Average amount for Buy-In

[foxtrot]

For those of you on the partnership track or who are already partners, what is the average amount that you contributed to the buy in? I ask because a group where I recently interviewed has a buy-in of $80,000 over 2 years after you are offered partnership in a year. This seems rather high to me but the group is stable and everyone in the group is a partner. Any opinions appreciated.

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[Pilot Doc]

For those of you on the partnership track or who are already partners, what is the average amount that you contributed to the buy in? I ask because a group where I recently interviewed has a buy-in of $80,000 over 2 years after you are offered partnership in a year. This seems rather high to me but the group is stable and everyone in the group is a partner. Any opinions appreciated.

There's not going to be any useful average number because what you're buying is a share in a business and it's totally dependent on how profitable and stable the business is coupled with the desirability of the location.

If it really is a good group, that strikes me as reasonable. In particular because you get an up or down vote on partner after just a year. Compared to a 3 year partnership track that is financially equal, you have a lot more security.

You will presumably be on the receiving in of many more buy-ins going forward which will soften the blow somewhat.

 

[jwk]

The group I used to work for was a true percentage buy-in. They determined the value of the practice on a given day, determined each current partner's share, and then the new guy ends up buying his percentage from the other guys. Likewise, when someone left the partnership, the current partners end up buying him out.

 

[fakin' the funk]

As a brand new PGY-1, this is a bit of a far-off concern, but can someone break down for a noob (or point to an appropriate thread about) all this partnership/buyout/group mumbo-jumbo?

 

[sevoflurane]

For those of you on the partnership track or who are already partners, what is the average amount that you contributed to the buy in? I ask because a group where I recently interviewed has a buy-in of $80,000 over 2 years after you are offered partnership in a year. This seems rather high to me but the group is stable and everyone in the group is a partner. Any opinions appreciated.

Not knowing what the economy is going to do in the next couple of years, it is possible that after your "buy-in" reimbursment will be hit pretty good. Essentially you could be maiking the same as you would be making as a non-partner in a couple of years.

I passed up some great gigs that had 2-3 year partnership tracks. Instead I went for a 1099 position which gives me full cash flow and equal voting on decisions regarding the anesthesia department I work for- From day one. I make just as much as the guy sitting next to me at the round table who has been with the hospital I work at for 30 years. Down the line I will probably go to a w-2/partnership track, but for now the difference between the two gigs more than exceeds 100k a year (x2 since my wife is also a member of the LLC). This is a tremendous benefit to us as we owe about 225k each on student loans.

I'm not knocking at partnership tracks at all, in fact I would prefer it. For me, it just made more sense in the short term (3-4 years). Until the economy stabalizes a little and the future clears up a bit, I'm doing what I can while the gettn' is hot.

My 2 cents.

 

[Pilot Doc]

As a brand new PGY-1, this is a bit of a far-off concern, but can someone break down for a noob (or point to an appropriate thread about) all this partnership/buyout/group mumbo-jumbo?

First KEY concept that many residents don't understand, if you are working in private practice you are the owner of a small business. The concept of salary, benefits, etc is misplaced. You are no different financially from a guy who owns a dry cleaner or a McDonald's. You have a product you sell, you have expenses to pay and you keep what is left over.

In most groups, you begin as an employee of the group - in which case you are paid a salary, get bonuses, have benefits, etc. After some period of time, you can become a partner. (In most cases you are not a true partner but a shareholder in a corporation) As a partner, you will typically receive some base salary fairly similar to what you made as an employee. Periodically (monthly or quarterly) the practice balances its books, takes any profits and distributes them to the partners. If the practice has a bad year for some reason - it comes out of the partners bonuses.

Someone who wants to own part of an anesthesia business has to compensate the owners somehow. The typical way to do this is to work at a reduced wage for a period of time. 1-3 years is fairly common. The buy-in in this case is hidden. Say they pay you $250K but you bring in $290K to a 10 man practice. You are essentially paying each partner $4K/yr for your share of the business. After partnership you'll presumably make $290K.

In the situation described by the OP, you make partner (or don't) after 1 year and then pay the group $40K/yr for the next two years.

The buy-in to a group, either through a formal process or a parternship track at reduced salary, varies substantially depending on the desirability of the group.

A group whose income/work mix is much higher than average in a desirable location will command a substantial buy-in. There are stories of 5-7 year partnership tracks at low salaries in some places.

A group with an average income/work mix in an average location will have a much shorter track - 1 to 2 years at a good salary.

A group with substantially below average income/work mix and an undesirable location will not be able to retain people and will generally resort to locums, an AMC (anesthesia mangament company - a multisite anesthesia staffing corporation) or hospital employment. These are the places that offer "partnership from day one." What that means is that all the anesthesiologists are equal in that they are all employed by someone else who reaps the overall profit (or loss) from the group and you are an employee, not a business owner.

 

[BLADEMDA]

"Until the economy stabalizes a little and the future clears up a bit, I'm doing what I can while the gettn' is hot."


Brilliant Move.

 

[Pilot Doc]

For a company stock price, $80,000 sounds a bit high unless the value of the AR's are included in the company stock price.

Understanding that 1) you are an attending with experience and 2) I am a resident, how can you say that knowing nothing about the practice?

 

[fakin' the funk]

First KEY concept that many residents don't understand, if you are working in private practice you are the owner of a small business. The concept of salary, benefits, etc is misplaced. You are no different financially from a guy who owns a dry cleaner or a McDonald's. You have a product you sell, you have expenses to pay and you keep what is left over.

Awesome...thx.

Where I was at for med school, the anesthesia dept was a big group that got bought out (or somesuch) during my 4 years there and became employees of the hospital. Does this reflect a "lack of desirability wrt income, pt mix, and location" or just a tendency for academic groups to become hospital employees nationwide?

 

[Pilot Doc]

Awesome...thx.

Where I was at for med school, the anesthesia dept was a big group that got bought out (or somesuch) during my 4 years there and became employees of the hospital. Does this reflect a "lack of desirability wrt income, pt mix, and location" or just a tendency for academic groups to become hospital employees nationwide?

I'll get to your question a bit later. First a few other key concepts.

1) One of the most profitable endeavors in healthcare is owning an operating room. It is a HUGE cash cow. A hospital's OR typically subsidizes everything else in the facility. This is also the reason that every surgeon and his brother is opening a surgery center.

2) Though the recession has altered the situation some, for the last 10 years or so, the demand for anesthesiologists has outstripped supply

3) Medicare and Medicaid pay very low rates for anesthesia. While they don't pay anyone well, anesthesia bears a dramatically worse differential than any other specialty


Putting the above 3 together you have a situation where hospitals have a huge incentive to keep their OR's running at full capacity. In order to attract an adequate number of docs, they have to make good money. At most hospitals (including 100% of academic hospitals) the government vs. private payer mix doesn't support "good money" so the hospital subsidizes the anesthesiology salaries.

In most private hospitals, a single anesthesia group contracts with a hospital for the right/responsibility to provide all anesthesia services within that hospital. The negotiations for exactly what that entails at what price is a BIG issue between hospitals and anesthesia groups. Occasionally, negotiations break down, the old group loses the contract and some new arrangement is put in place. One form that can take is the hospital hiring anesthesiologists as employees which - in perception or reality - gives it more control and/or less cost for the anesthesia services it needs.

Getting back to your question of why your med school anesthesia dept changed. Could have been a lot of things. Most likely the group couldn't provide the staffing the hospital wanted or the hospital thought they were paying them too much. It's a bit of an unusual situation for a med school; my impression is that most university anesthesia depts are part of the university and so there's not a "group" that can lose its contract or get subsumed into the hospital.

That help?

 

[deleted50478]

I suspect that the 'buy-in' is proportional to the degree of monopoly the group has in the area. Accountants might call it good will when the share price is not represented by assets, but in anesthesia, your buy-in is a bribe to get access to the group's monopoly. The appropriate bribe is set by the number of applicants for the jobs and the number of alternative groups in the city or region. People in the group would say the good will represents intangibles like reputation, etc., but I think they are kidding themselves.
Then again if the group is too big, they can't get so much money out of you since they know they'd be taken to court if they use their monopoly power to harm employees too much. It's a balancing act.

 

[RussianJoo]

I am sorry for being ignorant but $80K to be a partner in a multi-million dollar business sounds a little too low. but i guess since there's very little overhead the buy-in is low?

 

[deleted50478]

I am sorry for being ignorant but $80K to be a partner in a multi-million dollar business sounds a little too low. but i guess since there's very little overhead the buy-in is low?

It's not like you are buying stock in a business. In that case, you get ownership but don't contribute to the business. In an anesthesia group, you ARE the business. You pay them so they can make money off of you. You pay them for the right to work. It's nothing like buying part of a business.

 

[maceo]

the buy in at some groups can be 2-300 k per year easily. some groups dont even lie anymore. they just flat out say no sharing of profits. you get straight salary forever. in fact thats the way it is with the management companies. anesthesia business is inherently crooked. everyone is always trying to make money off of you especially as of late. 20 years ago you worked and billed for your own services. No longer

 

[kmurp]

I agree that you need to ask the group what the buy in represents. There are a number of valid ways to calculate this. For my group, the value of the stock purchase (buy in) is calculated from the value of our "hard assets" such as real estate (the office). Cash n hand is not considered as it is zeroed out at the end of each year.
As for accounts receivable, they are not considered by our group in the buy in. The new physician works at less than full salary for 2-3 years. This should cover the cost of the AR. We do, however, require the new shareholder to remain with us for a number of years in order to receive 100% of his AR.

 

[RussianJoo]

For those of you on the partnership track or who are already partners, what is the average amount that you contributed to the buy in? I ask because a group where I recently interviewed has a buy-in of $80,000 over 2 years after you are offered partnership in a year. This seems rather high to me but the group is stable and everyone in the group is a partner. Any opinions appreciated.

by how much does a partners salary increase by?

 

[beavis]

Every time I see this thread pop up I want it to be about poker...

 

[urge]

I'm anti partnership tracks. It's just a scam to get money out of you. Basically you are paying to buy an established contract with the hospital. Those contracts might be 2-3 yrs in duration, yet your partnership track might be longer than that. What are you buying then? Plus, you don't even know what you are buying because they never show you the books. In what sort of business do people invest large amounts of money without knowing full well what they are buying?

My advise is if you are to join a group do it for what they are offering you right NOW, not for promises in years to come.

 

[leviathan]

Every time I see this thread pop up I want it to be about poker...

As a poor med student in debt, usually about $100-$200, but if I'm feeling particularly dangerous, I'll raise the stakes to $500 buy-in tables.

 

[2win]

I'm anti partnership tracks. It's just a scam to get money out of you. Basically you are paying to buy an established contract with the hospital. Those contracts might be 2-3 yrs in duration, yet your partnership track might be longer than that. What are you buying then? Plus, you don't even know what you are buying because they never show you the books. In what sort of business do people invest large amounts of money without knowing full well what they are buying?

My advise is if you are to join a group do it for what they are offering you right NOW, not for promises in years to come.

You are right. If they will show you the books (and IF you are able to understand and IF they have hard assets...) - you can judge and see if the price is the right one. Most of the groups don't show the books and barely mention the hard assets and their value. Especially now it is a difficult time to buy in because what was a revenue (I am talking about receivable from the business...) in the next few years could be 67% with the new reform. So the amount of buy in is calculated to the previous performance of the group or the "estimated" one. WTF knows which is the estimated one. URGE advise is a very valid now. To negotiate a buy one in these "historical times is poker or penny stock investment...

 

[RussianJoo]

yeah but if your salary increases by $30K a year with possibilities of bonuses, just because you paid them $80K for the buy-in, it seems like it's a no brainer to me.

 

[2win]

yeah but if your salary increases by $30K a year with possibilities of bonuses, just because you paid them $80K for the buy-in, it seems like it's a no brainer to me.

RussianJoo - when you are a partner you don't have a salary.
You have an income based on revenue.
So you could be wrong about "No brainer"...

 

[RussianJoo]

RussianJoo - when you are a partner you don't have a salary.
You have an income based on revenue.
So you could be wrong about "No brainer"...

ok, thank you for the clarification.

 

[2win]

ok, thank you for the clarification.

No problem. When we were sure that the revenue let's say was the amount of A$...it was worth to buy at the price of let's say 100K.
Now if the revenue will be decreased with 50% (because of our beloved left wing politicians) the amount to buy in will be decreased at let's say 50K.
This is accurate if the amount of buy in is calculated from a percentage of the future revenue.
In most of the places it is arbitrary...
Anesthesia groups don't have in most of the cases fixed assets so basically you pay to be part of the business and to get the lion share (sometimes including a "democratic" case assignment, better vacation and of course a higher income.
As other posters stated - it is a kind of lotery.
However if you'll decide to buy in - I would advise to read carefully the contract. Look at the interest rate that the group will give it to you. Look at the clauses that stipulate the time frame for your "shares money" to be returned to you after you leave the group.
It is a lottery but what else isn't?
GLTY

 

[mcgreen]

As a brand new PGY-1, this is a bit of a far-off concern, but can someone break down for a noob (or point to an appropriate thread about) all this partnership/buyout/group mumbo-jumbo?

What are you buying with your "buy in?"
The only real asset an anesthesia group has is the exclusive hospital contract.
The hospital administration can take that away any time they want with little or no notice.


If you can get a job paying 300k now in a straight employment position, why would you take a job paying 250K for a three year partnership tract where partners make 400K.

It all depends on whether you think you can survive the three year partnership tract, no matter how good an anesthesiologist you may be the groups leaders have a powerful monetary incentive to fire you after wasting three years in the partnership tract giving up 150k you could have eared at the straight employment position.


The coming of the Obama Care pay cut makes wasting time chasing the elusive goal of making partner too risky to be worthwhile.

 

[Pilot Doc]

The only real asset an anesthesia group has is the exclusive hospital contract.
The hospital administration can take that away any time they want with little or no notice.

Not if the group is smart and has a good contract.
But there's no adequate way to assess that as a new hire.

 

[2win]

Not if the group is smart and has a good contract.
But there's no adequate way to assess that as a new hire.

the "good contract" has a limited duration and after that the terms can get worse or better. Also with hard assets there is a valuation question and they can deteriorate or get better. The volatility of hard assets is much lower compared with the "contract" future. It is similar with stock market - trading futures, options and stocks...Futures and options can make you millionaire or bankrupt. It will be stupid to buy in a group and next year that group to lose the contract or to renegotiate with lower rates..
Again - lottery...
Odds are better if the group is the only provider of anesthesia, is large (so cannot be replaced easily), had few sites of operations...

 

[Pilot Doc]

the "good contract" has a limited duration and after that the terms can get worse or better.

That risk can be substantially mitigated with a well written contract in the right market.

It will be stupid to buy in a group and next year that group to lose the contract or to renegotiate with lower rates..

It's no more stupid to buy into a group that loses it's contract than it is to pass up the buyin at a group that keeps it's lucrative contract. Simply a risk/reward calculus that you have to make based on your personal situation.

 

[deleted50478]

That risk can be substantially mitigated with a well written contract in the right market.



It's no more stupid to buy into a group that loses it's contract than it is to pass up the buyin at a group that keeps it's lucrative contract. Simply a risk/reward calculus that you have to make based on your personal situation.

What is stupid is for groups to take too much advantage of new graduates only to screw them over after years of 'buy in'. That's going to lead to young anesthesiologists undercutting the groups and becoming hospital employees. Really, those groups deserve to be undercut and destroyed.

 

[maceo]

the business of anesthesia is really very dirty. By the time money gets to you its been dipped into several times.

I agree with urge stay as far away from partnership tracks from jump street.
It is just a signature to allow them to abuse you. There are plenty of other straight salary jobs with incremental raises every single year.
The partners have an interest to get rid of you. they will make up something, anything to deny you partner. Theyll say you had a bad attitude, the nurses didnt like you, people complain about you. Its hard to have a good attitude when you are getting the crap cases, that have greater potential for litigation, at t he end of theday while some partner is getting easy cases and skating off at 2 pm everyday. That would last about a week until I said F this.. That would be my bad attitude justifiable so.. If you can stomach stuff like that for three years be myg uest go for it

 

[2win]

the business of anesthesia is really very dirty. By the time money gets to you its been dipped into several times.

I agree with urge stay as far away from partnership tracks from jump street.
It is just a signature to allow them to abuse you. There are plenty of other straight salary jobs with incremental raises every single year.
The partners have an interest to get rid of you. they will make up something, anything to deny you partner. Theyll say you had a bad attitude, the nurses didnt like you, people complain about you. Its hard to have a good attitude when you are getting the crap cases, that have greater potential for litigation, at t he end of theday while some partner is getting easy cases and skating off at 2 pm everyday. That would last about a week until I said F this.. That would be my bad attitude justifiable so.. If you can stomach stuff like that for three years be myg uest go for it

Agree! There is a trend in all specialties (including IM) to stay away from private groups and the main reason was really well put in this post.