Timing your partnership in the medical practice
Many a times, an inexperienced physician is excited to find an offer of physician job where partnership is offered after the first year. Now just because he is going to become a partner aka owner of the medical practice, is not the formula for success. Timing of partnership in a medical practice is very crucial. It can make or break a deal.
To make the point clear let me use some examples:
SCENARIO A: Imagine you are in a medical practice, practicing medicine and your yearly earning reports looks as follow.
Gross Revenue: $200,000 per year.
Overhead: $150,000 / year [Overhead is the cost of doing business eg. expenses including rent, nurse salary, equipment and supplies cost etc.]
In the above scenario, a physician is better off being an employee than a partner in the medical practice. Why? Because a physician employee salary is guaranteed. Even though there is $200,000 in gross revenue, the net profit is only $50,000 and would be the take home income of a medical practice partner.
Lets look at another aspect:
SCENARIO B: Few years later, your earning reports look like this:
Gross Earnings: $500,000 / year
Overhead: $ 200,000 / year
As you see, the increase in gross earning does increase the overheads, but not proportionately. The increase in overheads is because of increased volume of patients resulting in increased use of supplies and increase in the number of support employees. The disproportion is because of fixed costs such as rent and malpractice insurance. But here the Net Income is $300,000 and would be the take home income for a partner in the medical practice. If, as an employee, a physician is being paid significantly less than this amount as salary, then it makes more sense for him to buy in and become a partner in the medical practice.
If the salary is only few thousand dollars less than the above amount, the only reason for becoming a partner is for job security and sense of ownership. Because, with partnership in the medical practice, also comes the never ending responsibility of managing the business aspect of it.
Before a physician even raises the issue of becoming a partner a look at the current year earnings’ and projected earnings in the next few years, is vital. Nobody wants their income to go down. Especially if you have to pay money to buy into the business. If the numbers don’t look right, it is probably better to wait an year or two before reconsidering the medical partnership.
This is the biggest problem with those jobs which offer mandatory partnership in one year. The problem is that the physician has no clue what his earning will look like at the end of the year. So for accepting a physician job with an opportunity for partnership, make sure becoming a partner is not manadatory in the contract, to continue practicing in the same medical practice.