Group Considerations

February 1, 2007

I am a solo physician making $10,000 to $12,000 per month. Moonlighting adds some extra. I have an offer to join a practice for $120,000 a year. My accountant feels there are good benefits to having my own practice and suggests that if I do take the job, I should get a substantial goodwill payment, since some of my patients would follow me there. What would you recommend?

Question: I am a solo physician making $10,000 to $12,000 per month. Moonlighting adds some extra. I have an offer to join a practice for $120,000 a year. My accountant feels there are good benefits to having my own practice and suggests that if I do take the job, I should get a substantial goodwill payment, since some of my patients would follow me there. What would you recommend?

Answer: I will address the financial aspects in a moment, because you’ve framed the question in those terms, but I have to say this is actually more a career and style decision.

Do you like being master of your own destiny, or would you prefer to be subject to the whims of an employer? Or, to spin it the other way, do you like management challenges, or would you rather someone else handle them? You need to decide where you stand on these issues.

Now regarding the finances:

If I follow you correctly, your income at the new position would be roughly equivalent to your non moonlighting-inclusive income now. What you lose, then, is the chance to grow your income over time and to sell the practice at some later date to generate a windfall.

If you prefer the idea of working for someone else, I would suggest reducing the risk of the first concern by asking to start at a base salary (probably lower) and earn the rest through a bonus set by your productivity. Basically, if you can exceed the new practice’s productivity norm, it will get more money out of you, but you should share in the reward too. Usually, in these cases, productivity is determined by relative value units, or RVUs.

In terms of selling the practice later on, you might consult with people in your marketplace who focus on selling and buying practices (probably not a general accountant). Many primary-care physicians discover their practices actually have little value because there are so few possible buyers. In short, you might not be giving up much there, but you’d need to really research your market.

Some other musings:

If you consider joining the other practice, you need to get down to brass tacks. Is the $120,000 a year guaranteed? Does the practice already have productivity objectives in mind? Can you achieve them? How long is the contract? Three years? Five? What if the practice “gets” your patients and then fires you?

Ask to look closely at the practice’s financials and other management data. The partners may promise you $120,000 a year, but if it’s a sinking ship, you’d better know ahead of time. How will they insure an action that will most likely put the practice in the red? Will you have any power to influence the senior partners on decisions with which you disagree?

In short, you need to understand fully what you are getting into and not simply assume that $120,000 will start rolling into your bank accounts.

Note also whether you will have a full patient panel on arrival. Does the practice have enough staff to support you? And are its exam rooms sufficient to accommodate an additional physician?

Is paving a path to partnership floating in the back of your mind? If so, prepare now for this possibility by asking for the general outlines of the partnership agreement. Wouldn’t it stink if the partners’ idea of a fair buy-in is $2 million in cash?

Also, consider where you’ll stand with policy changes. If the practice makes decisions that you think put your income or the safety of the patients at risk, do you have any say? For example, what if the senior partners might unanimously decide they each want four full-time RNs to work for them? You may not be able to walk away from a certain amount of management responsibility since, in the end, your income will depend on it.

As for the new practice affording you goodwill, well, the partners aren’t really saying they will buy your practice, are they?

You certainly can suggest a sign-on bonus based on the patients you’d expect to bring with you. Make sure, though, that this motivates the physicians at the new practice; they may want a new doc because they have too many patients already.

Assessing the value of goodwill is truly a market-based issue, as lack of an interested buyer means there is no goodwill. And goodwill value for buying a practice outright can range from 5 percent to 28 percent of the practice’s collections over the previous year.

So I’d recommend you dig as deeply as possible into the new practice, the market, and your heart, and conduct as much due diligence as possible before making any final decisions.