Eyeworld

99 OPHTHALMOLOGY BUSINESS February 2017 digital.ophthalmologybusiness.org Finally, Mr. Kropiewnicki said most contracts will include a confi- dentiality agreement. "The whole idea of these three types of restrictions is to protect the practice," said Mr. Kropiewnicki, who represents both practices onboarding new physicians and doctors who are being hired. Buy-ins, buy-outs, and ASCs Dr. Herz said parameters to know for buy-ins include the base-draw amount, how overhead expenses and profits are shared among part- ners, how management decisions are made—voting shares vs. equal weight per partner—and what rights an ownership share entitles you to. "Sweat equity," a term discussed when it comes to valuation, Dr. Herz said, can be thought of as one way to pay for the practice or as a way of making the senior partner your "lender." This, she explained, means "they have a reason to see you're successful because if you're not successful, they will have to buy you out when you leave." Mr. Geller said fixed assets, such as equipment and other tangible assets, in a practice buy-in are gen- erally paid for with after-tax dollars, while accounts receivables attrib- utable to the ophthalmologist are "purchased" with before-tax dollars in the way of being deducted from the partner's compensation over a period of time. Unlike other special- ties, Mr. Geller said, there is often a "goodwill" payment in ophthalmol- ogy buy-ins. "What is goodwill? In essence, it reflects the practice's intangible val- ue for things such as the practice's name, location, website, telephone number, reputation in the commu- nity, and value," he said. Mr. Kropiewnicki said for years he's been hearing people say that there is "no goodwill in ophthal- mology anymore," however, he disagrees with that. "If I have a practice where I'm already too busy and need a doctor and we set you up and it is all on a platter—that's worth something. The idea that if a young ophthal- mologist makes $170,000 to start and a partner in the practice is making $300,000 to $400,000, and you could be making that much in a Non-compete and other contractual considerations Dr. Herz, who bought the practice of a retiring physician in 2007 when she finished fellowship, said the most serious mistake made by young ophthalmologists is signing a non-compete agreement without knowing the terms for buy-in/part- nership. "These terms must be agreed upon ahead of time and be part of the signed contract so that no sur- prises occur when the time comes to become a partner," she said. "Oth- erwise, the new physician puts in 2 years, gets an outrageous offer that no one would agree to, and ends up having to move because of this non-compete." Mr. Kropiewnicki said most non-compete agreements, in states where they are legal, say something along the lines of after termination (whether the physician quits or is fired), an employee may not start practicing within a certain radius for a couple of years after employment. "The whole idea of the non- compete is that this person comes brand new to the community, doesn't know beans, you introduce him to all of your referral sources, you give him a patient stream, and then all of a sudden he wants to be competing with you," Mr. Kropiewnicki said. Dr. Herz thinks non-compete agreements are fair as long as the terms are reasonable for the size and population of the area, which is something a lawyer familiar with medical contracts in the area should know. A physician could potential- ly buy himself or herself out of a non-compete restriction, something Mr. Kropiewnicki described as pay- ing for "liquidated damages," which he said can get expensive. "It's a question of how much damage you would do to the prac- tice by leaving and going out on your own," he said. Often accompanying a non- compete clause is a non-solicitation agreement, which says that even if a physician went to practice outside the non-compete area, he or she is not allowed to solicit patients, referral sources, or employees of the original practice. few years—that's worth something," Mr. Kropiewnicki said. "If you're in a reasonable geographic area, there is almost always goodwill value. Say you wanted to go into the suburban New Jersey area outside of New York, there's value to being there." As for buy-outs, Dr. Herz said it's important to know how much the shares are worth, how the exiting partner will be paid for the shares and over what period of time, and if the exiting partner has a non-com- pete agreement. Mr. Kropiewnicki said he has seen practices of retiring ophthal- mologists being sold more often to groups or companies. If you're concerned about a practice being sold to a company, he advised con- sidering a non-assignment clause in your contract, especially if your agreement has you on a partnership track. A new company at purchase might then own the entire practice and thus negate any partnership op- portunity. A non-assignment clause would give you the opportunity to negotiate a new deal. Even without this clause though, it's generally in the best interest of the new compa- ny to work with associates to keep the practice it just bought running, Mr. Kropiewnicki said. Dr. Herz said she felt buying a practice from a retiring physician, given the competitive market in the D.C. metro area, was the best choice for her because this physician gave her the good word she needed with existing patients. "When you're buying a practice from a retiring physician, you're buying an income stream that's already set up and running versus starting your own practice and potentially taking 5 to 10 years to get to that same point," Dr. Herz said. "Patients will trust the word of the physician they know, regardless of where you trained or where you came from. This is another advan- tage of buying a practice instead of starting your own practice where there is no one to vouch for you. Countless times my patients told me they stayed with me after the other physician retired because 'He said you were good.' … I still had to work hard to establish myself with referring doctors and the communi- ty—nothing is going to be handed to you." As for ambulatory surgery centers (ASCs), Dr. Herz said they should be thought of like any other investment. "What is your percent return on investment? How easy is it to liquidate your investment? How risky is it? Does your investment require active or passive manage- ment? Does your investment require additional contributions to maintain the facilities and buy equipment? Are there intangible benefits such as premium OR access/times? Could you get a better return on your in- vestment elsewhere?" Mr. Kropiewnicki said that while buying into an ASC can be expensive up front, the idea is after a few years it starts offering a steady income stream. As for concern that ASCs might not make the same kind of value as they have in the past, Mr. Kropiewnicki said that's always a possibility as reimbursements get cut, but they're still viable and most physicians do want to buy in. "Uncertainty will always be present when dealing with govern- ment relations," Dr. Herz said with reference to practice valuation. "The best strategy is to stay informed, ac- tive in your local and state medical and ophthalmology societies, and don't be hasty about making chang- es based on new legislation. Remem- ber, what the government giveth, the government can taketh away." Reflecting on overarching advice, Mr. Geller reminds residents and fellows in ophthalmology that a job search might end with the con- tract but it starts with the people. "Put another way," he said, "I can fix the contract, but I cannot fix the people. Do your due diligence. Take the time up front to get to know your future colleagues before signing an employment agreement." EW Editors' note: The sources have no financial interests related to their comments. Contact information Geller: lg@medicalmanagement.com Herz: natashaherz@gmail.com Kropiewnicki: mkrop@healthcaregroup.com

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