We are oftentimes asked if it would not be prudent to hire an associate, practice together for a while and then if both parties decide they like each other, draw up a contract at that time. The purpose is to discover more about the other party before making any long-term commitments. This is probably the most widely used approach by health-care professionals, and unfortunately, the most often abused.
The failure rate for this kind of relationship is approximately 85%-90%, but continues to remain the first choice among many professionals secure in the belief that the potentially disastrous results can’t or won’t happen to them.
Unfortunately, no matter how well intended, that non-committal approach is merely another way of saying that both parties distrust each other and refuse to make any commitments. We wish to emphasize that the resulting environment is not conducive to a long-term working relationship. However, if the parties can survive the disadvantages and risks using this arrangement, then they may really be meant for each other!
In the interest of understanding and fairness, we have listed all the advantages of this arrangement that we can determine, but only some of the disadvantages. That list could go on forever, and we feel compelled to keep this article reasonably brief. It would behoove our clients and potential clients to request some of the other articles that describe the actual experiences of others in this type of relationship. These experiences are not new and many of you are already aware of others who have achieved these same results.
1. No immediate expenses incurred by either party for drawing up a contract.
1. No defined commitment from either party. The Host is therefore hesitant to refer patients to an associate who may not be with the practice six months from now.
- Associate’s income is lower because of a reduced number of referrals from the Host. Associate becomes disenchanted and leaves at the first “better opportunity” or opens his or her own practice nearby.
- The value of the Host’s practice is instantly compromised if Host becomes disabled or dies. It opens the door to graveside negotiations with the spouse if the Host dies. At best, it is doubtful that the practice could be sold for 20% of the fair market value under those circumstances.
- If the Associate refuses to buy the Host’s practice in the future, even without death or disability being a factor, the practice will not likely be marketable to any other candidates since they would feel that the patients would go with the Associate.
5. You may discover at a later time that the Associate’s demands don’t meet your needs, so you dismiss the Associate and start the process all over again.
6. The dismissed associate will most likely have acquired a patient base that would justify starting up a practice in your area. Your practice became the launching pad for a competitor’s practice.
7. The associate can make a list of patients and move to another location nearby and take many of your patients to the new location.
8. Each day that the Associate adds another patient to his list, he obtains a stronger position to exercise more control over the eventual contractual “negotiations.” The Associate has nothing to lose, nothing to stop him from relocating nearby and taking his following with him. Only the Host can lose if the “negotiations” occur at a later time.
9. The Associate can solicit your staff and persuade them to leave the practice for a better opportunity. If the Associate can persuade the staff to leave, they can solicit all your patients. We’ve seen practices decline by 50% when this happened.
10.The practice becomes a revolving door for new associates as the Host tries the same thing again…the same way.
11.The Host gets a reputation for not being fair to associates, and future associate candidates don’t even apply after a while. Many times the Associate “bad-mouths” his former employer to others in the community.
12.Patients of the practice treated by the Associate feel abandoned when the Associate leaves the practice.
13.Etc., etc., etc.
Adding an associate to your practice can result in tremendous rewards, but the Host should be aware that there are certain risks as well. A comprehensive approach, with defined commitments conditioned on compatibility, considerably increases the chance of success. No two parties can predict compatibility, but they can at least be aware of what the future holds for them if they find they are compatible.
Using a comprehensive contractual approach to safeguard the value of your practice can eliminate all the aforementioned disadvantages. Many practices today are selling for $500,000 to $1,000,000. To risk losing that substantial amount of money and increasing the likelihood of a failed associateship is not considered the best approach to adding an associate to your practice. Think about it before you act, then decide what is best for you… and your future.