Radiology private practice shareholder status, explained

2018 11 27 18 22 2286 Corbett Daniel Rsna2018 400

You're considering joining a new private practice group, either straight out of fellowship or as a lateral move from your current practice. As you explore your options, there are many factors to keep in mind, and one of the most important is time-to-shareholder status, that is, when you can expect to become a partner. Understanding what influences time-to-shareholder status and what the ownership entails is vital in choosing the right practice for you.

Daniel Corbett of Radiology Business Solutions.Daniel Corbett of Radiology Business Solutions.

Ownership status is often referred to generally as "partnership," even though most medical corporations are not created as legally recognized partnerships. There tends to be a range of time required to work in the practice before being invited to have ownership status, and the range can be different for recently trained fellows compared with experienced radiologists.

In addition, this time-to-partnership range ebbs and flows with the job market and how difficult it is to recruit new radiologists. Along with ownership status, matters like vacation, benefits, relocation allowance, tail coverage, and even signing bonuses vary from group to group and region to region.

Some groups are willing to negotiate on some of these offerings, while others have firm limits in order to standardize contracts for new associates and shareholders. When reviewing shareholder, partner, or owner opportunities, understanding the "when" is rather simple, but the "how" can be tricky.

Ownership in private radiology practices can differ based on geography, group size, and group assets (for example, owning an imaging center). Geography plays a role in the length of time to be offered shareholder status and the buy-in cost due to the desirability of the locality. The more desirable the spot, the longer the ownership track and the (potentially) bigger the buy-in.

Some long-standing large metropolitan groups can have five-year partnership tracks and significant buy-ins not necessarily aligned with a recognized value of the practice. Some practices, often in more desirable locations, also factor "goodwill" into their ownership models.

In most cases, a goodwill factor in a radiology practice is unrealistic and unscientific, but these groups include it because they can get away with it. Some radiologists will pay any price to live in their city of choice.

Goodwill without hard assets and a business model to support it can be recklessly speculative, meaning that even if the group is solid and well-established, a private practice dedicated to hospital-based imaging (without its own centers) has virtually no value in the name of the company. Contracts to provide services at hospitals can end. These groups' main assets are their accounts receivable.

Most professional-only private practices with no assets tend to have simple accounts receivable (A/R) buy-ins, now a norm for the industry. Simply put, the new shareholder buys a personally proportional percentage of the A/R to become an owner. The formula is reasonable and predictable, with the collectible amount of aged A/R divided by the total number of owners.

Many practices allow the new owner to pay through pretax compensation deferrals, making the process simple and cost-effective. When the owner leaves or retires, she or he is bought out with the same formula in reverse. This ownership model is intended for the new owner to become "invested" in the practice.

We've also seen a hybrid model in which the time-to-ownership status in a nice location may be two or three years, but the buy-in is $1.00 (as is the buy-out). These practices focus on reasonable and fair compensation and are trying to attract people to share in the workload and the profitability of the business itself.

Things get complicated when groups own imaging assets such as centers with equipment. Correctly done, any outside imaging business should be separated from the professional corporation side of the practice, and there would be two different buy-ins for new owners.

The asset buy-in price should be determined by industry-standard business evaluation processes: land/building, depreciated assets, and a variable of earnings. Some groups offer ownership status in the professional corporation and outpatient business as optional.

In my opinion, this is the correct way, since some radiologists may not have the capacity for risk and others would welcome the opportunity to invest. If the outpatient business is a separate entity, it should not matter if some owners of the professional business are not owners of the outpatient business, as long as the opportunity exists.

Other groups make buying into the outpatient business mandatory or have the outpatient business comingled with the professional practice. Mandatory participation in any outpatient business should be seriously researched before committing.

Some practices with mandatory buy-ins for the outpatient business can be exploitive of new radiologists, whether separate or combined. These buy-ins can be large, have goodwill components that cannot be measured, and are sometimes made to be paid with bank loans. Unless you receive detailed profit and loss statements for many years of operation, be wary.

Some larger practices have centers that have experienced significant reimbursement decreases over the years, leading to reduced profitability. Understanding your return on investment is critical. Most good practices make hard asset buy-in data accessible to new owners before signing. Any lack of information or pressure by a practice is a sure warning sign.

I recommend any radiologist looking to join a new practice have a competent attorney and healthcare-centered certified public accountant review all documents, financials, and projections. When it comes to associate employment contracts, advise your healthcare attorney to generally review the document, give advice related to consistency, and identify any issues that seem unclear, inappropriate, or highly punitive.

Most practices seek standardization in their contracts and won't negotiate on standard language. It is not good for transparency when every radiologist has a different contract. For hard asset outpatient center buy-ins, have the contract reviewed by an attorney specializing in business contracting with experience in healthcare businesses.

Most practices do it right, and there are rarely any contracting issues. Still, I have seen some ownership agreements committing the new radiologist to many years of debt with a questionable return on investment.

The bottom line is if it sounds shady, run!

Daniel Corbett is the chief of business development for Radiology Business Solutions (RBS), a national radiology management and consulting company. He is responsible for client staffing and has been recruiting radiologists exclusively for the past 18 years, with 30 years in the healthcare staffing business. RBS has recruited more than 500 radiologists for management client practices and other independent radiology practices.

The comments and observations expressed are those of the author and do not necessarily reflect the opinions of

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