The placement of an associate in a medical practice requires a great deal of thought and consideration. It is a unique relationship and one that often becomes more binding on each party with time. It begins as an employer-employee relationship and, if the relationship prospers, ends with the associate joining the practice as an equity partner. This process usually takes two to three years. It is a type of “courtship” between the parties as they grow to know each other and becomes more binding with time. Each party has brought certain assets to the practice, and their contributions will lead to its growth and increased value.

The associate will often bring to the practice new skills and recent training. He can help the established doctor increase his medical skills and knowledge. He can help increase the patient base in both types and volume. He will provide coverage for on-call and vacation times. He will provide revenue production to offset certain fixed overhead costs. Finally, he will provide some capital contribution upon entering the partnership.

The established doctor will provide a patient base and reputation upon which the practice can expand. He provides the office, equipment, and staff necessary to conduct business. He also provides practice management and billing skills of which most associates have little knowledge. Finally, he provides introduction and marketing of the associate into the local and medical communities.

It is very important that each party carefully consider why they want to enter into this relationship. The choice of adding an associate to a practice or choosing to be an associate can lead to significant rewards or adverse consequences, depending upon the outcome. The expectations, obligations, and motivations of each party must be clearly defined. Finally, the practice itself must be reviewed and found capable of supporting a new doctor, both in its infrastructure and the needs of the community.

An associate's motivation for entering into the relationship include job security, a guaranteed base salary, and benefits. They want to learn practice management and billing skills. They may want to establish a relationship with a well known practice or individual. They may want to live in a certain locale. Finally, they want to build equity in a practice for their future.

An established practitioner’s motivation for entering the relationship include increasing the practice revenue base to offset fixed overhead expenses, and increase coverage for leisure time. They may want to increase their medical skills and provide a greater range of services for the patient and medical communities. They may want to begin planning for their future retirement and capitalization of the existing equity in their practice.

It is very important to avoid unrealistic expectations and practices between the parties. Some associates may think they should be compensated far more than is reasonable for the level of revenue they are going to produce as a new practitioner. Unfortunately, just because an individual may have extensive residency training, they often will not initially see the volume of patients necessary to utilize those skills. On the other hand, the established practitioner should not use an associate to produce revenue in excess of their compensation or to just see undesirable patients. These practices, or the perception of these practices, can lend to dangerous misconceptions by both parties. The associate may think the “fat cat” established doctor is just using him and trying to make a profit off his work. The established doctor may think the “hotshot” associate, who has not paid his dues, wants money he has not earned.

The key to avoiding these problems is to be fair. Each party must look at the relationship from the other party’s standpoint. The compensation, responsibilities, and the long term goals must be balanced and clearly defined for both of the parties in the associate employment contract. This contract will have penalties for either party’s failure to abide by its obligations.

Compensation for an associate can be a set salary, a percentage of collected revenue, or a combination of the two methods. A set salary provides security for the associate but little incentive for them to work harder. It may be a liability for the employer if the associate is not producing enough revenue to support their salary. A percentage of collected revenue may compensate an associate for what they earn and definitely provides incentive for the associate to see patients. However, it may be a liability for the associate because, as a new practitioner, they initially might not see enough patients to compensate them for their basic living/financial expenses. The combination of a base salary plus establishing a threshold point for revenue beyond which a bonus percentage of the revenue is paid provides the associate with security that basic living expenses will be met and financial incentive to work harder. This threshold point is usually based on the operating overhead percentage of gross revenue. If a practice operates with a 66% overhead of gross revenue and you pay an associate’s base salary at $52,000, then the threshold point would be $156,000. Beyond this, an associate may earn one third of all collected revenue they generate. Additional consideration must be given towards who will pay for such items as health insurance, disability insurance, life insurance, malpractice insurance, licensure/application fees and continued education expenses. The combination of these expenses alone may be $15-20,000.

Finally, the ultimate goal of most associateships will be to become a equal equity partner. How to achieve this must be clearly defined in the associate contract. The term of this contract is usually two-three years. During this time, the associate will work to increase the patient base and revenue of the practice, thereby adding to its equity. Therefore, the value of the practice must be established before the associate joins the practice. This value will provide the basis for the associate buy-in to the practice.

There are several ways an associate can make the capital contribution toward partnership buy-in. If the contract is written correctly, it can be done with pre-tax dollars. The associate contract should also allow for early breach, but provide penalties for later breach. Many contracts will allow for a six month clause with no penalty for breach. This allows for discovery of personality, medical, or ethical differences not conducive to a continued relationship. However, breach beyond 6 months may result in a covenant not to compete for the associate or financial penalty to the established doctor equal to the equity contribution of the associate to the current value of the practice.

Obviously, there is much to consider when placing an associate in a medical practice. It is a decision that will have significant impact the lives of at least two doctors and their families. If the attitude of all parties is to be honest and fair, the result will have the greatest chance of success.