Building a physician partnership that lasts: Why structure matters before problems start

Physician partnerships can create real value. Shared ownership spreads risk, builds negotiating leverage with payers, makes it possible to invest in equipment and staff and gives talented physicians a reason to build a career in one place. But a partnership is only as strong as the structure beneath it. Many practices form partnerships with enthusiasm and a handshake, then discover years later that nobody agreed on how decisions get made, how partners are paid or what the group wants to become.

The good news is that most partnership problems are predictable, and most can be prevented. Here is what physician owners should think through to build a partnership that works, and keeps working, as the practice grows and changes.

Ownership is more than an investment

It is tempting to think of physician ownership as a financial arrangement: a physician holds an interest in a practice and receives a share of the economics. In reality, ownership puts a physician inside a complex organization with many moving parts. Every owner is tied to:

• Other physician owners
• Employees who depend on the practice
• Patients who trust it
• Financial obligations such as debt, leases and payroll
• Governance arrangements
• Compensation structures
• Clinical responsibilities
• Business relationships
• Plans for future growth

A well-designed partnership addresses both the economics of ownership and the practical realities of working together. A structure that looks fair on a spreadsheet but ignores how people will actually make decisions, share workload and resolve disagreements will eventually fail. The reverse is also true. Strong relationships cannot make up for an economic framework that leaves partners feeling shortchanged.

Separate pay for work from the rewards of ownership

One of the most useful steps a partnership can take is to distinguish between the different ways an owner earns money. Physician owners typically receive some combination of three things:

Clinical compensation. Payment tied to the physician's clinical productivity or other professional services.

Management compensation. Payment for administrative or leadership responsibilities, such as serving as medical director or managing partner.

Ownership economics. Distributions or other economic benefits that come from owning part of the business, regardless of how much that individual physician personally produces.

When these categories blur together, confusion and resentment follow. A partner who carries a heavy administrative load may feel underpaid. A high producer may feel that ownership distributions subsidize colleagues who work less. A partner nearing retirement may not understand why their income changes as their clinical schedule shrinks.

Keeping the three categories distinct helps every owner understand what they are being paid for. It also makes conversations about change much easier. Adjusting how clinical work is compensated is a different discussion from changing how ownership distributions are shared, and the group can address each on its own terms.

Governance: Decide how you will decide

Ownership without a workable governance structure creates problems. Governance is the set of rules that determines who has authority, how the group makes decisions and what happens when partners disagree. A partnership should be able to answer questions like these:

• Who makes major decisions?
• What requires a simple majority, and what requires unanimous approval?
• How are new partners admitted, and how are partners removed?
• How are capital expenditures approved?
• How are changes to physician compensation approved?
• How are disputes resolved?
• Who has day-to-day management authority?

These questions are far easier to answer when the group is calm and aligned than in the middle of a conflict. A practice that has already agreed on a process for approving a major equipment purchase will handle that decision smoothly. A practice that has not may find itself arguing about the process and the purchase at the same time.

Governance also needs to evolve. A partnership agreement that worked well for three physicians who trained together may not work for a group of 15 or 20 owners with different specialties, career stages and expectations. Consensus decision-making, which comes naturally in a small group, can become paralyzing in a large one. As the practice grows, owners should revisit their governance structure rather than assume the original arrangement will scale.

Choose partners deliberately

Adding a physician to the ownership group is one of the most consequential decisions a practice makes. A new partner represents both an opportunity and a long-term commitment, and the decision deserves more than a gut feeling about whether someone is a good colleague. Existing owners should consider:

Strategic fit. Does this physician support the practice's long-term direction?

Clinical fit. Does their skill set complement the existing providers, or duplicate it?

Financial contribution. What revenue and expenses will this physician generate?

Recruitment risk. If circumstances change, how difficult would it be to replace them?

Governance. What voting and decision-making rights should come with ownership?

Future planning. How does this physician fit into the practice's plans for succession and growth?

The point is to be intentional. Practices that bring in partners without thinking through these questions often end up with ownership groups that are misaligned on workload, growth or vision. Those gaps tend to surface later, when they are much harder and more expensive to fix.

Partnership problems often begin before anyone leaves

Many physician groups assume that partnership trouble only arrives when someone retires or leaves. In practice, the underlying problems are often present long before. A practice can have a serious ownership problem even when every partner plans to stay for a decade. Common warning signs include:

• Partners disagreeing about compensation
• Unclear or inconsistently followed governance
• Different expectations about workload
• Disagreement about whether and how fast to grow
• Disagreements about capital spending
• Inconsistent treatment of different partners
• No clear framework for retirement or succession
• Heavy dependence on a single physician

Any one of these can be manageable. Several together usually signal that the structure no longer fits the practice. Addressing them early gives the group more options and keeps the conversation constructive. Waiting until a crisis forces the issue means making major decisions under pressure, when emotions and financial interests are hardest to reconcile.

Plan for succession from the beginning

Every partnership will eventually experience changes in ownership. Physicians retire, relocate, change careers or become unable to practice. A strong structure anticipates these transitions rather than treating them as surprises. Succession planning within a partnership can address:

• Retirement timing
• Future physician recruitment
• Leadership development
• Compensation
• Governance
• Patient continuity
• Financial planning

The groups that handle transitions best are the ones that talked about them early, while no one had a personal stake in the outcome. Establishing a framework in advance is far more productive than negotiating it with a partner who is already heading out the door.

Bring in your advisors, and know who does what

The legal documents that govern a partnership matter a great deal. Depending on the structure, they may include operating agreements, shareholder agreements, partnership agreements, employment agreements and compensation agreements. Legal counsel should determine the right legal structure and draft or review these documents.

A business advisor plays a different role: helping owners understand the financial and strategic implications of the structure they are considering. The business advisor helps structure the partnership before documents are created. Once the lawyer creates those documents and ensures the agreements are sound, the business advisor ensures the physicians understand what those agreements mean for how the practice will actually operate.

When a partnership may not be the right structure

Sometimes the question is not how to fix a partnership but whether partnership is still the right model. Practices change. Reimbursement pressures, capital needs and the demands of a growing organization can push physicians to consider other options, including:

• Merger with another practice
• A relationship with a hospital or health system
• A joint venture
• An MSO relationship
• A private equity-backed transaction
• A practice sale
• A physician-led management organization

A partnership problem can be a symptom of a broader strategic question. Owners who treat persistent friction as a signal to step back and evaluate the big picture often make better decisions than those who keep patching an arrangement that no longer fits.

Start with the whole practice

The most durable physician partnerships are designed with four questions in mind. What does each individual owner need? What does the ownership group need to stay aligned? What structure supports the financial and operational health of the practice? And will the arrangement still work as the practice grows and its owners change?

The goal is an ownership framework that is understandable, practical and consistent with where the practice is headed. Doing that work while the partnership is healthy is far easier than doing it after trouble starts.

If your practice is considering a new partnership, or if the warning signs above sound familiar, a candid look at your structure now can save considerable time, money and goodwill later.

Nick Hernandez is founder and CEO at ABISA, LLC.