What to know before signing on as a partner in a practice

By Naveed Saleh, MD, MS | Fact-checked by MDLinx staff
Published October 24, 2022

Key Takeaways

  • Partnering with a practice can come with benefits and drawbacks. Although compensation may increase, so could your exposure to financial risk.

  • Physicians partnering in a practice should consider all of its ownership interests, including property. They should also evaluate how their ownership claims would compare with others in the practice.

  • Ultimately, the choice as to whether or not to become a partner in a practice comes down to what the physician wants for their professional future.

When deciding whether or not to partner in a medical practice, physicians may want to focus not only on its current financial health, but also on its future prospects.

What considerations should you take into account when considering a partnership in a practice?

Is it a good idea?

MDLinx spoke with employment lawyer Kate Dewberry and business transactional lawyer Dave Krosner about financial and other factors to consider when hitching your wagon to a larger medical practice. Dewberry and Krosner are partners at Poyner Spruill LLP and work in the firm’s Health Care division.

MDLinx: Is becoming an owner in a medical practice—whether a shareholder in a corporation, member of an LLC, or partner in a partnership—a good idea?

Kate Dewberry: It depends on the physician and the practice. There can be significant financial upsides to partnership—typically, owners make more money than non-owners—but those upsides also come with increased exposure to risks.

"Partners have less financial predictability—meaning their income often fluctuates based on the performance of the practice."

Kate Dewberry

And their income may be distributed less frequently throughout the year than in the employment context.

There are also management responsibilities that come with the partnership role, and not every physician wants to manage a practice. Some prefer to just focus on treating patients.

MDLinx: What are some considerations that physicians should take into account before partnering?

Dewberry: Partnership is a long-term investment, so make sure you know the practice and its partners well and believe it’s a good long-term fit.

"Unlike a pure employment relationship, partnership can be more challenging to exit."

Kate Dewberry

As a member of a partnership, you can financially suffer from the actions of the entity. Ensure [that] there is significant investment in compliance and liability protections to protect you from the financial and legal risks associated with noncompliance.

What you want to know

MDLinx: What information should a physician request before partnering?

Dewberry: Find out what ownership interests the practice actually has. Some practices also own the buildings used by the practice, so a new owner would also want to ensure that they also become an owner of the real property entity. Physicians should ask for historical information on the economics of ownership, including past buy-in and distributions, historical financial statements, malpractice claims history, and so forth.

It's also important to assess the financial health of the practice and ownership interests of other partners in the practice to ensure the physician’s ownership interest is roughly proportional.

Dave Krosner: [They should request] information, if applicable, to evaluate the practice’s likely future ability to attract additional medical professionals. For example, if the practice is in a remote location or has historically struggled to hire needed medical professionals, that may make your future uncertain.

Red flags to watch for

MDLinx: What are some common mistakes you’ve seen occur in partnering?

Dewberry: If the practice has a history of high partner turnover, this is a red flag that you should further investigate. You should never become partners with someone who has a history of running off co-owners.

Krosner: Some common mistakes include becoming an owner of the practice entity but not, if applicable, also becoming an owner of the separate entity owned by the doctors that owns the building at which the practice conducts its medical [business].

"Another mistake is to agree on an overly broad non-compete [agreement] in connection with your ownership."

Dave Krosner

In smaller practices, becoming an owner but not having appropriate agreements—such as, in a corporate medical practice, a shareholders’ agreement, and in a limited liability company, an LLC agreement—that addresses your rights as an owner, how and when and at what value you will have your ownership later repurchased, and so forth.

Entering and exiting partnerships

MDLinx: Is it possible to dissolve a partnership? And why would a physician do this?

Dewberry: Yes. A physician can exit a partnership with a practice for all sorts of reasons. Sometimes, they want to retire, or just take a step back, in which case they might sell some—but not all—of their shares.

"Partnerships also may be dissolved if there is disagreement among the partners as to how to run the practice that cannot be resolved."

Kate Dewberry

MDLinx: In your opinion, are more physicians partnering?

Krosner: I'm not sure we can answer this hard and fast. This is more driven by personal decisions.

Many physicians want to become an owner of their medical practice, whereas others prefer to simply be employed.

"Some physicians want to work for a hospital system as an employee, while others express great reservation to working for a hospital system."

Dave Krosner

So, this really comes down to the personal preferences of the individual physician. That said, given the increasing regulatory burdens associated with practicing medicine, it is becoming harder and harder to efficiently and profitably practice in a small medical practice.

As such, we are seeing what we may call a “flight to largesse”—ie, practices becoming larger and larger, practices partnering with private equity-backed [management services organizations] which provide back-office services to the medical practice for a fee—or selling out to hospital systems and becoming employees of the hospital system.

What this means for you

A physician should carefully consider all aspects of a practice before joining it as a partner. The prospect of ownership may hold appeal, along with the chance to “be your own boss” and not work for a hospital system. Higher potential earnings are also alluring. But due to the potential pitfalls of partnering such as not becoming an owner of the practice’s real estate (such as its building), consulting with an attorney who specializes in healthcare may be advisable.

Read Next: Cashing out: Expert advice on selling your practice
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