Important Business Aspects You Should Be Aware Of When Considering Opening Your Own Practice
So, you’re considering opening your own medical practice. Apart from the medical skills and the actual practice of medicine, there are some significant business issues to consider. Let’s take a moment to go over what business aspects you should be aware of when considering opening your own practice.
Choosing A Location
The location of a medical practice can determine the flow of patients and significantly impact the revenues of a practice for the next 5, 10, 25 years. It is one of the most important things to decide when you are considering opening your own practice.
You will want to ask the following questions when determining a location for your practice:
- Is my practice located near a pool of patients?
- Will I buy or rent my office space?
- What kind of building do I want my practice to be located in?
Many physicians will locate their practice near a hospital or within a town or city which provides a ready flow of patients. As patients are the source of your income, this is the first and most crucial aspect you will want to decide on.
Once you have determined your location, you will need to determine if owning or renting space is best for you and your practice. It can be helpful to get together with a financial planner or accountant to project your practice growth before making this decision. You will be in a different financial position in ten years than you are on the day you open your practice, so you want to keep this in mind when thinking about how best to invest in your practice. You can put together some projections based on your first year or first six months of revenue. If you’re leaving a practice, you can put together some projections based on what similar practices or your previous employer’s financial projections were.
When you rent space or a building, you will be paying over a 5-, 10-, or 15-year period an amount that might end up being more than if you had bought your building or space. Property is going to be one of the highest costs that you’ll have when it comes to starting your own business. If you understand that your revenues will increase such that you would have been able to afford your own office or building, you can fast-forward 10-12 years from the date you start. If you purchase the building instead of leasing it or renting it, you will have paid off a substantial asset. That asset can be anywhere from $300 to over $1,000,000, which will allow you to use the equity in that property to grow your practice, purchase additional technology, or additional locations. Or, like many clients, you could reduce the work.
A lot of clients want to work less in 7-10 years than they are working now. If you own the building, your costs have gone down and you don’t have to generate as much revenue. When you’re starting your own practice, there’s a lot to take in and a lot of work. Taking the time now to really determine if buying a property is the right choice for you could save you a lot of money and work in years to come.
People often look back after 10 years of renting a building and regret not purchasing that building. When you pay rent, you are essentially just paying for the building without owning it. You aren’t paying toward owning the building outright, but you are paying monthly rent which will always remain a cost of your practice.
The last thing to consider for your location is what type of location you will buy or rent. These are some options:
- One-story stand-alone building
- Two-story building
- High-rise where you own or rent one of the floors
- An office space in a larger business building
You want your building to be convenient and accessible to patients. It should have ample parking for your patients and an entrance that is easily found. If it is located inside a high-rise or other larger office building, you will want to consider if it has elevators and wall signage to direct them to the correct door.
These all seem like basic things, but opening a medical practice can be overwhelming. There is a lot that goes into it and some small things can be overlooked or not given the appropriate attention in the course of that process.
Strategies Doctors Can Adopt Before Signing A Contract To Avoid Problems With Non-Compete Issues In The Future
There are several strategies that a doctor can use before they sign a contract. Ideally, you would hire an attorney to help you through this process. However, if you’re willing to advocate on your own behalf, below are some things you can do prior to signing a contract to prevent complications with non-compete issues in the future:
- Ask if there are any physicians that have left before and why the position is open
- Understand how they have enforced their non-compete in the past
- Get a copy of any contract you’re considering signing and have it reviewed with an attorney
You will also want to understand what that practice does from a business perspective in your area. Some things to find out are:
- Do they have other offices?
- Do they have other physicians?
- Is this a subspecialty that is unique and has a broader reach?
- Where do the patients come from?
- What is the footprint of this practice?
- What are the resources and the abilities of not just the contract language, but their expectations?
Understanding the practice and what your place will be within that practice is essential to ensuring you reach a non-compete agreement that works for you.
On Becoming A Partner…
If you’re signing on as an associate and hoping for an invitation to become a partner in a couple of years, you want to make sure that this is an achievable goal within this practice. Some things to ask to this end are:
- Have they previously invited associates to be partners?
- What is it like to be a partner?
- As an associate physician, would you have access to the partner meetings or the minutes of those meetings?
One of the mistakes that physicians make is that when they join a partnership or small business or even a hospital, the only information they see is the paycheck that they receive. They have a limited view of the expenses around them – the tools, technology, and the labor that they have interactions with.
Here are some things they don’t see:
- Costs of buildings
- Costs of the insurance
- Taxes – whether it’s a county tax, city tax, state tax
You want to have an understanding of all of this if your goal is to become a partner. Having access to partner meetings or their minutes could give a good insight into these aspects. Many times, however, you will need to ask questions about the practice to get to the information you need.
One way to get an understanding of the expenses and outlay that the partners or the business will face quarter-by-quarter is to ask for a burn rate. A burn rate is the amount of money that they spend versus the amount of money that they generate.
For example, a burn rate might show that a dental practice is paying out the same expenses each quarter but generating less revenue in the second quarter. This might be a cause for concern, unless they show that they generate most of their revenue in the fourth quarter, when many patients who have insurance which is a use-it or lose-it coverage are trying to get in before their coverage resets in January.
You want to have a firm understanding of what you’re going to be getting into and what you would be responsible for as a partner. It can be hard to get your arms around all of these costs, but it would be great to get a sampling of what you’re getting into before you sign a contract.
The last thing you could ask for is a copy of the operating agreement. If you’re joining a partnership or an LLC, they have to specify the rules of how they run that business. The number one argument that partners will have in any business is how to spend the money. The operating agreement should give you an idea of how those disagreements are resolved.
If you are joining a partnership, you will want to see how much of a vote you would have on how the money is spent; do you have a 20% share or a 50% share? How does the practice define who gets to vote for how they spend the money?
The practice has no legal requirement for them to share this information with you. If they refuse to share the information or speak openly about it to make some representations, this could be a red flag. You would have to wonder what they have to hide.
Strategies Doctors Can Adopt After Signing A Contract
There are several strategies that a doctor can use after signing a contract. First, you will want to review your non-compete clause to see what restrictions it outlines. Each state has different non-compete laws. Once you’re knowledgeable of these, you can plan how to recover in the event of a termination. For the most part, the two variables in a non-compete are…
- Geography – Restrictions on where you can work in a competitive position, limited by miles.
- Time – Restrictions on the length of time that must pass after you leave a position, from anywhere from six months to two years.
The next strategy you can adopt after you have signed a contract is to avoid problems with a non-compete. You can try to negotiate with the managing partners if you decide to leave.
Some social engineering strategies to employ to make negotiating easier are…
- Keep an open line of communication
- Try not to burn bridges
- Look for a solution that provides a win-win situation
There are many reasons you may wish to leave the practice, such as…
- You don’t get along with someone
- The practice is not a fit for your schedule
- The leave doesn’t work for you
- You believe you are underpaid
- You’ve gotten better offers and want to move on
- You may disagree on what software tools, technologies, or procedures are being used
Being in a contract can be a stressful situation when you are not being fulfilled in your work due to one or more of these complications. The best thing you can do is to seek out an open and honest conversation with the managing partners. Discuss what it may be like if you decide to leave, talk about what you can do to stay, and be open to their feedback or ideas.
Imagine the negotiation that’s going to happen in ten conversations. You’re not going to really accomplish much in the first conversation, the second conversation, or maybe even the third. What you’re going to do, however, is get information and ask questions. You are going to start gauging the response of the managing partner or decision maker at different points in the day or week.
If you continue to have the conversations, though, you are giving yourself a lot of room to listen, to pose ideas, to plant seeds, and to absorb information and compare it.
Sometimes people may say things that they don’t really mean and if you have the same conversation with them three weeks later, they might contradict themselves. You can make a note that the first response might have been rash or they didn’t really understand the question. In the art of negotiation, you keep having the conversations to learn how best to communicate with the deciding party.
Ultimately, your goal is to find a way to negotiate out of those two variables of your non-compete – geography and time.
The practice or the employer has to show that they have a legitimate business interest to protect and that’s why they want to keep you from competing against them. By your sixth, seventh, or eighth conversation, you should really have a good idea of what the legitimate business interest is of that practice and how you can carve out or negotiate to protect for them a large portion of that interest. This will still allow you to compete in the geography or within a certain time frame that suits your plan.
Legitimate business interest from a medical practice could include a couple of things:
- The list of patients
- The list of providers
- Contracts with hospitals or other physicians
- Information regarding their employees
- Their actual employees
A lot of non-competes include a non-solicitation, which means that they don’t want you to steal their employees. All of these are legitimate business interests in most states.
You may have played a larger role in bringing in patients they are trying to protect by…
- A friend of yours referred the patients to you
- Somebody that you brought to the practice referred the patients to you
If you can prove that you brought the patients to the practice, you may be able to carve out that source of revenue in a negotiation.
As an example of this, there was a physician who identified another physician provider who referred them to about 40% of his patients that he saw. Under the non-compete, that was protected information, so he brought this up to the managing partners. He told them that the referring physician was a friend of his from medical school and had referred them to 40% of his patients.
The first couple of conversations did not go well. The managing partners refused and were stuck by the non-compete. He suggested that his referring physician would no longer send them patients if he did leave the practice and the non-compete was enforced.
They eventually were able to work out a carve out where he was able to continue to see some of the patients that he had seen before, only from that referring physician, and that he would not be restricted from receiving any new patients from that referring physician at his new location.
Ultimately, it came down to showing them the business interest that they were trying to protect and identifying a number or the financial justification that made sense to them. He also suggested that any physician they hired to replace him would also be able to bring in a referring physician where they would have their own referrals.
The managing partners were able to see that it was in their best financial interest to let the physician go and release him to practice with his referring physician. This happened only after the physician was able to describe to them, in financial terms, the average revenue per patient and the life cycle of the patient.
For more information on Medical Business Law in Florida, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (813) 367-6874 today.
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