James T. Krupienski, CPA
The concept of being an employed physician as opposed to being part of ownership has shifted greatly in recent years. In fact, a 2018 AMA Physician Practice Benchmark Survey has indicated that for the first time, employed physicians outnumber their counterparts that own a practice – 47.4% to 45.9%. There are many factors that go into this shift, with one of the more telling being a generational shift in those practicing medicine.
The decision to be employed or buying into a practice happens for many physicians as they come out of the comfort of their residency and look to establish themselves in a specific marketplace. For others, it may be later in their career when they are looking at a position that may be more rewarding and a better fit for their long-term personal and career goals.
Ownership is most often considered in the terms of a private medical practice. It is important to note, that “employment” in terms of the marketplace and this article can mean employment at a local hospital or employment within a privately owned practice.
No matter what decision you make and regardless of the point in your career that you are making this decision, there are certain items that should be evaluated to ensure you are making the right decision. This article is aimed at helping to better understand the three primary areas that need to be evaluated and understood when making these decisions: Value structure, Business Operations and Finances.
When deciding which career path to take, most often the primary drivers are compensation, benefits and advancement. It is the value structure of the entity, however, that often drives your ultimate fulfillment with the position. Start with gaining an understanding of the history of the entity and its mission. Meet with and learn about the other physicians and employees that you would be working with. Do their values line up with your current, and future, desires? Finally, make sure that you have a clear picture of what the five- and ten-year plans are for the entity. This will help to ensure that the future is not expected to bring unknown surprises.
It is also vitally important to ensure that you have a solid understanding of the day to day operations of the entity. What is the current patient base and how does the community view the practice? Have technological updates, including electronic medical records been implemented or planned and are they adequate under the circumstances? How are new patients assigned to physicians and how is the call schedule divided? Will you be required to work on governmental holidays or not? While they may seem inconsequential at the time, these questions are all important to ensuring that there are no surprises after being hired.
Decision making is an area that is often overlooked. Will you be part of this process, or will you look to others to make decisions that impact your ability to practice? In both instances, how long can it take for decisions to be made? Are there months of red tape that need to be hurdled before anything can advance? Discussions with your peers and other employees at the entity should help to clarify these types of items.
To the extent that you are considering a private practice with the hopes of becoming an owner, there are additional factors that should be weighed. First, make sure you know how the practice is organized legally. This could have an impact on your exposure from a liability standpoint, as well as have very different outcomes regarding income taxes. Are there related entities, such as real estate investment companies or ambulatory surgical centers that the other owners participate in? If so, is there an opportunity for you to buy into these in the future?
Whether you decide to work for an entity as an employed physician, or venture into ownership, financial risk could be the biggest area of consideration. As an owner, you are liable for capital investment, guarantees on debt and covering day to day operating costs. While there may be some trades offs in decision making and culture, employed physicians are generally not responsible for the same level of financial risk.
First and foremost, you will want to review some basic financial data for the entity to ensure that it is financially viable and not overly saddled with debt. From a revenue standpoint, collection history and payor mix are critical. Make note that accounts receivable is not reported on the balance sheet of many practices who may report on a cash basis. As such, this will need to be reviewed independently, with a focus on the makeup of the balances, aging and days outstanding. While reviewing the financial data, try to also critically consider their need to bring on a new physician and whether the entity can support it.
Salary and compensation methodologies, whether as an employed physician or practice owner can vary considerably. As an employed physician, some practices and organizations will pay a straight salary, while others will include a production bonus if certain targets are exceeded. As an owner, there are many formulas that one may encounter. Some practices will split compensation equally, some will be 100% production based and others may offer a hybrid of the two. Additionally, stipends are often provided for administrative duties, such as acting as a medical director or for attending board meetings. Ultimately, make sure you know what you are worth and that you are comfortable with the compensation methodology being utilized.
Last, but certainly not least in the decision-making process is to perform a detailed review of the employment contract. Certain areas all physicians should focus on when reviewing these agreements include non-compete clauses (are they reasonable in terms of duration and distance), malpractice insurance coverage (who pays for this expense, including any required tail coverage) and the criteria for obtaining equity ownership. To the extent that equity ownership is being offered, this agreement should also spell out the cost to buy-in and be bought-out of the ownership interest so that there are no inconsistencies when that time should arise. The most important aspect of the agreement is that it is consistent with the offer that was made and agrees with how you were sold on the position. It doesn’t matter what was said once the dotted line has been signed.
One final piece of advice is to not make this decision alone. Reach out to your trusted advisors, including your accountant and attorney to help with the due diligence process, and discuss your decision with your family, as they will be the ones by your side on the good days and the bad. Deciding on where to practice medicine is a daunting task. By doing your homework, this could be one of the most rewarding decisions that you make over your lifetime.
James T. Krupienski, CPA
Health Care Services Division – Meyers Brothers Kalicka, P.C.
Member of HCAA – National CPA Health Care Advisor’s Association
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.