Income division and potential problems in a group practice

So you’ve bought into your practice and now you’ll live happily after ever and everything will be perfect, right? The major factors that cause strife are how income is divided, how and who make decisions, and if one of the partners becomes a “problem child.”

There are multiple ways to groups to divide income, none of which is completely ideal of always fair, so everyone in the group has to compromise and find something that works. Let’s go over the positives and negatives of them:

Profits divided equally– at the end of the month, all of the profits are divided equally among the co owners. This obviously is easy to calculate as you don’t have to keep track of productivity, and if one doctor spends more time in a satellite office with a less advantageous payer mix or fewer procedures it might be fairer, or someone is in a lower paying but important sub specialty such as neuro ophthalmology.

This model could be difficult if one partner wants to work part time, if the docs have different practice patterns and one wants to see 60 patients a day while another sees 20, or if there are different subspecialties for which certain docs collect more due to performance of certain procedures. It also reduces incentives for each individual doctor to stay late and see that extra patient because their incentives are diluted among the rest of the group, and in a worst case scenario can lead to lazier doctors trying to get out of doing work and riding on the backs of the others. And what if the retina doc wants to buy a new OCT angiography machine? In essence the rest of the group is paying for it. This disincentivizes overhead control- if it’s a bigger group you feel like you’re spending someone else’s money, not your own- which leads to a race to see which partner can get the most equipment and techs.

Eat what you kill– every individual in the group takes home their personal collections minus a overhead calculated based on resource use. While it’s easy to calculate a doc’s personal collections, it may not be so easy to allocate overhead. Certain expenses are fixed while other ones are variable- if someone uses more exam rooms and more techs it would be fair to allocate more overhead to them, but are you really gonna divide up the monthly internet and phone bill based on use? The advantages of this is that it incentivizes individuals to work harder and see more patients as well as control overhead.

The disadvantage of this model is that it promotes competition within the group. Everyone wants to outdo the next guy to do more surgeries and see more patients. People might be reluctant to drive to the faraway satellite office as they aren’t being paid for the commute. Docs might try to dump patients with low paying insurances onto the next guy or gal. How will the group account for seeing postops? Since it’s within the global period there’s no reimbursement for postops, but it still takes time and effort to see them.

There could also be disagreements on how to allocate overhead- if the OCT angiography mentioned above is purchased but there’s only one retina doc in the practice will the cost of the machine be allocated solely to his or her overhead? How will the rent, computers, staff costs etc be divided?

Combination method– most groups take some combination between the two. For example, every partner might receive a base salary, and then a dividend or production bonus might be calculated based on productivity measured by collections or work RVUs, similar to how a bonus for a associate would be calculated. But potential problems with the combination method is when partners have disparate utilization- if one doctor works 9-4 three days a week and another from 8-6 five days a week, there might be disagreements. The partners will also have to agree on how high or low to set the base vs production bonus.

One very important consideration is that everyone wants to be a partner and share in the profits- but how are decisions made? Usually everyone gets a equal vote for minor matters, but sometimes a supermajority is required for things like a more expensive purchase, approving the hire of a new associate or optometrist, firing a office manager, or opening a new satellite office.

Is there a managing partner that takes control of the operations? Who is the managing partner, and does this rotate? For how long is each term? Does everyone serve a term, is it based on rotation among partners or a vote? How much time does one expect to allocate for managing duties, and will they be compensated for this time which is usually at the expense of seeing patients and generating income? I have a good friend in a group who recently told me only two of the five partners were actively participating in running the group. This is fine- as long as the other three partners are OK with the decisions made, and as long as there is fair compensation for managing duties. Not everyone has the time, interest or energy to become a managing partner.

Finally, just because you’re in a group doesn’t mean that all of your partners will be great. We know of someone who left a group to go solo because one of the partners was a substance abuser and when they were out getting treatment there were fights about how the overhead would be divided. If your partner is a chronic sexual harasser, toxic (daily chronic at colleagues and staff and the rest of the world for no reason), non compliant with documentation, a poor biller (extremes range from forgetting to submit claims for procedures and lasers, to blatant upcoding) it will make your life difficult. Sometimes stuff just comes up in life which isn’t the fault of one of the partners, but makes life difficult for the group- if someone has to take time off to take care of a spouse or parent, or worse if they become sick or disabled.

Having said all this, there are many of ophthalmologists (and other doctors) that work in groups that are perfectly happy with their situation. We hope that if you are in a group, that your income distribution among partners is fair and equitable, that the group is well run, that the buy in is reasonable, and that all of the partners are great and none of them fit the paragraph above. But if you’re reading this and aren’t happy with your situation, consider going solo and start reading our steps to start a solo practice.

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