My First Real Radiology Job- Do I Want Partnership?
Every once in a while a resident or fellow will ask me “Should I take a partnership track versus an employed position?” Or, “What questions should I ask about partnership when I interview for a job?”. These can be some fairly difficult questions to answer since there are so many variables involved. I will tackle some of these issues here. I will also answer some common questions and clarify some misconceptions.
In order to make this post somewhat structured, I am first going to talk about the features of employed positions and ownership/partnership track positions, determine whether it makes sense to be a permanent employee or on a partnership track, and then I will elaborate on the questions that you should ask if you are fortunate (or unfortunate) to be placed on a partnership track. So, let’s begin…
To Be Or Not To Be– A Partner!!!
What are the initial differences between jobs that are permanent employee versus partnership tack positions? First of all, no hard and fast rules exist. Some employed positions have features of partnerships and some partnerships have characteristics of employed positions. For the sake of simplicity, I am going to ignore these nuances and instead talk about the general features of each type of employment situation. You can further determine how the different features of your particular job offer apply to you.
To start, most practices pay employees a fixed salary that makes up the majority of their income. Some employees also may receive a production bonus of some sort, but it tends to be a small percentage of the salary. Starting salaries of employed positions tend to be higher than partnership track positions at the beginning. But, they remain more stable or gradually drift higher for many years to come. If the partnership or practice has a “banner” year, you will likely still get the same negotiated salary regardless of its profitability in most practices.
They also tend to be at the mercy of the employing body, whether a hospital system, partnership, or corporate entity. In general, employees have less control over their situation. Employers make the business decisions. If you don’t like the technologist, nurse, or administrator in your practice, you will still have to live with that person. You will not be able to change your PACS system. You may or may not be able to set your protocols. Bottom line. You are at the whim of your employers.
Defined Written Responsibilities
Also, in general, employed positions usually have particular sets of responsibilities written in the contract. If you perform a responsibility that lies outside the realm of your negotiated contract, the practice does not require you to accomplish that task unless your employer pays for it. Being an employee, allows you to concentrate on radiology without having to deal with the day to day issues of running a practice.
For instance, you don’t have to worry about hiring, firing, buying magnets, billing, capitalizing on radiology trends, attending hospital events, and more. A lot goes into the management of a practice that is not related to the direct practice of radiology. And as an employee, you will likely be a lot less responsible for these activities. But everything comes with a price. You are selling your ability to control the entity you are working for.
Risks of A Private Equity Buyout
And most importantly for some, practices treat employees very differently when there are major changes. In today’s rapidly changing practice environment, groups are merging; hospitals are buying out imaging centers; large corporations are taking over smaller entities. When a major event such as this occurs, the employee usually does not stand to benefit as the employer of the practice will. Typically, when a practice is “bought out”, the partners or employers will get a large sum of money to pay for the accounts receivable, equipment, real estate, goodwill, and so on/so forth. On the other hand, the employee will typically get nothing. Or even worse, the employee will be the first to be fired if there is a restructuring of the business.
Partnership Track Positions
Partnership track positions usually pay a lower amount at the beginning than an employed position until you make “partner”. A partnership track employee can make a substantially different income than a permanent employee. Many starting radiologists do not understand this concept, but it makes a lot of sense. You are paying for the equity/ownership of the partnership in two ways.
First, there is a concept called “sweat equity”. “Sweat equity’ is essentially a time commitment. This process can last almost any time interval. Most practices have a partnership track period that can last anywhere from almost immediately (in the early 2000s I knew of one fellow that was offered an immediate partnership prior to finishing fellowship!) to 10 years.
Time to partnership varies depending on multiple factors. These include first and foremost, location. The more desirable location, the more competitive the partnership spot. And, the more years to partner the practice will charge the partnership track radiologist. Additionally, the time to partnership can be longer if you own equipment, real estate, and other assets. That makes sense because, in order to pay for that share in the partnership, you need to put in more “sweat equity”. Finally, market conditions also affect time until a partnership. If there are numerous radiologists looking for partnership positions, the practice will charge a longer period of “sweat equity” because of the high demand for a position and willingness of the partnership track position “to pay” for it.
Second, many practices expect the partnership track employees to buy-in monetarily to the practice at the end of the partnership track term. This buy-in may be related to the accounts receivable and/or the owned assets of the practice. Buy-ins can range from a nominal amount to over a million dollars depending on the assets owned. The buy-in can be paid for directly, by a loan, or by increased “sweat equity”. This can be a very important factor in a decision to select a partnership track position.
Practices also expect partnership track employees to be involved in practice building. You will not just be performing your daily duties as a radiologist, but you will be assisting and learning to accomplish other tasks outside of the normal radiologist purview. You may involve yourself with hospital committees, giving grand rounds, attending events outside normal business hours, and other important “non-radiologist” functions. These events are essential training for the partnership track radiologist to learn the business roles of the partner.
Partnership- Not An Obligation
One thing that is important for the applicant to remember: No practice partner ever wants to create a partnership position!!! Why? It’s pretty simple. It dilutes the equity of the preexisting partners (meaning that each partner will get a smaller share of the profits). There has to be a significant need to create a partner. These issues include lack of coverage in a particular subspecialty, need for more practice managers, etc. So, you need to remember that there is no such thing as an entitlement to a new partnership track position. You need to be prepared to work hard to gain a share of the partnership for that period of time.
What about the Partners?
Usually, practices pay partners a fixed salary. However, they earn a substantial portion of their income from the excess profits of the practice, usually a bonus. Usually, you expect the salary of the of the partner to be higher than that of the employee. Why? Partners assume the risk of the practice and also manage practice issues. If reimbursement decreases, partners are affected first. If there is a loss of an employee, the partner needs to cover that position. Or, if there is a lawsuit against the practice, partners need to manage the subsequent issues.
The difference in salary between a partner and a non-partner, however, can vary widely depending on the profitability of the practice. Therefore, it behooves the applicant radiologist to try to determine what the partners are making prior to joining the practice. You need to “check the books” or talk to the business manager. You certainly do not want to go through the process of “sweat equity”, only to find out that your final income is not much different from your partnership track salary.
Does It Make Sense To Be On A Partnership Track?
Believe it or not, there is no quick answer to this question. It all depends on the individual situation and the job. There are also inherent risks to taking a partnership track position versus a permanently employed position. So, let’s evaluate each piece of this equation individually with different questions.
Are you the sort of person that likes running the show or do you just want to do your work and go home?
A partnership track individual needs to be interested in business and practice building. There is no room for a partner that does not have any interests in building the practice outside normal business hours or is not willing to perform extra roles during the workday outside the normal radiology purview.
Is the job something temporary for you or do you want this job to be permanent?
You should not put “sweat equity” into a job where you think you will be leaving in several years to be closer to family or other needs. You will be paid less for a partnership position that you will likely not have for more than a few years. It’s just not worth it. Or maybe, you just need a position, but the practice job description is not exactly optimal but it is the only thing available in your desired location. In this case, you may also decide a partnership track is not the correct decision. For example, you don’t want to be practicing women’s radiology when your only desire is to be an interventionist!
What is the current business environment in the location that you are applying?
In some practice locations, hospitals are converting private practice jobs to employed positions due to mergers and acquisitions. You do not want to be stuck in a partnership track, only to find out that there is no partnership position at the end of the road. You may never make the “partnership” salary or even worse, you may be out of a job. Remember in a situation like this: employees are the first to go.
Have multiple recent retirees received buyouts?
First of all, what is a buyout? It is essentially the opposite of the buy-in. A partner that steps down expects to get the equity back that he put into the practice. Every once in a while, a practice may have a large number of former partners retiring with enormous buyouts. This can affect the partners’ salaries dramatically depending on the circumstances. You need to look into all the specifics for yourself.
Is there a tiered partnership?
Some partnerships have separate buy-ins for the professional portion of the practice and the technical ownership of the practice. Others may give you only a small percentage of ownership compared to a “full partner”. You may become a partner one day. But, the partnership may not be what you thought it would be. Some practices are more equal than others!!! It is very important to get all the facts correct prior to starting that partnership track.
Should Student Loans Affect The Decision To Be On A Partnership Track?
I am going to try to tackle this question separately from all the others because it is becoming an important issue for residents/fellows prior to the partnership decision, given their large loan burdens. The difference between an employed position and partnership track position can also seem substantial at the beginning. And, it may or may not be more financially savvy to take the initially lower paying partnership track job. Here’s where it is really important to try to glean the specifics of your prospective job. And, this decision can be complicated. You really have to plug in the numbers for yourself and make the calculations. To show you, we will take a specific circumstance under consideration. I will give you the example below.
Here are the inputs:
- You owe 500000 dollars on student loans.
- Student loan interest and long-term investment returns are both 6%
- Partnership track lasts 3 years.
- The difference between the salary of a partner and an employee is 150000 dollars.
- A permanent employee makes 100000 dollars more per year on average than the partnership track position during the term of the partnership track.
Theoretically, the difference in salary can go to student loan payments if you are in a permanently employed position at the beginning. So, after taxes, you will have 66,000 dollars (100,000 dollars *0.66) per year or about 200,000 dollars (66,000 dollars x 3 years) more principal paid toward the student loans at the end of three years. Given that the interest rate on the loan and that the money you will make after you pay the loan is 6 percent, over the course of a 30-year career that same amount is equivalent to saving 200000 *1.06^30 or approximately 1.15 million dollars.
On the other hand, if you decide to take the partnership track, you lost out on the 1.15 million dollars that you would have made if you were an employee. But, how much more, in the end, will you make to compensate for those years of “sweat equity”? So, let’s take the difference in salary between a partner and a non-partner take the taxes out on a yearly basis. That number would be (150,000 dollars* 66 percent) or 100,000 dollars. Let’s take that 100000 dollars and multiply it by the number of years worked. That number would be 100,000 dollars *27 years (30 years of working minus 3 years of making less than an employee) or 2.7 million dollars. This number does not even include interest!! In this case, it would certainly make financial sense for the applicant to take a partnership track position.
The bottom line: you need to perform the calculations for yourself. But, it may make financial sense to take the partnership track position even though the initial salary is less than the permanent employee.
The decision to become a partner in a practice vs a permanent employee may not be simple due to the personality of the applicant, job-related factors, and monetary considerations. If you are thinking about the partnership route, make sure to know your role and get as much information/specifics as you can so can make the leap. A partnership is a long-term decision, just like a marriage. Know what you are getting into!!!!
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