What You Owe a Departing Physician

April 1, 2008

Our primary practice is working on a cessation agreement to be used when a member retires or relocates. We are using the outstanding total A/R as of the date of termination multiplied by the gross collection percentage over the most recent 12 months. That number, the Collectable A/R, is then multiplied by a percentage to reflect the anticipated cost of collection. That number, the Net A/R, is then multiplied by the withdrawing member’s production percentage for his profit share allocation. Searching your previous questions and answers shows that for primary care a fair percentage ranges from 10 percent to 15 percent. Are these numbers still current?

Question: Our primary practice is working on a cessation agreement to be used when a member retires or relocates. We are using the outstanding total A/R as of the date of termination multiplied by the gross collection percentage over the most recent 12 months. That number, the Collectable A/R, is then multiplied by a percentage to reflect the anticipated cost of collection. That number, the Net A/R, is then multiplied by the withdrawing member’s production percentage for his profit share allocation. Searching your previous questions and answers shows that for primary care a fair percentage ranges from 10 percent to 15 percent. Are these numbers still current?

Answer: Here is a response from consultant Owen Dahl:

The approach and formula that is being used is fairly consistent: Total A/R x Collectible percentage (historical over the previous 12 months) = Adjusted Total A/R.

Departing doctor’s percentage or share of A/R is identified based upon compensation formula = Total eligible to be received – Cost of collection.

Using 10 percent is very common, but it could go as high as 15 percent. The key here is to talk about it and agree while everyone is working toward what is best for them. Once someone is actually leaving it will be more difficult since personal issues will get in the way. So using the range 10 percent to 15 percent and having the doctors agree to it is fine.

You’ll also want to decide on the time frame for payment. This could be over a period as short as three months or as long as quarterly over five years depending on the circumstances for the departure.

The remaining question is whether this is a guaranteed amount of payment (whether collected or not) or if it will be based entirely on collections from the departing doctors’ accounts. It is much easier to have a calculated, guaranteed amount, so the collections and worries then remain with the others in the group.