Avoid pitfalls, improve relations between management companies and partner physicians
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“All who think cannot but see there is a sanction like that of religion which binds us in partnership in the serious work of the world.”
– Benjamin Franklin
“The poor man who enters into a partnership with one who is rich makes a risky venture.”
– Plautus
In the beginning, there was the solo practice. A young doctor looked in the mirror and promised, “I’m going to work hard. I’m going to be ethical. I’m going to follow society’s rules for how a doctor behaves.” And with that, his contract was inked.
Later, the group practice was born — sometimes with a handshake and increasingly with partnership agreements, employment agreements, codes of conduct, personnel handbooks, loan documents and a battery of lawyers to keep it all straight.
Finally, in the current ophthalmologic generation, we have the corporate practice. Well, not fully “corporate” because the corporate practice of medicine is illegal in most states. Instead, we have “semi-corporate.”
These are elaborate arrangements between a doctor entity (owned by and employing licensed professionals — basically a shell company with no material assets) and a business entity (owned by investors, often called a management services organization, or MSO, which owns all of the tangibles, employs all of the lay staff, leases the facilities and does its level best to provide all of the resources doctors need to serve their patients).
This is the basis for most private equity (PE) firms today.
The anchor legal document is a management services agreement, or MSA, which outlines the duties of the MSO in serving the doctors and of the doctors in being served by the MSO. Because PE firms and other practice-buying MSOs are larger and more legally sophisticated (and, to be fair, are paying millions to buy their target practices), these MSAs can run to scores of pages and be more company friendly than doctor friendly.
As advisers, MSOs seek us out to craft a better MSA (or defend one), and doctors seek us out before a transaction to negotiate a better MSA or after a transaction when they feel the MSA is being violated.
Here is a non-exhaustive discussion of selected terms commonly found within MSAs that may be helpful for doctors considering a PE, health system or related transaction. This discussion may also be helpful to doctors who find themselves at odds with their corporate partner. What follows is not legal advice but practical, empirical common sense. In this grown-up world, before signing any contract, always consult your attorney.
1. What management services will be provided? The obvious answer is, “Everything we needed before we sold, we’ll need afterward.” Just the same, it has to be spelled out in enough detail so that the MSO is clear about its obligations and the doctors are clear about the practical limits to these obligations. For example, it is appropriate to say that phones will be answered by live operators at a central call center during all normal business hours and by an answering service after hours. It is not reasonable to say that your appointment schedule will always be 100% full.
2. Does the MSA discuss specific performance standards? In most MSA documents, the standard of performance by the management company is along the lines of “best reasonable efforts.” The document does not say, “We will provide three receptionists at the front desk” or “We will provide training and credentialing on fluorescein angiography.” It does not promise, “We will buy your favorite brand of hyaluronic acid” or “We will always give you four exam rooms to work in.” If any of these specifics are important to you, you should negotiate for them in advance. Unfortunately, details such as this are often overlooked in the hot pursuit of a deal. Think ahead.
3. How much or little control will the doctors have over practice operations? Most MSAs spell out the respective authority of the managers and the doctors. This is fine for most things. The managers at the MSO should be able to call their preferred vendor for a broken pipe or a new bank account. The doctors must obviously be able to decide whether a surgical complication is referred out or managed in-house. But that leaves a lot of gray area in which business and medicine have to collaborate. This most commonly arises with new technology. Is that shiny new laser the obliged community standard of care, like the doctors might assert, or an expensive, unproven gadget that will never pay for itself, as the manager might assert? So much in a modern practice only works through a collaboration of business and medical minds. The “suits” and the “scrubs” need to both weigh in on staff performance, exam room layouts and the content of practice marketing.
4. When can the doctors suspend medical services? During this COVID era, numerous disputes have surfaced between doctors and their MSOs about patient and staff safety. Make sure that in any documents you sign there is a circuit breaker so that if doctors feel that conditions are medically unsafe, they can order a pause in operations long enough to examine and correct any inappropriate protocols. This goes beyond pandemic thinking and extends to things such as the number and skill level of support staff employed by the MSO, the quality of instruments and the state of repair of testing equipment.
5. Are the doctors and the MSO on a fair and equal footing? Sometimes, not so much. For example, the MSO may have months and months to cure a violation of its obligations under the MSA, while the doctors have only a matter of days to correct their oversights. In the case of disputes, the jurisdiction for conflict resolution is often in the MSO’s corporate home state, not the practice’s state, so any unhappy doctor has the expense and inconvenience of traveling should a serious dispute arise.
6. Are there written protocols for the services provided by your MSO? In even the smallest practice, detailed procedures, consistently applied, are the key to quality care. These protocols and procedures should be written down, referenced in the MSA and agreed to in advance between the doctors and the management services provider. Such written standards provide an accountability document for both sides of the transaction, as well as a training guide and quality checklist for support staff.
7. What about long-range planning? PE firms and similar management service entities should be strategically on the same page with their doctors. Strategic planning can be simple and concise and address questions such as, “What’s our service area? Service mix? MD vs. OD provider mix? Target growth rate? If the doctors seek a comanaged OD referral cataract center, and the PE company wants to provide comprehensive care including primary care and dispensing in the region, who gets to choose?”
8. What kind of reporting requirements are present in the MSA? Thoughtful, successful practice owners are deeply curious about the numbers. “How many patients am I seeing? How many days does it take to submit my claims? What’s our net collection ratio?” If you want to stay successful, this curiosity should not change just because you have sold your practice. Indeed, wanting to know how the practice is performing becomes even more important: You no longer have control over staff performance, you probably no longer hang out at department meetings, and your personal income is typically directly indexed to your personal collections. As a nominal employee doctor, at the very least you need to assure that cash flow associated with your work is properly credited to your segment and your compensation is being correctly calculated. (We just completed a client review in which an associate MD was underpaid for 2 years due to an uncorrected clerical error. A six-figure shortfall is now in dispute. This happens more than you would like to know.)
9. How much longer will you remain in practice? Peri-retirement eye surgeons typically have the most to gain from a corporate partner who can fund a premium buyout and reduce business chores. It is easy, at 68 years old, to overlook a loss of control and monthly income if you have had a PE payday. You might be forgiven for signing off a MSA with scant review. This does not apply to the mid-career surgeon, however. The more years you have left to practice, the more important it is to understand the granular details of any MSA you sign.
- For more information:
- John B. Pinto is the author of several books on ophthalmic practice management, including John Pinto’s Little Green Book of Ophthalmology: Strategies, Tips, and Pearls to Help You Grow and Manage a Practice of Distinction, UP: Taking Ophthalmic Administrators and Their Management Teams to the Next Level of Skill, Performance, and Career Satisfaction (with Corinne Wohl), Simple: The Inner Game of Ophthalmic Practice Success, and Ophthalmic Leadership: A Practical Guide for Physicians, Administrators, and Teams. Available now for purchase at slackbooks.com. Receive 20% off with promo code PINTO20. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.
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