Making Partner

I recently became a partner in my small, democratic emergency medicine group.  That’s exciting to me because it gives me a say in how my group operates, more job security, and, best of all, a significant raise.  Unfortunately, it complicates my finances quite a bit.

Partnership Track

Small partnerships (and indeed small groups of any kind) are becoming more and more rare in medicine, including emergency medicine.  With the trend toward ACOs, larger groups and employee positions are becoming more common each year.  I see this as an unfortunate trend for several reasons.  First, it will make entrepreneurship and business-savvy even more rare qualities among physicians.  It will also decrease the control we have over both business and medical decisions within our practice.  Finally, it will contribute to the downward trend in physician incomes.

Every partnership and specialty is a little bit different with regards to how a partnership track is set up.  Before joining a group you should thoroughly understand the process in place for your group.  In emergency medicine partnerships the most common set-up is that you work for the other physicians as an employee, then after a period of time, you are offered a partnerships if everything works out.  The group pays you an hourly wage and typically covers your malpractice insurance and other benefits.  I have seen partnership tracks range anywhere from 1 to 5 years, but two years is the most common set-up.

Additional Income

As I mentioned above, the best part about making partner is the raise.  When you are an employee, the partners are taking the risk that you may not generate sufficient revenue to cover your costs- salary, benefits, and overhead.  If you don’t, they eat the difference.  If you are particularly productive, they keep the difference.  A wise partnership will keep your costs (i.e. salary) low enough that it is unlikely they would get stuck eating your costs, and if you turn out to be particularly unproductive, they’d try to fix the situation quickly (and fire you if they couldn’t.)  The difference between what you generate and what you cost them goes to two different places.

First, it often goes toward a buy-in/buy-out.  Some groups have you buy-in with money, but since most doctors coming out of training generally have a negative net worth, it is far more common to have you buy-in with time.  The difference between what you earn and what you’re paid goes toward your equity share in the group.  That might include part of a building, some medical equipment, goodwill (the reputation and patient base of the practice), but more commonly, especially in EM, it just gets you your share of the accounts receivable.  Remember when the partnership first started the group they didn’t get paid the first few months due to the lag in bills going out and money coming in.

The second place that extra money goes is into the other partners’ pockets.  Let’s not deceive ourselves about this matter.  The only difference between groups is just how big this chunk of money is.  In fact, some groups just continually rotate pre-partners, milking them like dairy cows and then letting them go towards the end of the partnership track with a “sorry this isn’t working out.”  This is one reason why you should find out what happened to the last few pre-partners that have worked with the group.  If you stay with the group long-term, you should get back from future partners more than what you “paid” while you were in the partnership track.

Once you make partner, you’re entitled to this variably-sized chunk of cash, which usually makes for a nice raise, probably the last one you’ll see in your life.  Just like with any raise, don’t grow completely into it.

Additional Expenses

With that additional money, however, also comes additional responsibility.  The partnership is a business, and if it isn’t run well, it will go out of business.  Plus, I’m now responsible for all the costs the partners were picking up for me previously.  These costs are not insignificant.  Take a look at what the partners were paying for me above and beyond my salary:

  • Malpractice Insurance: $16,959 per year (That’s pretty good.  Many gynecologists and neurosurgeons are paying 6 times that.)
  • Health Insurance: $8562.64 per year  Plus my effective deductible has gone from $250 to $6000.
  • Dental Insurance: $1152 per year
  • Social Security Tax: $6869.60
  • Medicare Tax: ~$3190 (Plus 2.9% of all the additional money I make)
  • Total: $36,733.24

In addition to what they were paying for me before, I’m also indirectly responsible for my share of the costs of running the business:

  • Administrative expenses: ~3-5% of revenue
  • Coding/Billing costs: ~7-9% of revenue
  • Employee salaries
  • Employee benefits
  • Office expenses
  • Unemployment taxes
  • Legal and accounting fees
  • Workers compensation payments
  • Gifts/Parties etc

Luckily, since money spent on this stuff isn’t profit, I don’t have to pay taxes on it.  Next time I’ll discuss the ways in which making partner has made my own personal finances more complex.



Making Partner — 6 Comments

  1. Yes, I technically own part of the business. But if I stop working, my percentage of the group’s income is 0%. In emergency medicine, your only assets are really your accounts receivable. So I would own my share of that. That would be my buy-out. So whenever I retire or the group is dissolved I would get a little cash. In a typical EM group that would be a 5 figure amount.

  2. If accounts receivable is payment not received for work done, when you ” buy in” the AR what are you buying. After working for a group for any period of time you create AR, longer you work the AR keeps growing….

    What am I buying in on? Isn’t this just the cash owed for the work already done ?

  3. Thank you for your answers to my past questions (backdoor Roth and XIRR) – I’ve searched your site for information on buying into a practice, however, this post was the only relevant information (other than lists of mistakes made by other people). I have an option of buying into the practice I work for, and I do not even know where to begin determining if it would be a good choice for me, and how to do risk-benefit analysis. I presently do not have a financial advisor or a tax accountant whom I would consider competent, nor without ulterior motives – so no professional to turn to on this question.

    Your site is very helpful with detailed practical information on how to do certain things (ex: how to get out of whole life insurance, how to set up mega-backdoor roth) – would you point me to an outside resource that is comparably practical (or if I overlooked, on your site) – about how to evaluate a medical practice buy-in? Thank you!

    • I wish I had a post like that or at least had somewhere to send you. I don’t, and, unfortunately, every partnership situation is different. Perhaps I can help via email. It is probably also worth going over it with a healthcare attorney in your state.

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