Tag: partnership

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What Really Goes On At A Radiology Practice Partners’ Meeting?

partners' meeting

I can remember back during my radiology residency many years ago. Every so often, the radiologists at my hospital would meet secretly outside the hospital for their partners’ meetings. As the radiology attendings rapidly left to abandon their shifts to get to this meeting, I thought perhaps the partnership was just like the secret societies such as the Freemasons or the Illuminati. Maybe, they had a secret handshake? Or could they be plotting the overthrow of the hospital or government? What was going on at the partners’ meeting?

Most likely, you also wonder what happens during the partners’ meeting since you have never experienced anything like it. Moreover, you are an outsider, not privy to private practice business. Yet, one day many of you will also become a partner in a radiology practice. So, today I will reveal the secrets behind what partners discuss at their business meetings. Therefore, pull up a chair, read this post, sit back, drink, relax, and enjoy. Now, you will learn the truth behind what the partners discuss at a partners’ meeting!

Finances

As you might expect, at most meetings, a business manager often discusses the current state of a practice’s finances. Are reimbursements declining? Do new potential sources of revenue exist? What imaging modalities are trending higher? Should the business renegotiate insurance contracts? For some of you, your eyes may glaze over when you hear about a practice’s finances. However, these discussions are essential for continuing business as usual. And, yes, radiology is not just about health care. It also needs to run positive income to pay the employees, the fixed costs, the partners’ salaries, that end-of-the-year Christmas party, and more. Most meetings involve financial discussions.

Long-Term Strategies- Mergers, Acquisitions, And Partnerships

Nowadays, practice size has trended upward. Many practices must evolve to create larger entities so that they can use economies of scale to reduce costs and maximize profits. What do I mean by that? Essentially, practices can distribute fixed costs among a larger group of employees, thus saving money for the business. Therefore, you probably hear a lot about practices merging or private equity firms buying out imaging companies to save on costs. Well, partner meetings are common private forums for discussing these issues. In addition, you can expect practices to talk about ways to maintain good relationships with the hospitals and clinical colleagues as a long-term strategy. This long-term strategizing all happens at some partners’ meetings.

Manpower Issues/ Human Resources

Almost every practice has its fair share of issues with employees. Perhaps, some physicians do not meet the requirements of the hospital. Or maybe, clinicians have been complaining about certain practice members. Partners meetings are the appropriate forums to discuss these practice problems. In addition, partners discuss hiring new employees to meet the demands of the practice. Partners will discuss these problems and attempt to devise solutions to match the workforce to the practice’s needs.

Scheduling

One thing that is constant in any practice is change! Whether it be new imaging modalities, increasing requirements of films to be read, or losing business to other clinicians, the scheduling demands must meet the appropriate workloads. Partnerships will broach better ways to schedule partners and employees to maintain maximal efficiency. In this same vein, practices will also debate vacation policy schedules and the appropriate workloads for daily and weekly rotations whose needs may differ over time. These items commonly enter into the typical partners’ meeting.

Beauracracy and Compliance Issues

Every year, governments develop new rules and regulations for practices to follow. A few years ago, it was ICD-10 codes. Now we have new quality improvement mandates set by Medicare. Whether for certification maintenance or hospital credentialing bylaws, these items constantly change and can be crucial for maintaining the practice and complying with the law. All partners need to keep aware of the newest compliance issues to run an imaging business successfully. What better forum than a partner’s meeting to discuss this?

Insurance And Benefits

In this category, I will include malpractice, health, life, and disability insurance, pension plans, and yearly bonuses. Partners must approve the renewal and disbandment of these annual benefits. These changes depend on the costs and overall contribution to the practice and partners. You wonder how they come up with these policies. Well, usually, this occurs at the partnership meeting!

Residency Issues

Lastly, although residency issues crop up, that can affect the practice. If you have an imaging company with a residency, the partners may or may not discuss it in a partnership meeting. But, they occasionally make it to the partners’ meeting agenda. The discussion could be about new residency requirements, a site visit from the ACGME that all partners need to plan for, a specific resident issue, a problem resident, and more.

The Secret Partners’ Meeting- Final Thoughts

A partners’ meeting is a necessary evil to maintain a practice. And, as you can see, a partners’ meeting agenda can fill up quickly. Depending on the time of year and the number of issues, meetings can take hours and hours. Yet, the partners’ meeting is an essential aspect of a quality partnership and business. So, the next time you see the partners disappearing to attend the partners’ meeting, you now have some faint idea of what happens. Although you may never learn the secret handshake (or the nitty-gritty financial details), you now know what to expect from that occult partners’ meeting. And no, it’s most likely not just about discussing you!

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The Real Reasons Partnership Track Salary Offers Are Lower (And The Risks You Take!)

salary offers

Now that you are beginning to search for employment opportunities or have plans to start in a few years, you may hear a bit about the employee and partnership track salary for radiologists. Also, you probably have learned that new radiologists on the partnership track earn significantly less. Since you were hoping to become a partner in a practice, are you getting sticker shock about the lower partnership track salary offers? And, why do stark salary differences exist between a partnership track position and an employee anyway? Moreover, what are the pros and cons of taking on this lower starting salary? To answer these questions, we will examine the most critical reasons why starting salary offers differ dramatically. Then we will discuss the risks you take when starting with this lower partnership track salary.

Why The Differences In Salary Offers?

Increased Partnership Income

After all these years, you’ve probably heard the adage: you never get something for nothing. In this case, this aphorism holds. Those who take on a lower starting salary get more significant rewards in the end. When you start on a partnership track, you sacrifice your current income for future increased income. So, that makes a bit of sense.

Buy-ins And Buy-outs

When you start as a partner in private practice, it’s only fair to put some of your money toward buying a share of the practice’s assets. These assets may be accounts receivable, buildings, equipment, and more. No one is going to give that away. So, here is where the buy-in comes to play. Usually, practices will deduct some of this amount from your initial salary during your partnership track to pay for it. We know this amount as “sweat equity,” or the work/money you must put into the imaging business to share in ownership.

Bigger Benefits

Hey buddy, it’s not just about the salary. The fringe benefits of partnership often make a more considerable difference in your lifestyle. In the case of many partnerships, partners get larger pensions, increased malpractice insurance, more extensive life and disability insurance policies, tax-free car write-offs, cell phone and internet usage deductions, and more. These perks can add up over time. So, practices tend to compensate for these more considerable benefits by issuing a lower salary on a partnership track.

Increased Control

Nowadays, it is next to impossible to control almost anything fully in healthcare. However, entering into a partnership allows you to manage your destiny more than working as an employee for a practice. No doubt, the increased control you will eventually obtain from completing a partnership track factors into those first few years of partnership.

What Are You Risking For All Of This?

The Chance You Will Never Make Partner

You take a leap of faith when you begin on a partnership track. Rightfully so, you assume that you will be able to meet the requirements of the practice and eventually become an equal shareholder. But what happens if this is not the case? Well, that can be undoubtedly devastating. You will lose out on years of potentially higher income that you would have made elsewhere. So, you are looking at potentially significant risk when starting a partnership track.

Company Buyout

More commonly than ever, large corporate conglomerates and massive practices buy out smaller “Mom and Pop” firms or even mid-size practices. Let’s say you happen to be on a partnership track at the time of one of these buyouts. In this case, you will have no guarantee that the new owners will add you to the partnership track, issue you any significant benefits, or even compensate you appropriately when the buyout ensues. All your hard work and lower initial starting salary proverbially can be down the drain.

Partnership Will Not Be The Same

You go onto different forums (check out Aunt Minnie!), and you will find many threads on this topic. Let’s say everything goes great, and you eventually become a partner in a practice. Who is to say that the results will pan out? Sometimes, but not often, private partnership salaries can be lower than the salaries that their employees enjoy. Especially for practices that are not well run. Or, maybe, reimbursements for procedures will take a nosedive when you are working on a partnership track. Who knows if the benefits will remain 5 or 10 years down the road?

My Bottom Line

You probably understand why practices issue lower salary offers to employees on the partnership track than their employed colleagues at this point. You are receiving the potential for real future benefits. 

At the same time, however, working on a partnership track involves taking significant risks. What you choose in the end will probably pan out. But, it certainly does not always work out. Therefore, before starting any job, you must do your due diligence and determine if a partnership track or employed position works well for you. Good luck with your search!

 

 

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Private Equity Buyouts Of Radiology Practices – Who Gets Hurt?

privare equity

Why would anyone want to buy out a practice? Well, like all things economic, it’s simple: To make money. And that is what private equity companies do. They take over companies so the owners can collect a share of the profits. And who exactly are the private equity owners? These folks are private groups of investors that pool their money together to purchase companies. But, unlike publicly traded companies, the government does not regulate these companies as strictly.

So, why is this important for the typical radiologist to understand? Within the past few years, consolidation has hit the radiology industry. Some of this consolidation has resulted from private equity companies buying out radiology practices throughout the United States. And, who knows? Private equity companies may buy out your current or future practice. So, here is a summary of what you can expect, who wins, and who loses.

What Happens To The Radiologists After A Buyout?

The radiologist’s destiny is the million-dollar question. (Literally and figuratively!) Soon after a buyout, you may notice that the radiology employees lose some of their ability to advocate for patients (1). The private practice partner radiologists no longer hold the purse strings to enact change. So, all radiology employees of the new private equity entity must follow the rules of the new owner/leader.

Next, contract negotiations ensue. Initially, former partners and employees will tend to get good benefits, similar to the old practice. Over time, however, the stakes can change dramatically. In lean times, salary cuts and layoffs can begin rapidly. Since former partners no longer control the salaries, these folks may have just to take what they get. During more flush times, the former partners no longer reap the potential outsized rewards.

Further, in the future, you may notice that capital expenditures decrease to save profits for the private equity owners. That new CT scanner will be challenging to justify in the budget unless it has the potential to bring in new revenues. Private equity-owned practices can no longer buy equipment with the motivation of improving care alone.

The Winners

The most apparent winners are the older radiologists in the practice who will soon retire anyway. These owners can now collect on a payday that may be as high as 10-12 times their yearly salary. (2) This added benefit, in addition to their savings from years of practice, can allow an early retirement or a more leisurely lifestyle while working fewer days per week.

Depending on the terms of the agreement, the private equity firm can also gain much from buying a practice. The private equity can skim the additional profits previously from its former partners. However, this is all variable and depends on the partnership’s deal.

Occasionally, inefficient practices may also win in these arrangements. For instance, sometimes practices spend too much or cannot take advantage of economies of scale to increase efficiencies. So, it may take an outside entity to improve profitability. Of course, this assumes that the private equity entity knows how to run a practice better than the original employer and delivers some of the added profits to the radiologists. (Many times, that is not true!)

The Losers

Unfortunately, the biggest losers are the former non-partner stakeholders. These include full-time employees and employees on a partnership track. A buyout can derail the best-laid plans for the future. No longer can partnership track radiologists collect upon the sweat equity they have already committed to their years of practice. Likewise, former employees can no longer count on a similar job structure and contract.

The former younger partners may also lose a bit in the deal. No longer can they rely on many years of good salary ahead. The private equity firm will determine its future. On the other hand, at least these former partners will get a portion of a nest egg to add to their future retirement savings in the buyout.

Unlike those practices that stand to gain from a private equity arrangement, other private equity practices may liquidate the assets of an imaging business to the bare bone and improve profitability on paper so that the private equity firm can eventually resell the company to another entity. These sorts of practices can destroy a radiology imaging center. Good employees leave. Morale declines. And ultimately, the radiology practice can cease to exist. It can certainly happen.

How Much Can You Stand To Gain Or Lose?

So, if you are on the winning side of the equation and make 400,000 dollars per year, you may collect over 4-5 million dollars depending on who formerly owned the equipment and resources. That number, combined with continued employment, may satisfy those winners in the deal.

In the losing lane, non-partners no longer have the chance to build equity in practice. If you think about it, you have already committed three years to a partnership track, and the business has not already made you a partner; you have already lost those dollars of sweat equity. So, if your salary was 300,000 and the practice partners made 500,000, you have lost out on the difference of 200,000 dollars per year for three years or 600,000 dollars. You have also missed out on the ability to collect the 500,000 dollars in perpetuity once you have become a partner. Now, you are subject to the whims of the private equity firm.

The Basics Of Private Equity Buyouts

Describing a private equity buyout is relatively simple. It merely follows the laws of economics. You win if you are on the right side of the equation (the senior and private equity partners). On the other hand, if the equation does not favor you (most employees and some junior partners), you lose. So, if you are fortunate enough to choose among multiple deals, ensure you are doing what is best for your practice. A private equity deal can enhance or destroy your radiologists’ livelihoods!

I would love to hear your comments. What do you think about private equity buyouts in the field of radiology? Any experiences with private equity firms?

 

(1) http://www.physicianspractice.com/blog/understanding-hospital-buyouts-physician-practices

(2) https://www.aao.org/senior-ophthalmologists/scope/article/private-equity-buyouts-of-ophthalmology-practices

 

 

 

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My First Real Radiology Job- Do I Want Partnership?

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 somewhat tricky 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.

To make this post somewhat structured, I will first talk about the features of employed positions and ownership/partnership track positions. Then, I will determine whether it makes sense to be a permanent employee or on a partnership track. Finally, I will elaborate on the questions 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 roles have features of partnerships, and others have characteristics of employed positions. For the sake of simplicity, I will ignore these nuances and instead talk about the general features of each type of employment situation. You can further determine how the different components of your particular job offer apply to you.

Employed Positions

Basic Issues

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.

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 may not be able to change your PACS system or 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 duty that lies outside the realm of your negotiated deal, 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 dealing 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 day to day 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 for which you are working.

Risks of A Private Equity Buyout

And most importantly, for some, practices treat employees very differently when there are significant 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 significant event such as this occurs, the employee usually does not benefit as the practice’s employer will. Typically, when a radiology 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 business restructuring.

Partnership Track Positions

Partnership track positions usually pay a lower amount at the beginning than an employed position until you make a “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.

Sweat equity

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 one fellow offered immediate partnership before finishing fellowship!) to 10 years.

Time to partnership varies depending on multiple factors. First and foremost, these include location. The more desirable the area, the more competitive the partnership spots. 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 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. Suppose numerous radiologists are looking for partnership positions. In that case, the practice will charge a more extended period of “sweat equity” because of the high demand for a job and willingness of the partnership track position “to pay” for it.

Buy-ins

Second, many practices expect the partnership track employees to buy-in monetarily to the radiology business at the end of the partnership track term. This buy-in may be related to the accounts receivable and the owned assets of the practice. Furthermore, buy-ins can range from a nominal amount to over a million dollars, depending on the assets owned. It can be paid for directly, by a loan, or by increased “sweat equity.” The amount of buy-in can be a critical factor in selecting a partnership track position.

Practice building

Practices also expect partnership track employees to be involved in practice building. You will not just perform 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 regular 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

The applicant needs to remember: Practice partners usually do not want to create a partnership position!!! Why? It’s pretty simple. It dilutes the preexisting partners’ equity (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. There is no such thing as an entitlement to a new partnership track position. Also, be prepared to work hard to gain a share of the partnership for that period.

What about the Partners?

Usually, practices pay partners a fixed salary. However, they earn a substantial portion of their income from the practice’s excess profits, usually a bonus. Usually, you expect the compensation 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.

However, the difference in salary between a partner and a non-partner can vary widely depending on the profitability of the practice. Therefore, it behooves the applicant radiologist to determine what the partners are making before 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 who does not have any interest in building the practice outside regular business hours or is unwilling to perform different 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?

It would be best if you did 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. Generally, imaging centers will pay less for a partnership position. So, 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 your location?

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 many former partners retiring with enormous buyouts. Large buyouts can affect the partners’ salaries dramatically depending on the circumstances. It would help if you looked 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 practice’s technical ownership. 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 imperative to get all the facts correct before starting that partnership track.

Should Student Loans Affect The Decision To Be On A Partnership Track? 

I will try to tackle this question separately from all the others because it is becoming an important issue for residents/fellows before the partnership decision, given their enormous loan burdens. The difference between an employed position and a partnership track position can also seem substantial at the beginning. It may or may not be more financially savvy to take the initially lower-paying partnership track job. Here’s where it is vital to try to glean the specifics of your future career. And, this decision can be complicated. You 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:
  1. You owe 500000 dollars on student loans.
  2. Student loan interest and long-term investment returns are both 6%
  3. The partnership track lasts three years.
  4. The difference between the salary of a partner and an employee is 150000 dollars.
  5. A permanent employee makes 100000 dollars more per year on average than the partnership track position during the partnership track term.
The calculation:

Theoretically, the salary difference 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 loan’s interest rate and that the money you will make after you pay the loan is 6 percent, for 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 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 subtract the salary difference between a partner and a non-partner and take the taxes out every year. 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 three 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. It may make financial sense to take the partnership track position even though the initial salary is less than the permanent employee.

Bottom Line

The decision to become a partner vs. a permanent employee may not be simple due to the applicant’s personality, 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 possible so you can leap. A partnership is a long-term decision, just like a marriage. Know what you are getting into!!!!

Please leave in comments below. I would love to hear from you!!!