitive to the concerns of the current partners. The practice of medicine should, hopefully, be a collegial endeavor. The fact that you made it through a 15-minute interview without being a jerk doesn’t necessarily mean that you can conduct yourself well when the inevitable pressures arise. Will the practice be able to maintain its nurses and MAs working for you, or will you be obnoxious? Will you get along professionally and personally with the partners?
Similarly, a private equity sale may be the furthest thing from the minds of the current partners, so not addressing this issue in the new physician’s employment agreement is understandable.
Nevertheless, physicians must protect themselves against the possibility that private equity will purchase your practice before partnership.
How to Protect Yourself Before Joining a Practice
Physicians can take several steps to minimize risk:
Review Contracts Carefully: Look for language on partnership eligibility and PE acquisition clauses. As I discuss more fully in my book on physician employment agreements, a lack of guaranteed partnership is not automatically a red flag, nor is a lack of language concerning the possibility that private equity may purchase the practice. Nevertheless, you should…
Negotiate Protective Clauses: These clauses can include buyout protections if private equity buys your practice before partnership. This may mean a provision that you will be granted partnership immediately upon a change of control, or a provision that you will receive the same payment as the partners receive if private equity swoops in.
Consult a Law Firm that Focuses on Physician Agreements: Experienced attorneys can help identify risks and propose safeguards. I may be a trifle biased here, but I think that using a firm that focuses exclusively on physician contract review will serve you better than simply searching for a physician employment contract lawyer near me.
What to Do If Private Equity Buys Your Practice Before Partnership
If a PE buyout occurs while you are already employed:
Assess Your Contract Rights: Understand what your employment agreement guarantees.
Negotiate Protections or Compensation: You may be able to secure buyout compensation or renegotiated terms. PE values the practice in large part based on the revenue it produces. You are responsible for a portion of that revenue , so it is in the best interest of both the current partners and the acquirer to entice you to stay.
Seek Legal Counsel: Experienced counsel can help protect your interests and ensure that you are appropriately rewarded for your services to date.
Conclusion
When private equity buys your practice before partnership, it dramatically alters the landscape for physicians expecting partnership. By reviewing contracts, negotiating protections, and consulting with an experienced physician’s attorney, you can protect your career and potential ownership opportunities. Don’t let a PE acquisition catch you off guard — take proactive steps before joining a practice.
