Resolving partnership issues

How to keep doctor workload, compensation and other squabbles from killing your group practice.

There are myriad partner issues to resolve in any group ophthalmology practice, issues like compensation, minimum workloads and staffing. Most of these are nailed down at least generally in the written shareholder or partner agreement that everyone signs when they become an owner in a group practice. However, years or even just months after the contract’s ink has dried, it’s typical for questions and arguments to erupt.

John B. Pinto

It’s unlikely that every contingency will be covered in your original documents, and it’s incumbent upon every administrator of a large practice to secure a periodic legal audit to ensure the old contracts are still suitable to changing times and circumstances.

Partner issues most often arise because of just one disaffected or misbehaving partner or a small, like-thinking cluster of individuals in a large practice. Here are some of the most common issues I see bubbling to the surface as I make my rounds throughout practices in the country each year. Even in the strongest and most jovial settings, it’s common for one or more of these issues to fester.

How much of the practice should we each own?

There is no one formula for success. There are happy, stable practices that split the pie evenly, and equally happy practices with one majority owner and several junior partners. The argument for equality is more often existential than financial. It just somehow seems and feels more fair. Many doctors say, “We’re all peers. We’re all equals. Let’s all own the practice equally and balance out our different economic values in the compensation formula.”

With every passing year of field work, I must admit that the argument for equality weighs stronger on my mind. I’ve observed that practices with equality of ownership are marginally more tranquil than practices with differential shares or both junior and senior owners.

However, in some settings (because of wide differences in productivity, or the wariness of a founding partner) it can make sense to apportion ownership to each doctor’s individual productivity. After all, the logic goes, the doctor who is generating the most work, and in most circumstances is paying for the most overhead, should have a proportionately louder voice in the boardroom.

How should decisions be made?

Few new partnership or corporate documents initially cover decision-making in sufficient detail, so the group must fine-tune the rules throughout the years. In mature, amended agreements, there should be sufficient detail regarding how decisions are made to allow for unambiguous group and individual action.

This fine-tuning should set down the decision and spending authorities of department heads, individual doctors, the administrator, the practice’s managing partner and the board itself. Subject (as always) to the recommendations of your legal advisor, board votes should be categorized into at least two varieties: “small” decisions and “large” decisions (decisions with a higher cost, or great potential impact, such as the removal of a partner.) The former can be passed by a simple majority; the latter by a super-majority, for example, six out of nine votes.

If we develop a new building, optical business or ASC, should we all own it?

As a guiding principle, I strongly urge clients to share all practice business opportunities with all partners, even if some partners are not as involved as others. For example, if a multi-subspecialty group practice has a pediatric ophthalmologist who will make scant use of a new ASC, this doctor should still have an opportunity to buy into the unit. Of course, in many circumstances there should be an opportunity — but not an obligation — to partner in a new ancillary service.

For example, it would be unreasonable for a group of doctors in their forties to force a partner in his or her sixties to buy into a new office building. In some circumstances, it might also be unreasonable for the same doctors to force their younger partner who is just starting out to help pay for an expensive piece of new capital equipment.

What’s the best formula for how we get paid?

Every system under the sun has its proponents and detractors, from pure equal-split to pure “eat-what-you-kill” and everything in-between. There are literally hundreds if not thousands of models. Depending on the individual practice, one methodology is usually better and fairer than the others.

But check the same practice in a year, and odds are great that something will have changed to make the adopted system now less fair. That’s why I urge larger and more dynamic client practices to formally review their compensation formula at least annually, and meanwhile, to allow any doctors who think they’ve been put at a disadvantage to come to the board at any time for a more timely review.

How are new patients assigned to each of us? What are the boundaries, if any, on our personal scope of care?

I didn’t think much about this topic until a few years ago, when I heard that one physician in a group practice was paying off the front desk staff to steer surgical patients his way. Your practice should have formal, written receptionist and phone staff rules for how patients are assigned. Your practice should also have significant group discussion and some formality when it comes to which doctors get to provide specific subspecialty services.

My favored approach is to simply say, “Each optometrist and physician in our practice is allowed to provide any and all eye care services for which he is appropriately licensed and trained, subject to the oversight of the practice’s medical director and peer review.” Arrangements to shunt subspecialty care to only the doctors fellowship trained in that discipline may leave the practice overly dependent on a single key subspecialist, and the other doctors blocked in their professional growth.

How should practice resources like marketing, staff and technology be apportioned?

Since at least the advent of refractive surgery more than 15 years ago, internal practice battles have raged over who is going to get the largest ad budget and the best staff. The resource allocation winners have often been those doctors with the longest tenure in the practice or the greatest political backing, not those with the best business plan for a new and profitable patient service.

As fees fall and expenses rise, it’s important to rationally fund each new opportunity, not based solely on its backer in the practice, but based on its potential for a reasonable return.

How far should one partner’s personal collections be allowed to fall before the doctor must revert to being an associate?

This question is the flip side of the question at the start of an associate’s career — how high must an associate’s production rise before he or she can “make partner?” There is no easy answer to these two related questions.

Even after an employee-associate has been in the practice for 2 or 3 years — the most common pre-partner trial period — he may lack the productivity to support not only his own salary, but his buy-in.

As a broad generalization, the math works out this way: once an associate rises above (or a partner falls below) personal collections equivalent to 50% of the average of the total group, a transition in status is indicated.

So for example, if three partners and one associate practice together, and the average collections of the three partners is US$700,000 per year, and the associate collected US$350,000 or more in the past 12 months, he might reasonably be a candidate for partner. It gets a little more complex with a senior physician, of course, who may have an intangible “rainmaker” value as a continued partner in the practice, even after his personal productivity falls below 50% of the average. Every situation deserves individual review and individual rules.

All these various areas for potential conflict work together, obviously, as a collective package deal for each partner. With so many overlapping issues, each physician’s true feelings may be masked during negotiations.

The role of a managing partner in conflict resolution

There are practical limits to what even the most astute practice administrator can do to get practice partners to the negotiating table on these tough issues. Well-intentioned efforts by an administrator to be the mediator can end up with one or more partners who are now not only angry with their colleagues but also with their manager.

Both the reality and appearance of neutrality is critical on the part of the administrator. The practice’s managing partner or medical director should be the first to step into the breach when partner discord looms.

Of course, the fundamental contractual recitals of the group’s governance model and legal documents must be sound and scalable, with periodic guidance by your attorney, so they fit the increasing size and complexity of your group. Accounting and finance counsel also have a critical role in partner conflict resolution, especially if the practice’s finances are weak. Strong practices may have a little extra time on their side to work out partner problems. But if financial performance is eroding, you may need to either table or markedly accelerate the resolution of partnership problems so you can deal with imminent collapse of the business enterprise.

For Your Information:

• John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. Mr. Pinto is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice and the new book The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees. He can be reached at +1-619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.