Contract Question

[dahlilama]

I have been under negotiations with a physician who want to add interventional pain to his office, he is a non-pain physician and we are currently in the throes of contract negotiations. It is an odd-contract which is basically 18 months in duration. As he is wanting to be the only one to buy the equipment and not have me share in the cost of it or buy him out after a spell, he is wanting to includo de provisions in the contract that make it unlikely for me to leave if I am unhappy within this 18 month time period unless he has an opportunity to recoup his investment. This provision is a management fee of 10K per month for 12 months and at 12 months, this amount drops by 50% to 5K per month and the total amount drops to 60K and then to 30k at month 15 and $0 at month 18. Thus there is a penalty if I leave early. Additionally, I have a low salary of 10K for 6 months, during which I will also receive 50% of collections after 50% of expenses are shares then I receive 50% of collections after expenses. Thus if I have not built up my practice to a sufficient level by then, it may be rough.

My perspective is since I am not receiving a guaranteed salary after month 6, I feel that the employer, not me should be paying my costs of employment out of his 50% of collections. I guess that my question for the forum is: In a "eat what you kill arrangement" is it common for the physician to pay for his/her costs out of the collections prior to splitting the collections, or should the employer be paying for the costs of my employment out of their 1/2 of collections as this is pure profit for my work. Additionally, this is an office based practice, not an ASC. Thanks for your replies.

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[ampaphb]

I have been under negotiations with a physician who want to add interventional pain to his office, he is a non-pain physician and we are currently in the throes of contract negotiations. It is an odd-contract which is basically 18 months in duration. As he is wanting to be the only one to buy the equipment and not have me share in the cost of it or buy him out after a spell, he is wanting to includo de provisions in the contract that make it unlikely for me to leave if I am unhappy within this 18 month time period unless he has an opportunity to recoup his investment. This provision is a management fee of 10K per month for 12 months and at 12 months, this amount drops by 50% to 5K per month and the total amount drops to 60K and then to 30k at month 15 and $0 at month 18. Thus there is a penalty if I leave early. Additionally, I have a low salary of 10K for 6 months, during which I will also receive 50% of collections after 50% of expenses are shares then I receive 50% of collections after expenses. Thus if I have not built up my practice to a sufficient level by then, it may be rough.

My perspective is since I am not receiving a guaranteed salary after month 6, I feel that the employer, not me should be paying my costs of employment out of his 50% of collections. I guess that my question for the forum is: In a "eat what you kill arrangement" is it common for the physician to pay for his/her costs out of the collections prior to splitting the collections, or should the employer be paying for the costs of my employment out of their 1/2 of collections as this is pure profit for my work. Additionally, this is an office based practice, not an ASC. Thanks for your replies.

Maybe I am misunderstanding, but if your salary is 10K/mo, and his management fee is 10k/mo, doesn't that mean you are functioning on an eat what you kill basis from the very start?

Also, if he is charging you $150k in start up costs plus 50% of collections as expenses, plus 50% 0f the remainder, he is drastically overcharging you.

Let's pretend you collect $750k year 1, plus 500K the first 6 months of year two. Year 1 your expenses will be 375 plus 187 plus his 120 management fee. Thus of the 750k you collected, you will keep $67k

First 6 mo of year two sound slightly better. Lets assume your yearly collections go to a million/yr, or 500k the first 6 mo. Expenses will be 250 his share of 125 plus 30k management fee. So for the first 6 months of year 2, you will take home $95K.

Thus for the first 18 months, you will have earned a total of $162K, or on average, $108k/yr

 

[dahlilama]

Ampaphb,
Thanks for your reply. He is buying all of the major equipment, for the tax write off angle, so my costs are primarily that of office staff, costs for trays, needles etc, malpractice, health insurance, the small cost of adding me to the medical records, billing and collections. He does not want me buying into the equipment which would lower his risk and thus require less of a management fee. I do not actually have to pay this management fee if I stay until 18 months as he hopes that he will recoup his investment by then, and if I leave prior to that, especially before one year, I would owe this management fee balance. He is trying to put disincentives into the contract so that I would not leave until he has made his initial investment back (primarily equipment) since this is equipment that he does not use. His plan is to keep a running tally of the expenses associated with my employment and his plan is to have me pay off the balance if he does not cover his initial equipment balance. My thought is that if he wants to buy the equipment, fine that is his own deal, but since he is not paying me a guaranteed salary after 6 months, then he should provide me with 50% of the collections and his take would be his 50% minus the expenses associated in hiring me. His thought was that at 18 months, I can decide if I want to go into another arrangement with him and share office staff as well as overhead, fine, or I can leave the practice, as he will have made his return. I am not planning on signing me a contract that requires me to pay back the costs of my employment, that is his risk in the situation. My risk would be accepting a job where I do not have a guaranteed salary. The reward should be commensurate with the risk. I appear to have nearly all of the risk and an unsure reward. I do have other offers of the standard, 200k salary and once collections exceed 400k, then the additional collections above this are additionally split 50/50. There is a 9 to 12 month wait until this position turns from part time to full time. But I am starting to consider this arrangment even though partnership with this position is a graded one as after 2 years I will have a 1/2 share of ancillary services and and a full share/partnership after 5. Thoughts?

 

[drusso]

Maybe I'm not appreciating all the details, but this sounds like a "bad deal." What do *YOU* perceive as the potential upsides and rewards in this arrangement? What are *YOUR* personal and professional priorities over the next 3-5 years and is this arrangement getting closer to meeting those?

 

[PMR 4 MSK]

Don't do it. You'll be behind the 8-ball from the start. Like you said, if you are not happy in the 1st 18 months, you get slammed.

He has to understand he is investing in you and you in him. This is way too weighted to him.

50% of collections after expenses is not "Eat what your kill" it is "eat a small amount of what you kill, and I'll eat the rest." For instance. You collect $50 K in a month. Overhead is 50%, which takes out 25K. Your expenses are $10K, leaving you $15K, of which he takes 50% - leaving you $7500. Sounds more like a fiefdom to me. To give him that 50% of expenses for the rest of your life is one hell of a return on his investment the longer you stay.

I say again, don't do it!

 

[lobelsteve]

I held off replying until some other folks posted.

Unless he is blackmailing you, holding you hostage, love triangle, etc then I see no upside in this. This guy is an A$$hat and sees you as a dip$hit. Most folks have the common courtesy of pointing a gun at you when they ask for your money this way.

 

[drusso]

I held off replying until some other folks posted.

Unless he is blackmailing you, holding you hostage, love triangle, etc then I see no upside in this. This guy is an A$$hat and sees you as a dip$hit. Most folks have the common courtesy of pointing a gun at you when they ask for your money this way.

Steve, if I had a lobotomy I couldn't have said it better myself.

 

[dahlilama]

Thanks for the input from everyone. My recent input to him was that this contract would need to be restructured dramatically to keep me interested.

 

[Tenesma]

how about you give him a counter-proposal

he rents office space to you, you buy the equipment, and start your own independent private practice?

 

[dahlilama]

Tenesma,
That is certainly an option, however, I am weighing how much risk I want to have. I also have the standard "add pain to the ortho group" option for guaranteed 200k plus 50% bonus above 2 times salary in collections with a graded partnership after 2 years. This is definitely much safer with a more guaranteed referral base, versus having to establish my referral base with no guarantee in income past 6 months.

 

[Tenesma]

dude

life is about taking risks... the only way you can ever test your limits is to start your own practice and be your own boss

or you could take the job with the steady income - but you will have to live with the knowledge that the partners of the group are getting a percentage of your work --- and a staggered partnership with an ortho group means that you will always be their waterboy...

the problem with joining a surgical group is that the conventional wisdom is that the surgeon does all the hard work, takes all the hard call, has made all the sacrifices and therefore is entitled to most of the income ---- i have yet to see a multi-specialty ortho/spine group that is truly fair as far as income distribution goes

i have a competing spine group a few towns away that has hired 3 PMR guys to do their injections... those PMR guys do way more procedures than I do, yet my income is close to double of theirs.... they don't know my income ... and they are convinced that they have the greatest deal ever with their spine surgeons...

you could also look at joining a group as a learning experience - and then leave after a year to start up your own practice once you have a reputation and a steady flow of patients from outside of the spine/ortho practice.... make sure you don't have a non-compete contract though...

 

[drusso]

dude

life is about taking risks... the only way you can ever test your limits is to start your own practice and be your own boss

or you could take the job with the steady income - but you will have to live with the knowledge that the partners of the group are getting a percentage of your work --- and a staggered partnership with an ortho group means that you will always be their waterboy...

the problem with joining a surgical group is that the conventional wisdom is that the surgeon does all the hard work, takes all the hard call, has made all the sacrifices and therefore is entitled to most of the income ---- i have yet to see a multi-specialty ortho/spine group that is truly fair as far as income distribution goes

i have a competing spine group a few towns away that has hired 3 PMR guys to do their injections... those PMR guys do way more procedures than I do, yet my income is close to double of theirs.... they don't know my income ... and they are convinced that they have the greatest deal ever with their spine surgeons...

you could also look at joining a group as a learning experience - and then leave after a year to start up your own practice once you have a reputation and a steady flow of patients from outside of the spine/ortho practice.... make sure you don't have a non-compete contract though...

Beautiful.

 

[ampaphb]

dude

life is about taking risks... the only way you can ever test your limits is to start your own practice and be your own boss

or you could take the job with the steady income - but you will have to live with the knowledge that the partners of the group are getting a percentage of your work --- and a staggered partnership with an ortho group means that you will always be their waterboy...

the problem with joining a surgical group is that the conventional wisdom is that the surgeon does all the hard work, takes all the hard call, has made all the sacrifices and therefore is entitled to most of the income ---- i have yet to see a multi-specialty ortho/spine group that is truly fair as far as income distribution goes

i have a competing spine group a few towns away that has hired 3 PMR guys to do their injections... those PMR guys do way more procedures than I do, yet my income is close to double of theirs.... they don't know my income ... and they are convinced that they have the greatest deal ever with their spine surgeons...

you could also look at joining a group as a learning experience - and then leave after a year to start up your own practice once you have a reputation and a steady flow of patients from outside of the spine/ortho practice.... make sure you don't have a non-compete contract though...

Not atypically, I disagree

All ortho guys are a$$holes. All groups screw you. Clearly overly broad generalizations.

Of course you are "their pain guy". Of course you are not an orthopod. But when they realize the amount of revenue you generate, you become as valued as anyone in the group. If you are foolish enough to allow yourself to be contractually screwed, that is on you as much as it is on them.

Some groups take a share of your collections the first year or two. Typically, they have also done that to their young orthopods straight out of training as well. Some groups don't. Some groups have a high shared overhead. Some groups don't. Some groups don't share ancillaries you don't directly generate (e.g. fees generated by taking call). Others split things evenly.

If after two years the group is willing to make you a partner for a reasonable buy-in, and allow you to participate in the ancillary revenue streams, the steady stream of referrals they generate, which allows you to do more procedures rather than constantly marketing yourself to PCPs, has value.

None of this is black and white. IT is ALWAYS based on the facts on the ground. Your colleagues who work for the ortho group may indeed be fools, or alternatively, they may have benefits you are either not aware of, or do not value similarly.

Starting your own practice is certainly a reasonable route to go. But you seemed to imply it was the ONLY reasonable route, and there I must take issue.

 

[lobelsteve]

I was recently confronted with the option of starting my own practice and decided against it. And I am a control freak.

The reason I chose not to go this route is the hours it takes to get off the ground. With 2 young children and hobbies, I did not want to spend 100+ hours a week working. 40hrs seeing patients, 60 hours running a business, and the two do not overlap except when you have no patients to see and treat. I felt it unfair to my family to be away this many hours and weighed that against the revenue to be had 4+ years down the road and realized what was most important to me.

Mind you, I don't work for free, and the hours spent with family are worth more than the extra $$$ in the bank.

 

[Tenesma]

i am not saying one choice is better than the other but don't complain once you make that decision

1) don't join a group and then wish you could have more autonomy

2) don't start a private practice and then expect to do minimal work

the reality about children, hobbies, extra-curricular responsibilities - is that there will always be reasons or excuses not to pursue something... that is okay, as long as you can go to bed at night and be at peace with your decision

lobelsteve's decision to create a healthy environment for his family and external life is appropriate.... and probably is worth the income he foregoes by not dedicating 100hours/week to his work ---

my generalizations can be as broad as I want them to be - because i know there will always be people like ampa who will try to correct them 🙂

however true they may be...

ps: i don't know what kind of perks they are getting that make up for the 50% pay cut... i know which option i would choose...

 

[PMR 4 MSK]

But I'm making 2-3x more in an ortho group than I ever made running a solo practice. It's all in how you are contracted, and how well they manage contracts with insurance, along with how well the practice is managed. Sure, I get some dumps (and they usually apologize and notify me in advance of one...), but mostly, they want me to be succesful professionally and financially, because that enhances both the practice and their bottom line. If the only thing they are intersted in is adding a PM&R to be the "waterboy", i.e. to add to their bottom line, they're just greedy and they will get less than optimal candidates.

I made myself a desirable candidate by getting the training and experience that groups like mine were looking for. I investigated quite a number of opportunities and this one was the best match for me, and I for them. Even if they pay wasn't much better, it's still worth it to me not to have to do the 60 hours of admin as Steve mentioned above. That almost ruined my marriage when I was solo.

I've gotten lucky. I found a place that respects PM&R and values my input on patients. They send me a lot of EMGs and injections. They, in return, have me contributing to the overhead pool, as well as doing procedures in their ASC. We have low overhead and high reimbursement, coupled with about the best "Eat What You Kill" arrangement. They share ancillaries with we non-ortho's (only the ortho's are partners) by putting it into the overhead. It's % collections-based overhead. I'm fairly autonomous, but did have to give things up to go from Solo to group. However, very little of it do I miss.

Don't count out working for an ortho group. There are a few civilized orthopods out there. 😀

 

[dahlilama]

I ended up saying no to the contract. The doc who was trying to hire me could not understand that my greatest problem was with the management fee that he would not give up. I offered to buy the equipment off him after he purchased it initially, as this would reduce his risk and thus negate the need for the management fee, but he would not agree to this. I realized that this degree of risk and the fact that I realized that I am not so into control that I wanted a solo practice. I ended up wanting more security than would be the case if I was trying to have my practice get off the ground with a very short runway. I am re-engaging with the ortho group as well as other spine specialists and I will go with the "safer" option knowing that I will be giving up autonomy but trying to get the best deal I can. I know that it will be probably be the same as the deal given to the other young orthopod who joined 2 years ago. But how much money does one really need to make anyway? I am just hoping for partners who are good guys and as it was said above, not to be the "waterboy". I know that who ever I join will have probably underestimated pain/pmr as a specialty, so in the end, my value will end up being higher than at the time I am hired.

 

[Tenesma]

wow - this is a first - an actual contract negotiation...

i personally think that both of you guys can come up with a safer/better formula for both of you...

 

[stim111]

First of all, I think that individual names should be left out of forums, as that is what the private message service on such forums are for. It appears that these two have come across eachother on the WWW. Secondly, this contract is an interesting one and is not standard of all. For all of you reading this post, how many of you would enter a contract with a potential financial penalty in the first year of 180K if you decided to leave the contract, despite what you may or may not make?

 

[drusso]

Please refrain from using individual names in posts. Different people have different comfort levels with their degree of transparency/anonymity on the web.

Otherwise, the discussion of contract negotiation/business of medicine issues is encouraged.

 

[neurodocVA]

I think my offer was very fair--- I'm interested in feed back if you think the offer was fair or not....

I am looking to create a top notch practice and want to attract the best candidates. If the consensus is that this won't fly amoung pain guys, I would appreciate knowing.

I can make way more money by focusing on my own practice then bringing someone along but that doesn't improve upon what I can offer my patients.

The short of my previous post was:

1) by brining along a MD with complementary skills to mine, we both benefit
2) I don't believe in do not competes
3) If you are as good as you think you are, prove it...take the risk. I did
4) You make more money in a shared risk scenario then in a straight employment scenario

 

[neurodocVA]

wow - this is a first - an actual contract negotiation...

i personally think that both of you guys can come up with a safer/better formula for both of you...

what are your suggestions????

 

[drusso]

NeurodocVA wrote:

In our entire conversation, the whole goal was to help you start your own practice with no money up front and no string attached beyond 18 months. Since I am incurring well over $150K of expenses the day you start (not shared expenses--C-arm etc), I have substantial risk for equipment I don't and can't use. I absolutely share your risk because I don't make money unless you do.

As I left it standing with my last offer was

1) your choice of 90K over 6 or 9 months of salary support

2) I would never take more than 50% of your revenue on any given month but any unpaid overhead would carry over to following month

3) the shared overhead is capped at 10K per month (you would never be able to get a full staff and operating office with patient flow for this money)

4) your estimated expenses outside the shared overhead (equipment, malpractice, health insurance etc) would be roughly 10-15K per month

5) at the end of 18months, assuming you covered your expenses, you would have been taught how to run your own practice, you would be able to get my contracts with insurance companies (which I negotiated at a higher rate) switched over to you, and you would have a patient stream.

If you do the calculations--assuming you brought in 750K in the first year and 500K in the first half of the second year

750k minus 120k (shared expenses) minus 180 (assuming 15k/ month) minus 90K (salary support) = 360K salary in the first year (actually 375 for you take home and 345 to pay off expenses and 15K carried over to month 13)

In the last 6 months your take home would be 250K. Of the other 250K left over, I pay 150K for expenses plus 15K left over from the year before. I get 85K over 18 months for all front loaded risk.

In the first year I put out 360K plus 150 k in equipment costs and all I
asked was for a promise that if you left before the year is up, the most
you would owe me 120K plus the money I spent upto that point (pay back your salary). If you took that same 500K loan from the bank you would have to pay interest on it as well.

I don't know where you think all your risk is vs. my risk

If anyone else want to practice in Arlington and Fairfax county VA (two of the richest counties in america) please PM me.

you're welcome to check me out on the web

www.integratedneurologyservices.com

 

[Tenesma]

neurodoc

while your goal of offering extra services sounds laudable - the only real motivator behind all of this is finances - let's be honest here... otherwise you would be hiring social workers, psychologists, etc...

while it is understandable that you took risks to set up a thriving practice, not everybody wants to take the same risks...

however, with less risk comes less potential income

we all agree on these points

1) Capital Costs: there is NO WAY you are going to find a high quality candidate who will agree to this penalizing contract... most high quality candidates will have great deals offered to them (this ain't one of them).
If you are taking the risk of purchasing the equipment - which by the way would be foolish - then there really is no reason to share the profits with the employee...

2) Equipment: unless you can guarantee that the pain guy will get 5 referrals a day for diagnostic/therapeutic injections - that equipment will be under-utilized in the first 3-4 months...

An interesting concept - if this is available in your community - is to speak with your local hospital CEO. Tell him that the community needs more pain docs, that it is hard to convince pain docs to move here - that you would like the hospital to extend a guaranteed income to the pain doctor, and that you will provide the doctor with the other half of his salary. The guaranteed income from the hospital is usually forgiven if the pain guy stays in the community for 2 years... Of course, the CEO wants to know what is in it for him - so you tell the CEO that the pain guy will do lucrative procedures at the hospital....

So now you can offer the pain guy 150k from the hospital/year which will be forgiven if the guy stays 2 years (otherwise the pain guy will have to reimburse the hospital) -- and you can offer the pain guy 150k/year for the first year. In the second year, the pain guy will still get his 150k/year from the hospital, but won't get a dime from you but will get to keep his profit minus overhead. The pain guy will primarily use your office for E&M, and use the hospital for procedures in the first 3-6 months. As volume increases, and there is a good fit between both of you, then you can make the decision to lease/rent equipment, or purchase cheaper stuff (Gorback can make a $250 FLUORO table out of wood and bricks 🙂 )....

So you don't have much risk, other than 15-17k/month in payroll/benefit expenses - unless the guy leaves in the first 4 months (in which case you lost 60k minus whatever A/R he achieves - which would probably be about 40k)... but most guys don't leave in the first 4 months - they usually leave after a year (if they leave at all)... so if the pain guy leaves after a year your equipment will likely be paid off, and you probably would have made a profit of 100-180k...

what is in it for the pain guy? he doesn't get penalized for leaving you (a possibility), but only gets penalized for leaving the community (not so likely - cause your location ROCKS)... his starting salary is 300k/year plus benefits (very fair), his 2nd year salary will probably be about 500-600k....

you get what you want: which is another resource for your patients - with a likely profit the first year, and the pain guy gets paid well without all kinds of gimmicks

now the trick is for your billing to be done by a separate company (that you own), and you then charge the pain guy a billing fee for his collections (7-8% of net collections) - and that way you can profit off his work (a tiny bit)... and you can always leave the option open that partnership status implies co-ownership of the "billing company" -- so that you and your future partner can profit from future employees...

 

[ampaphb]

I think my offer was very fair--- I'm interested in feed back if you think the offer was fair or not....

I am looking to create a top notch practice and want to attract the best candidates. If the consensus is that this won't fly amoung pain guys, I would appreciate knowing.

I can make way more money by focusing on my own practice then bringing someone along but that doesn't improve upon what I can offer my patients.

The short of my previous post was:

1) by brining along a MD with complementary skills to mine, we both benefit
2) I don't believe in do not competes
3) If you are as good as you think you are, prove it...take the risk. I did
4) You make more money in a shared risk scenario then in a straight employment scenario

90K salary support is unreasonably low. The average fellow straight out of training is easily able to command a guarantee of between 200 and 300k, in addition to your 50% of net collection productivity bonus WITHOUT incurring any financial risk.

In the first 3-6 months of a new doc's practice, there is virtually no way you will generate your salary, given the time it takes the practice to get paid. So the junior guy straight out of fellowship will need to rely on that dollar amount for the first few months ijn private practice. THAT is why your $90K salary support number is unreasonably low. And before you argue that is an out of pocket expense to you, regardless of what the dollar figure is, you are treating it like a draw on future earnings, so you will get is ALL back, even if the guy only stays with you 18 months (his net collections will obviously exceed that figure). And worst case scenario, even if his collections don't rise to that level, you will continue to own his AR once he leaves, which will be your ultimate fail-safe in a worst case scenario.

 

[Tenesma]

dude - you graduated from med school at age 23... that's pretty sweet...

 

[neurodocVA]

The problem with typical contracts is that they are golden hand cuffs--if you leave, you usually have to leave the area (do not compete)

So the day you sign the contract, you sell your freedom to go out on your own. If after a few years you don't want to "buy in" to the group (usually at an inflated cost), you lose all your referrers and patients. Furthermore, you have almost no control over the working conditions or costs.

At that point you are back to square one to where you were when you signed the original contract.

Unknown, no referrals, no equity, no revenue stream--and you get to do it all over again in a new location. Given that most do not competes are for two years, you give up 2 years of revenue (400-800K) that you could have made in your own practice where you get to keep 100% of the profit.

$120-180K is nothing to pay for complete control and retaining your referrs and patients-- who will generate you you half a million dollars a year until you retire. And you only have to pay that amount if you leave before 18months.

 

[Tenesma]

neurodoc --- i don't think you are getting it...

would you have signed a contract like that straight out of training?

if somebody doesn't want to take risks there are far better job opportunities

if somebody does want to take risks then he would raise the capital and start his own practice (which really isn't that hard to do if you are willing to take a very low income initially)...

you haven't explained why your deal is so sweet - other than it covers your overly neurotic behind...

plus if there is any support coming from the hospital system, a non-compete is illegal anyway...

 

[neurodocVA]

90K salary support is unreasonably low. The average fellow straight out of training is easily able to command a guarantee of between 200 and 300k, in addition to your 50% of net collection productivity bonus WITHOUT incurring any financial risk.

In the first 3-6 months of a new doc's practice, there is virtually no way you will generate your salary, given the time it takes the practice to get paid. So the junior guy straight out of fellowship will need to rely on that dollar amount for the first few months ijn private practice. THAT is why your $90K salary support number is unreasonably low. And before you argue that is an out of pocket expense to you, regardless of what the dollar figure is, you are treating it like a draw on future earnings, so you will get is ALL back, even if the guy only stays with you 18 months (his net collections will obviously exceed that figure). And worst case scenario, even if his collections don't rise to that level, you will continue to own his AR once he leaves, which will be your ultimate fail-safe in a worst case scenario.

The reason you are all having such trouble with the management fee is because our brains are way more averse to "loss" then we are attracted to "gain." You guys should read Predictably Irrational by Dan Ariely.....the loss phenom is the reason panics happen on wall street. Rationality tells you to start buying stocks during a crash but most of us simply sell.

To clarify, the 10K per month starting out is the base. Even if you only collect the first 10K in the 3rd month, you get your base (10k) plus 50% of your collections (5K)...that means by month 3 you made 15K.

If in month 4 you collect 20K, you get your base of 10K plus another 10K (20K in income).

Even if you only collect 50K in the first 6 months, you will get 85K in salary (170K yearly). If you only collect 420K in the second 6 months--your first year salary is 295K. If you collect 500K in the last six months of the contract you make 250K (500K yearly). At the end of the 18 months, the management fee is waved and you are free to go across the street and cont. doing business where you get 100% of the profit---dude!!!!

 

[neurodocVA]

neurodoc --- i don't think you are getting it...

would you have signed a contract like that straight out of training?

if somebody doesn't want to take risks there are far better job opportunities

if somebody does want to take risks then he would raise the capital and start his own practice (which really isn't that hard to do if you are willing to take a very low income initially)...

you haven't explained why your deal is so sweet - other than it covers your overly neurotic behind...

plus if there is any support coming from the hospital system, a non-compete is illegal anyway...

Yes--I would have taken this in a heart beat. In fact, this is the contract I wanted out of fellowship. If I had gotten this contract, I would have made 100K more then I did with the "sure thing" contract in the first 18 months.

As far as do not competes go, in VA, the are fully enforceable.

Raising capital is not that simple if you come out of training with loans and have no equity (a home). My offer is exactly right between full risk (start your practice from scratch) and full employement (you get paid but you're the "boy").

Furthermore, if you want to start from scratch, a bank will be more likely to give you money if you show them what you did in the first 18m.

 

[Ligament]

Well, I gotta hand it to NeurodocVA for laying it out on the line here in public...

 

[PMR 4 MSK]

I've been wondering how long this would take to happen - someone looking for anonymous opinions on a contract, and it turns out the other guy reads here as well.

I still stand by my original assertation that only getting 50% of collections after OH after the 18 months is too low.

 

[neurodocVA]

I've been wondering how long this would take to happen - someone looking for anonymous opinions on a contract, and it turns out the other guy reads here as well.

I still stand by my original assertation that only getting 50% of collections after OH after the 18 months is too low.

The 50% after collections is only after the overhead is all paid off.

If you see my previous post scenario....if you collect the following

1st 6month-- 50K
2nd 6month--420K
3rd 6month--500K

that covers all the overhead cost within 18months--everything fair and square for applicant to walk away without any money out and $535K in salary over eighteen months....how greedy can you get.

If you change the 3rd year to 600k, I would get $50K for all my trouble and the pain doc get $585K for 18months of work.

The whole point was that at the end of 18months, a strong candidate would understand how well I run a practice and want to cont. sharing overhead for a long time to come.

 

[lobelsteve]

Getting paid on collections is so yesterday. How about giving a % of the billing?

😀😉😍

 

[ampaphb]

The 50% after collections is only after the overhead is all paid off.

If you see my previous post scenario....if you collect the following

1st 6month-- 50K
2nd 6month--420K
3rd 6month--500K

that covers all the overhead cost within 18months--everything fair and square for applicant to walk away without any money out and $535K in salary over eighteen months....how greedy can you get.

If you change the 3rd year to 600k, I would get $50K for all my trouble and the pain doc get $585K for 18months of work.

The whole point was that at the end of 18months, a strong candidate would understand how well I run a practice and want to cont. sharing overhead for a long time to come.

If at any point the employee left, you would continue to own the remaining accounts receivable. Let's pretend we are in the second year of the contract. At that point, the pain doc is generating a million dollars a year in gross collections. If your AR takes 90 days to collect, and 50% overhead, that would be an additional $125K you would also "get for your trouble"

 

[neurodocVA]

If at any point the employee left, you would continue to own the remaining accounts receivable. Let's pretend we are in the second year of the contract. At that point, the pain doc is generating a million dollars a year in gross collections. If your AR takes 90 days to collect, and 50% overhead, that would be an additional $125K you would also "get for your trouble"

Let's assume I did get $125K....I still think the overall deal if very fair. I get $175 and the employee gets over $550 for the same time period and no restrictions/do not compete. Do you think anyone else would give you that breakdown??? In the typical orhto model, the pain guy gets $200K for every $400K the group gets and you sign a do not compete.

Secondly, the AR would be split 50/50 if the employee finishes the 18months.

Assuming everything goes well, at the end of 18months, I would hope the employee decides to start his own practice using my facility. Given that the AR from month 18 would trickle in month 19-21, why would I want to sour a relationship that is on-going by withholding money due him. The AR issue is the same when you join a group as an employee or partner and then leave.

 

[Tenesma]

so what you are basically saying is you want to be a nice-guy bank for a guy to start his own practice

if you own the equipment outright and he stays after 18 months - does that mean you will get a percentage of his procedure collections (since they would be paid globally?)...

in my opinion that would stink and really muddies up anything after 18 months... especially since you are charging him to pay for said equipment (w/ whatever fee you want to call it)...

 

[SSdoc33]

i actually dont think the deal is as bad as the collective majority seems to think it is. its the structure of it that gives pause because its very different than most.

however, i think you are being a little bit optimistic on the collection figures. especially if you actually want to practice good medicine.

as a fellow coming out right now, i would not seriously entertain this contract. it would be hard for me (or most fellows, id asssume) to accept this deal as a new grad. i really dont want to accept ANY risk at this point in my career. i understand that this MIGHT mean that id make a lower salary over 2 years. you may be better off marketing your position to someone who is not a fresh grad. they may be more interested, and share your zest for capitalism.

btw, are you buying houses right now like they are going out of style, greenspan? (jk)

 

[stim111]

90K salary support is unreasonably low. The average fellow straight out of training is easily able to command a guarantee of between 200 and 300k, in addition to your 50% of net collection productivity bonus WITHOUT incurring any financial risk.

In the first 3-6 months of a new doc's practice, there is virtually no way you will generate your salary, given the time it takes the practice to get paid. So the junior guy straight out of fellowship will need to rely on that dollar amount for the first few months in private practice. THAT is why your $90K salary support number is unreasonably low. And before you argue that is an out of pocket expense to you, regardless of what the dollar figure is, you are treating it like a draw on future earnings, so you will get is ALL back, even if the guy only stays with you 18 months (his net collections will obviously exceed that figure). And worst case scenario, even if his collections don't rise to that level, you will continue to own his AR once he leaves, which will be your ultimate fail-safe in a worst case scenario.

I agree with Ampaphb with his assessment. I think the revenue calculations are off making the venture as it is currently designed a risky venture. Take what you anticipate billing each month and discount that by 60%, which assumes a 40% collection rate (it might be up to 47%, but let’s be conservative). Then assume that during the first 90 days, your ramp up of getting credentialed and sending out bills and waiting for collections only nets a 15-20% collection rate during the first 90-day ramp up period. Will the 15-20% for the first 90 days and then 40% for the other 9 months equal $500K? I highly doubt it. Why did I use $500K in collections? The $500K is composed of the 50%, in order for you to make $250K year one (i.e., $500K). So, bottom line, you’ve got to collect $500K year one in order to make $250K, which is what you’d probably make as an employed physician somewhere else. In order for you to collect $500K, you’ve got to bill about $1.25 million (40% collections times $1.25 million equals $500K), and that also generously assumes a constant 40% all year, which we know isn’t going to happen for the first 90 days. Why take the risk of this contract? What if neurodoc ends up being not fun to work with (for?) and you leave early? Then you have to pay a very large “management fee” which neurodoc has only put in this contract so you will not leave before he gets his investment back in addition to all of the costs to the point that have been accrued to you. What is his/her investment which is your cost? Your costs are salary (extremely low which will not enable you to save anything to pay back any part of your costs if you leave, a salary well below market rate), healthcare, malpractice insurance (unless you are paying for it), c-arm, RF machine, overhead for the practice etc. If you do not cover all of these expenses by the end of 18 months, he gives you the bill. So you have wasted a number of months with nothing to show for it and even less money in the bank when you started. Additionally a large share of your costs (probably ½) is the equipment that you are not allowed to own in any form, if I understand this correctly. If you make it to 18 months, then you can leave and then you still have to go out and buy equipment since he owns the equipment that you need to practice. He now owns equipment that he does not use. So you take out a loan to start an office practice or you get to buy the equipment from him that he already charged to you!?? You will have your patients, however many you have at this point and hopefully they will come with you? I know that my lawyer would never let me sign a contract like this. If you go work for someone else and make sure that there is no do not compete clause, which I have, at least you can leave when you want, even if it is before you make partner, and not be in the hole. You will only be out your time. This is my assessment of this arrangement anyway. Bad.

 

[neurodocVA]

so what you are basically saying is you want to be a nice-guy bank for a guy to start his own practice

if you own the equipment outright and he stays after 18 months - does that mean you will get a percentage of his procedure collections (since they would be paid globally?)...

in my opinion that would stink and really muddies up anything after 18 months... especially since you are charging him to pay for said equipment (w/ whatever fee you want to call it)...

Tenesma,

The bank analogy is correct. I'm not doing it JUST from the goodness of my heart though. As a solo practioner, I can't compete with the big groups on salary, but I can give terms (no do not compete, salary support etc).

Once the pain guy finishes the 18months, I hope he/she will realize the uniqueness of our arrangement and will want to work together on future ventures.

As far as lawyers go (I'm married to one), they are even more risk averse than doctors. My med. attorney (not my wife) can't believe how much I'm giving up in revenue to bring someone on (compared to the typical one)

In the particular case with the guy who started this thread, the management fee did exactly what it was supposed to do. He had an offer for a full time job to start in 6 months. He had no problem taking "risk" in the first 6 months as long as I put in a monthly salary because he planned to stiff me when the six months was up if he didn't make enough progress. By the way, he was not right out of training. He had ten years experience in the military and owned a house in a swank neighborhood in DC.

The numbers I used for calculations of my scenario were not mine but provided by someone on this site but they nare favorable to the pain guy

 

[stim111]

I ended up saying no to the contract. The doc who was trying to hire me could not understand that my greatest problem was with the management fee that he would not give up. I offered to buy the equipment off him after he purchased it initially, as this would reduce his risk and thus negate the need for the management fee, but he would not agree to this. I realized that this degree of risk and the fact that I realized that I am not so into control that I wanted a solo practice. I ended up wanting more security than would be the case if I was trying to have my practice get off the ground with a very short runway. I am re-engaging with the ortho group as well as other spine specialists and I will go with the "safer" option knowing that I will be giving up autonomy but trying to get the best deal I can. I know that it will be probably be the same as the deal given to the other young orthopod who joined 2 years ago. But how much money does one really need to make anyway? I am just hoping for partners who are good guys and as it was said above, not to be the "waterboy". I know that who ever I join will have probably underestimated pain/pmr as a specialty, so in the end, my value will end up being higher than at the time I am hired.

It does not appear to me that the pain doctor was going to "stiff" neurodoc as the physician who started this post is talking about going with the safer option as in his post above. It appears that he did not like the risk of the contract. Having been in a sitaution in my first practice where my boss was an a**$$le and I left and had to start over. I could at least start over without a penalty. I know what these concerns are as I have known at least 6-8 other docs who left their initial practice as the doc/group did not make them partners or ended up being cheap and they took the initial job as they just wanted to have a job out of training. One my friends left 2 practices, and he is a straight shooter. This kind of worry is what every starting physician fears and this occurrence is posted on many physician blogs on the web. I can see why this physician was not a big fan of the management fee as it upped his risk.

The thing about contracts are that they have to be fair. This "management fee" gives the appearance of indentured servitude. An in regards to neurodoc's lawyer who can't believe how much money neurodoc is giving up, neurodoc is "giving up" money but still ensuring a return, so neurodoc is still fearing loss and "being predictably irrational" ensuring protection from any potential loss as neurodoc will at least break even by charging the physician the "management fee" as well at the associated costs if the physician leaves early. Neurodoc will still receive any associated ARs as well. Neurodoc would additionally make up for his investment by billing the physician for the balance of the costs in this scheme if the physician does not cover his expenses by the end of the contract. Sounds like neurodoc has a good lawyer if neurodoc did not come up with the management fee concept, but the lawyer did, but the management fee and the low salary appears to have sunk this contract. It is also understandable why this physician did not take more on more indentured servitude if he has already been a military/government physician (my supposition as I have worked with ex-military physicians who have either retired or left after their training was up and they have been very straight shooters and dependable) as that is what many tend to feel like over time.

My suggestion would be for neurodoc to pay market rate, get rid of the management fee, allow the physician (if you find another) to buy in to the equipment or have neurodoc bought out out of the equipment over time altogether (with a respectable rate of return) and thus neurodoc would really be acting like a bank. If neurodoc pays someone more and for longer, then they are less likely to bolt if the collections are not what neurodoc is forecasting, they would at least have a softer landing. The joint venture with the hospital may work as well. An intriguing thought.

 

[mille125]

This is a classic case of negative emotions getting the best of a potentially good contract. You must remember that contract negotiations must have some give and take from both sides. Both sides must address the others concerns.

It is obvious to me from the readings that the employer is afraid of losing time, money, or both on a new hire. He wants some "insurance" from a doctor leaving early on in the contract. This may be based on a past negative experience. I feel that the employer wants to be fair but does not want to feel "used".

On the other hand the employee wants a little more stability. He sees a possible scenario after six months where he may be collecting a very unreasonable salary. He is also afraid of the management fees.


I understand the emotions of both of these docs. I really think that you need to understand just how the other party is feeling in order to come up with a fair document.


My solution:

1) Instead of the management fee, attach some penalty to the contract for leaving early. For example if physician leaves at 6 months, he owes 60K. If he leaves at 12 months, he owes 30 K, etc. I feel that this is very reasonable and gives the employer reasonable protection.

2) Give the employee a straight salary for 18 months. The employer in a good situation will definitely make money in this arrangement and the employee does not feel like he is taking a risk. If the practice is not profitable at 18 months, then it will need to be dismantled anyway.

3) Take the equipment issue out of the equation. Let the employee do cases at the hospital or ASC. Getting the hospital involved as previously mentioned is also a good idea. I would not buy any equipment until the employer and employee find that they can work with each other and enjoy practicing together. After that time they can discuss buying the equipment.

4) At the 12 month period, if everything is going well, open the books to the employee and discuss possible buy-in, etc. If the employee is working hard, he deserves to see this information to make an informed decision.



I really feel that this would make your contract fair and has a necessary give and take from both sides. It also protects both sides from their "biggest fears". I actually have helped dozens of collegues with contract issues. This is my advice and I think that it is fair. I am interested in other thoughts...

 

[Tenesma]

the issue with penalties for leaving early is that technically the employer could have him work for 11 months (generating good income) and then say "I don't like the color of your hair" - fire him or force him out of the contract and then expect the employee to cough up a penalty as wel...

 

[ampaphb]

the issue with penalties for leaving early is that technically the employer could have him work for 11 months (generating good income) and then say "I don't like the color of your hair" - fire him or force him out of the contract and then expect the employee to cough up a penalty as wel...

The penalty could be structured so that it would be imposed only if the employee terminated the agreement.

 

[mille125]

The penalty could be structured so that it would be imposed only if the employee terminated the agreement.

This is exactly what I was suggesting..If the employer terminates the employee there should be no penalty....This provision is simply a deterrent from the employee leaving early. I feel that it is just and fair to both sides...

 

[neurodocVA]

The management fee was only applicable if the employee terminated the contract before 18months. In fact, in the last incarnation, the management fee was cut by 50% at each milestone (9 months, 12 months, and 15months).

I specifically structured the deal for those looking to open their own practice but don't have the cash (or willing to risk it). The idea of a salary changes the nature of the deal from one where we become two seperate entities sharing overhead to a more typical partner relationship.

I've offered this analogy to some of the people with whom I have discussed this concept: I am looking for a roommate note a spouse. Roommates have the freedom to make their own individual decision on life and purchases within a loose framework as long as they don't burn down the house and make the payments each month.

 

[drusso]

I've offered this analogy to some of the people with whom I have discussed this concept: I am looking for a roommate note a spouse. Roommates have the freedom to make their own individual decision on life and purchases within a loose framework as long as they don't burn down the house and make the payments each month.

I think that having a roommate is great. But, will the roommate get cut in on any profits or sale of house? What about if you get more "roommates?" Does your first roommate get a cut of your second roommate's "rent?"

 

[mille125]

The management fee was only applicable if the employee terminated the contract before 18months. In fact, in the last incarnation, the management fee was cut by 50% at each milestone (9 months, 12 months, and 15months).

I specifically structured the deal for those looking to open their own practice but don't have the cash (or willing to risk it). The idea of a salary changes the nature of the deal from one where we become two seperate entities sharing overhead to a more typical partner relationship.

I've offered this analogy to some of the people with whom I have discussed this concept: I am looking for a roommate note a spouse. Roommates have the freedom to make their own individual decision on life and purchases within a loose framework as long as they don't burn down the house and make the payments each month.

I have an issue with the way you structure your management fee. If I am reading your posts correctly, your fee continues to accrue each month up to 18 months and is only due if the employee terminates. Therefore, if I am your employee and I stay for only one month out of the 18 months, I owe you 10K in management fees. However, if I stay 17 of 18 months, then I owe you over 100K in management fees. This is not structured correctly. An employee that fulfills most of his contract should not pay considerably more than someone who stays for one month and then splits. You would have earned more money off the 17 month employee which should require much less of a fee.


I think that you should scrap the management fee idea all together and stick to a fixed "termination penalty" that "burns off" with months worked.

It is admirable that you want to set up "two independent practices" from day 1. However, this model is not fair to the employee or employer. Everyone needs a ramp up period. For me, it took 9 months before I was supporting myself. I really feel that you should start out with an employer/employee relationship that could shift to a partnership after a small amount of time (a more traditional and effective model). You have to tailor a employee contract that will appeal to the market force. The market force are mostly residents/fellows coming out of training. Traditionally, this group seeks more defined structure and less risky speculation. Good luck..