Solved! ‘Who Should Pay for Our Office Renovation?’

February 1, 2009

A soon-to-be partner wonders who should pay for an office makeover necessitated by his promotion.

Q I joined a great practice a couple years ago and am set to become a partner next year. But right now, there isn’t any office space for me. I just use other physicians’ offices while they are at the hospital or in another office.

We are in the process of renovating to make office space for me; it will cost around $40,000.

So here’s the problem: Two senior partners (Drs. A and B) actually own the office building and the other two existing partners (Drs. C and D) pay rent. The senior partners consider the renovations part of the general practice overhead expense and want all of the current partners to pay for it. But the junior partners think the senior partners should pay, since they own the building.

What do you think would be fair?

A Practically speaking, I suspect that the practice already has an informal policy on such things. The precedent is just being overlooked because the cost of this project is relatively large. Here’s what I’m getting at: There must have been other upgrades to the space since Drs. C and D became partners, whether new window treatments, cabinets, exam tables, or chairs in the waiting room. How were those costs shared? The same logic would presumably apply here.

If no one likes that logic for this situation, your best bet is a compromise. As in so many instances of overhead sharing, this is more about negotiation than being right or wrong.

On the one hand, Drs. A and B would presumably stand to benefit more from the renovation than the non-owning partners should they decide to sell the space in the future.

On the other hand, all the partners benefit financially and in terms of call by having another partner join and be able to be productive in the practice.

One way to cut it down the middle in the name of fair compromise is for all the partners to pay in but to have Drs. A and B pay a higher percentage. Instead of a 4-way split with each partner paying 25 percent, Drs. A and B could each pay, say, 35 percent of the cost with Drs. C and D paying 15 percent each.

The bigger issue, obviously, is cultural. By asking the junior partners to pay rent, the senior partners set the stage for the “it’s not my practice” attitude they now resent from their juniors. They can’t have it both ways. They can’t play the “big dog” senior partners and simultaneously expect the newer partners to feel fully invested in the practice. You either have a hierarchy in all things or none. If Drs. A and B want the benefits of owning the building exclusively, then they really should bear the burden of costs to the practice related to the building structure. If, alternately, they want a practice culture where all the partners feel equally involved and share all the costs equally as a result, then they need to give up that privilege.

Drs. A and B could consider having all the partners buy into the real estate investment so that everyone has an equal stake in the physical space. Models that divide costs equally reinforce the sense that all physicians in the group should work as a team.

Another angle: What do you really use that office for? The trend these days is to share office space (two desks in one room) or to not use offices at all. Instead, there are stand-up work stations right by the exam rooms where physicians can complete documentation and return calls. These sorts of practices then typically have one “office” space that everyone can use for staff meetings, physician-patient conversations, and paperwork.

Every practice should use as much space as possible for revenue-producing activities. Indeed, every minute you spend in the office and walking to the office from the exam room space is time you aren’t producing revenue, strictly speaking.

You’ll really show something to your future partners if you press them on some of these assumptions. Whether they’ll appreciate your honesty is another matter, of course.

Pamela L. Moore is director of content and strategy for Physicians Practice. She can be reached for solutions at pam.moore@cmpmedica.com.

This article originally appeared in the February 2009 issue of Physicians Practice.