Each and almost every day we hear about a new or old DPM joining up with an Orthopedic Surgeons Group is this a good idea. Well, let’s explore the history of small medical groups teaming up with large groups. I think the first area that I recall this occurring, was in the Atlanta area, where hospitals starting purchasing established medical groups in the 90’s and really paying a premium to obtain these groups. From what I recall from Medical Economics Magazine each of these doctors felt they made a great deal and signed a 5-year contract. Over the years of the contract, the hospital took over all aspects of the doctors’ practices; they acquired the staff, the real estate, and the patients. Over the years, the hospital added additional physicians to the practice and the “group” was doing great. Then the dreaded end of the contract period arrived, and the original doctors went to the hospital directors and demonstrated how profitable the group has become and ask for an increase in the salary that they were receiving. The hospital responded by giving those doctors a termination letter, saying that their services were no longer needed and reminded them that they signed a non-compete clause that precluded them from working within 25 miles of any of the hospital’s clinics. This kicked them out of the metro Atlanta area; what a gut blow that these doctors had to face. The younger (new hires) will be able to keep the practice going, and the hospital based group continued.
What can we learn from this – something that I have been saying for years, “Follow the Money”. These doctors originally thought that they could “outsmart” the business guys, and in turn they were taken for a short ride and their business was captured.
Doctors joining groups without capturing equity can realize for themselves a similar situation. For example, I hire the next superstar out of a three-year residency and pay him 150K to start with. Over the next few years, he develops a great addition to my brand and starts earning the group, 1.2 -1.4 Million in collections. The resident’s salary starts to rise and by year three he/she is earning 300K. As year four starts this resident starts to begin the negotiations for when his contract ends at year 5. The new resident is thinking that he should be earning ~ 500K plus equity for the 6th year and the business owners are thinking that they could hire a new fresh resident for ~ 150-170K and keep the additional income among the equity owners. This does happen, and the 5th year resident runs into the wall at full speed. He/she does not have ownership of the patients, does not have any equity and on top of this has a restrictive covenant of a certain about of miles. I know of at least three different doctors who have lived this, what’s the lesson here?