# What Every Doctor Should Consider Before Investing in a Medical Practice

Investing in a medical practice is frequently viewed as a significant and commendable achievement in a doctor’s career. It represents trust, valued impact, and the possibility for collective success. However, as attorney Dennis Hursh emphasizes in a recent episode of *The Podcast by KevinMD*, it’s essential for doctors to approach this opportunity with both eagerness and comprehensive research.

Below, we explore the vital insights from Dennis Hursh’s article and podcast conversation to assist physicians contemplating a buy-in offer.

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## The Importance of Buying into a Practice

Generally, a doctor embarks on their journey in a private practice as an employee, with the employment contract often indicating future partnership possibilities after a few years (typically around three years). If the doctor effectively integrates into the practice, they might receive an offer to become a partner—a position that entails increased decision-making authority, a share in practice revenues, and often ownership of related assets like real estate or additional services (e.g., labs and imaging).

**Advantages:**
– **Financial Benefits**: A partner can benefit from the overall success of the practice, not just individual billings.
– **Independence**: Partners have a more significant voice in business operations, mergers, and strategic initiatives.
– **Equity Growth**: Ownership presents a chance to build equity and reap rewards upon retirement or practice sale.

**Disadvantages:**
– **Risk Responsibility**: Partners are exposed to the risks of declining practice income or liabilities.
– **Productivity-Based Compensation**: Earnings may be more closely linked to personal output.

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## Crucial Aspects to Consider Before Investing

Dennis Hursh highlights the necessity of thoroughly evaluating various critical elements prior to committing to a buy-in:

### 1. Assess Corporate Governance Documents
– **Bylaws and Operating Agreements**: Confirm that your governance rights will align with your ownership percentage.
– **Voting Rights**: Be wary of structures that afford excessive control to founding members.
– **Tiered Partnerships**: Be alert to “junior partner” titles that offer diminished benefits and rights compared to full partners.

### 2. Analyze Shareholder or Operating Agreements
– **Buy-In vs. Buy-Out Terms**: The formulas for calculating the buy-in price should be consistent with those used for buy-out evaluations upon retirement or departure.
– **Asset Valuation**: Determine if the practice employs book value or fair market value for assessing ownership stakes.

### 3. Review Financial Stability
– **Tax Returns and Financial Statements**: These documents can unveil the genuine financial health of the practice.
– **Debt Assessment**: It’s vital to differentiate between sound, asset-backed debt (like equipment financing) and dubious debt, such as loans taken to artificially boost partner pay.
– **Profitability**: Assess whether current partners are earning sufficiently to warrant the buy-in cost compared to other job opportunities.

### 4. Clarify Employment Contract Terms
– **Equity with Other Partners**: Your partnership employment agreement should reflect similar terms to those of existing partners in areas such as vacation, salaries, and termination clauses.
– **Participation in Governance**: Especially in smaller to mid-sized groups, new partners should have appropriate influence in decision-making forums.

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## Frequent Warning Signs to Observe

Although most buy-ins are equitable and advantageous, Hursh identifies several red flags that should trigger further investigation:
– **Imbalanced Voting Power**: For instance, founders maintaining a 51% vote despite having only a minority ownership stake.
– **Unsustainable Financial Practices**: Practices that heavily borrow merely to sustain partner salaries.
– **Lack of Openness**: Practices that are hesitant to share governance documents or financial details during the initial employment phase.

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## Suggested Actions for Physicians

1. **Inquire Early**: During initial interviews or negotiations for employment contracts, ask about the pathway to partnership and request governance documents when possible.
2. **Consult an Attorney**: Hire a healthcare-focused attorney to examine all pertinent documents at both the employment and partnership stages.
3. **Assess with Objectivity**: Differentiate the emotional allure of becoming a “partner” from financial realities and long-term professional risks.
4. **Negotiate Diligently**: Ensure the terms of the buy-in (costs, voting rights, compensation) are reasonable and safeguard your future interests.

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## Conclusion: Embrace the Opportunity—but Verify First

Investing in a medical practice can be an outstanding career decision that brings substantial financial, professional, and personal benefits. Nonetheless, physicians must proceed with caution, equipped with knowledge and legal support. As Dennis Hursh suggests, celebrate the chance to join as a partner, but perform exhaustive due diligence to confirm it genuinely advantages you over time.

By meticulously evaluating governance, finance, and employment terms, physicians can mitigate risks and make the buy-in process a truly rewarding venture.

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