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Profit-sharing Partnership

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  • Avatar aHiker 
    Participant
    Status: Spouse
    Posts: 5
    Joined: 08/09/2019

    My fiance has been offered a job at a private practice. He has received a contract, but has not signed yet.

    Him: A rheumatologist with 6 years experience at a hospital employed position.

    New Job: A private practice with 3 rheumatologists and 3 PAs. It has multiple offices in a Northeast city. Has infusion center and musculoskeletal ultrasound.

    Compensation: $250k base 1st and 2nd year. Considered for profit-sharing partnership in 2nd year. He is given an assurance that he can take home north of $400k by the 3rd year.

    Profit-sharing works this way. Up to $700k of collection – no profit sharing. Anything over that, he gets 30% of the excess collection. J code medications are not included in $700k target.

    Take it? Or run far away from it? Is $700k annual collection overly optimistic for a rheumatology practice?

    Thanks for your suggestions!

    #237573 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2693
    Joined: 01/03/2017

    I can’t comment on a rheumatology practice and collections but…

    He is given an assurance that he can take home north of $400k by the 3rd year.

    Click to expand…

    Is this assurance written into the contract or is it more of a verbal statement?

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #237600 Reply
    Liked by Zaphod
    Avatar aHiker 
    Participant
    Status: Spouse
    Posts: 5
    Joined: 08/09/2019

    Just verbal statement. It most likely won’t be in the contract. Negotiation is in a preliminary stage.

    #237655 Reply
    abds abds 
    Participant
    Status: Physician
    Posts: 239
    Joined: 01/16/2017

    Lots of questions to figure out if this makes any sense.

    Is there a buy-in for the partnership? If so how is that calculated?

    What are the collection numbers of the other docs?

    Who pays for the PAs and where do their collections go?

    Why is it that up to $700k in collections he has a 65% overhead (250k salary divided by 700k collections)? And after that point, when all the overhead is presumably already paid, why does he only get 30% of the rest? Where is the other 70% going? Or does he then also get 30% of what all the other docs collect over 700 as well (I assume not).

    What happens if he doesn’t go for the partnership? $250k salary forever regardless of production?

    #237661 Reply
    Liked by ZZZ, billy, Zaphod
    abds abds 
    Participant
    Status: Physician
    Posts: 239
    Joined: 01/16/2017

    If they are assuring an income of 400, I assume you mean if he opts into the profit-sharing partnership, which would mean that they expect $1.2M in collections ($700k collections to make his $250k plus $500k collections to make a $150k bonus). Is this reflected in the current docs’ collections? Seems high to me but I’m not in rheum.

    #237665 Reply
    Liked by ZZZ, Zaphod
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6084
    Joined: 01/12/2016

    Idk rheumatologist numbers and such things, but lots of issues. First, not getting a bonus based on collections makes you at the mercy of how good your billing and collecting arms of the practice are. Then only 30% after 700k?, excluding some kind of j med infusions (please educate me what that means, I assume they make money…thus, why excluding).

    Im worried about the 0% in between whatever he makes salary (sounds like 250k) and 700k. That means he wont “bonus” until he makes 450k over his salary, which seems excessive and after that a pretty small percentage and also excludes money brought in via infusions it sounds like.

    Sounds pretty crappy yet standard practice. How bad is the current place?

    I work at a hospital and get 100% of my wRVU rate after my base. Obviously thats a determined and variable rate across country, but cant imagine it any other way.

    #237666 Reply
    Liked by abds
    Avatar aHiker 
    Participant
    Status: Spouse
    Posts: 5
    Joined: 08/09/2019
    Splash Refinancing Bonus

    Is there a buy-in for the partnership? If so how is that calculated?

    Yes, after 2nd year. It’s $100k over 5 years. It’s paid out of collection (does it make sense?).

    What are the collection numbers of the other docs?

    Who pays for the PAs and where do their collections go?

    Not privy to the collection info yet. But, the more recent hire made over $400k last year (according to the boss doc). The new doc has his own PA (maybe a scribe, too). Each doc has to pay for his own PA and scribe. I guess, collection by your PA counts towards your own collection??

    Why is it that up to $700k in collections he has a 65% overhead (250k salary divided by 700k collections)? And after that point, when all the overhead is presumably already paid, why does he only get 30% of the rest? Where is the other 70% going? Or does he then also get 30% of what all the other docs collect over 700 as well (I assume not).

    Click to expand…

    Exactly our thoughts too. It does sound like the boss doc is going to be making 70 cents out of every dollar my fiance brings in doesn’t it? Is asking for 100% (or close to that) after $700k collections a reasonable ask? Again, not really privy to how much the other new doc’s compensation works.

    What happens if he doesn’t go for the partnership? $250k salary forever regardless of production?

    Click to expand…

    He wants to go for the partnership. That’s the only reason he’s still entertaining this offer. Contract says beginning of 3rd year the practice notifies of the salary 90 days prior to the beginning of that contract year.

    #237692 Reply
    Avatar aHiker 
    Participant
    Status: Spouse
    Posts: 5
    Joined: 08/09/2019

    If they are assuring an income of 400, I assume you mean if he opts into the profit-sharing partnership, which would mean that they expect $1.2M in collections ($700k collections to make his $250k plus $500k collections to make a $150k bonus). Is this reflected in the current docs’ collections? Seems high to me but I’m not in rheum.

    Click to expand…

    It does seem high. Any rheum here who could give a ballpark collections figure?

    #237693 Reply
    Avatar GUtiger 
    Participant
    Status: Physician
    Posts: 14
    Joined: 03/18/2018

    Lots of questions to figure out if this makes any sense.

    Is there a buy-in for the partnership? If so how is that calculated?

    What are the collection numbers of the other docs?

    Who pays for the PAs and where do their collections go?

    Why is it that up to $700k in collections he has a 65% overhead (250k salary divided by 700k collections)? And after that point, when all the overhead is presumably already paid, why does he only get 30% of the rest? Where is the other 70% going? Or does he then also get 30% of what all the other docs collect over 700 as well (I assume not).

    What happens if he doesn’t go for the partnership? $250k salary forever regardless of production?

    Click to expand…

    The questions posed here are excellent. I echo them all with a particularly emphasis on the question of where the 70% over $700k goes. Is each MD held to that same profit plan or just the most junior partner?

    For a group of (soon to be) 4 physicians with 3 PAs why do they have multiple locations? Seems like this is likely creating an enormous overhead.

    Is there a bonus structure in the first 2 years?

    #237713 Reply
    Liked by abds
    abds abds 
    Participant
    Status: Physician
    Posts: 239
    Joined: 01/16/2017

     

    Why is it that up to $700k in collections he has a 65% overhead (250k salary divided by 700k collections)? And after that point, when all the overhead is presumably already paid, why does he only get 30% of the rest? Where is the other 70% going? Or does he then also get 30% of what all the other docs collect over 700 as well (I assume not).

    Click to expand…

    Exactly our thoughts too. It does sound like the boss doc is going to be making 70 cents out of every dollar my fiance brings in doesn’t it? Is asking for 100% (or close to that) after $700k collections a reasonable ask? Again, not really privy to how much the other new doc’s compensation works.

    Click to expand…

    My concern too. I think the senior partner(s) are making a lot of money off the juniors. And what about the infusions? Where is that income going?

    Bringing up what you and I and Zaphod have mentioned about only getting 30% of the collections, and hearing the reasoning behind it will likely be VERY telling.

    Regarding what % to ask for, there are different overhead structures, where some overhead is variable (ie the higher your production the higher you pay for certain aspects of your office’s expenses), so 100% may not happen but it should be close to it, or at least have a defined formula that is easily exaplainable. Again, getting an answer for where the rest of the money goes will likely give you a LOT of info about how the practice works.

    #237721 Reply
    Avatar Phantasos 
    Participant
    Status: Physician
    Posts: 81
    Joined: 01/06/2016

    Calling this arrangement a “partnership” doesn’t really sound accurate to me.

    "The problem with internet quotes is that you can't always depend on their accuracy" - Abraham Lincoln, 1864

    #237882 Reply
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 182
    Joined: 12/28/2016

    If 100k per year for 5 years to buy in to the partnership paid out of collections may be the answer to the question of why only 30%. It looks like he wont be a full partner for atleast 5 years. Will that 30% number increase as his partnership stake increases towards the full partner. What will be the percentage after he becomes full partner?

    #237888 Reply
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 182
    Joined: 12/28/2016

    As for Rheum numbers, your spouse should have an Idea based on his wRVU?

    #237890 Reply
    childay childay 
    Participant
    Status: Physician
    Posts: 990
    Joined: 01/09/2016

    Perhaps they all split the collections 33.3% above 700k?  Is there only 2/3 of current docs in partnership?

    #237896 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 288
    Joined: 06/10/2019

    A well run, efficient rheumatology practice can do very well. Rheumatologists are in high demand as well.

    Consider starting his own practice if he’s good with business. In a few years, hire a PA or two. You’ll likely be way, way ahead for life – 100% of profits. No buy in either. I did this (as an FP) after 6 years with a multispecialty group practice. Our rheumatologist was the most profitable even relative to the orthopedists and cardiologists.

    Otherwise, if your fiance joins the group, unless he’s not motivated it shouldn’t be difficult to earn $400K year 3 and more beyond that. Only problem I see is physician incomes are relatively suppressed in the Northeast. South and Midwest are best. Ask if the other providers had the same thresholds (other than founder of course).

    The starting offer is average, not great. How about $275K year 1 and 2? If not willing, consider asking for signing bonus, relocation expenses, negotiate vacation time/CME, etc. If they can’t budge on anything, I’d have a little concern about their finances since this is after all a negotiation and your fiancé is not coming out of residency/fellowship. Consider competing offers? This is a big decision.

    Is he going to have to supervise a PA years 1 and 2 without compensation? Don’t assume. I also don’t think there’s any way if he had a PA that the PA’s numbers would count toward his threshold as you are asking – that would make it way too easy.

    Lots of people here asking good questions. Initial offer is reasonable but the partnership track is where the value lies. Expect the founder to earn passive income off of everyone else. It’s normal and fair, and he took the risks and started at ground zero.

    #237899 Reply

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