Successful Exit Planning for Physicians

April 25, 2011
Keith L. Martin

Whether planned or unplanned, a physician's departure from your practice will definitely have an impact, so be prepared.

In his first week as executive administrator of Louisville Pulmonary Care in Kentucky, Steven E. Ratliff, Jr., was told that one of the founding members of the practice and one of the most productive doctors as well, was leaving - in 12 weeks.

The decision had nothing to do with Ratliff's addition, but rather the physician - seeking a lifestyle change - had accepted the role of chief medical officer at a local hospital.

Luckily, the other 10 physicians at the practice fully supported the transition of their colleague, a well-respected member of the community, and agreed to a plan to buy him out as a partner while retaining him as an employed physician to help out with on-call duties on the weekend - as he still has a desire to practice.

"He put his heart and soul into this practice," Ratliff said. "The partners have a great collegial working relationship with one another, so while they are all very sorry to see him go, they understand the reasoning and respect him for that."

Not all physician departures are as smooth, however, and some can be downright contentious, leading to lengthy and expensive legal battles, division of practice staff, and departure of patients. Whether you have 12 months, 12 weeks, or 12 hours to react to such a departure, there are things you can do today to ensure that a physician leaving your practice doesn't leave your practice in jeopardy.

Planning for an exit at the entrance

If you're hiring a new physician, then you should already be thinking about his exit, says Martin Shehan, senior consultant with Healthcare Strategy Group, also in Louisville.

"When a physician is hired, it is critical the employment agreement spell out terms, separation, definition of termination and things like this," he said. "This is very, very critical."

Shehan adds that you also should spell out compensation issues and stock agreements, just like a pre-nuptial agreement if you were getting married, in well-defined and specific legal documents.

Matt Dickstein, a Fremont, Calif.-based business attorney who advises medical practices, agrees - both on the pre-planning and on the pre-nuptial analogy. Failure to go into a new physician agreement without an exit in mind, he says, "means that exit is going to be ugly. Things may have been wonderful in the beginning, but at the end, it is not the same."

So in creating your employment contracts, be clear and detail the notice period so that as a practice, you are not left high and dry years later. Include a notice period anywhere between 30 and 90 days, Dickstein says, to give you enough time to plan to hire a new physician as a successor.

Pre-planning also helps address the unexpected death of a physician, Shehan says, when you have to address compensation and other issues with grieving family members.

Avoid a bitter break-up

Also consider a non-compete clause - if your state permits one - as well as a non-solicitation of your practice staff. Non-compete clauses should clearly state what happens if a physician leaves to join or create another practice, including prohibiting use of trade secrets that could harm the former practice and any geographic limits to where he can practice, according to Dickstein.

He also says you don't want to lose your front-desk or other staff due to an ugly defection of a physician to another practice, so also be clear about what contact a departing physician can have with staff members.

Shehan notes that there will also be differences for employed physicians versus a partner or owner in the practice, the latter requiring a more sophisticated document to address buy-in, stocks, and other financial issues.

"You spelled out to them how to come in as a partner, and now, you are doing it in reverse in separating from the practice," Shehan says.

Given the right documentation, you can avoid an ugly split that can impact both staff and patients. But not every departure needs to be negative, adds Shehan.

He says the departing physician and remaining staff should all agree on communication with patients via phone or in person ahead of a public announcement. By indicating, "Dr. Smith has decided to pursue other opportunities outside of the practice," and giving an end date, that's all you need to say.

Now if patients want more information - and you have it and are willing to share - fine, Shehan says. No matter what you say, he advises, say it positively.

At Louisville Pulmonary Care, the departing physician wrote a letter to all of his patients, indicating his change of career and for some patients who he had seen for more than a decade, he rescheduled appointments prior to his departure to discuss seeing a new physician at the practice.

Dealing with retirements

Perhaps a physician is not just leaving your practice, but the entire healthcare industry altogether. Shehan views retirement pre-planning like a series of steps, beginning with succession planning as much as three to five years prior to a pending retirement. This gives the practice a better opportunity for a smooth transition for the practice and its patients.

When that timeline gets down to a year, he says, start discussing changes in compensation, like a fixed salary rather than one based on productivity if that physician's patient load decreases. When you get to six months, then it's time to start making announcements to the community, through letters, newsletters, on the practice website and especially from the retiring physician himself during appointments.

This is also an ideal time for the retiring physician to introduce his successor and perhaps have her shadow him, but Shehan cautions, don't just assume patients will stay with your practice. You should, however, make the best effort to retain them.

"By saying 'here is how you'll be provided in the future if you wish,' or 'Dr. Smith will be taking over my patients, if you choose to stay with the practice,' you aren't presumptuous," he says. "It is up to the patient.”

Map out the future

To prepare for upcoming departures, like retirements, consulting firm PYA of Knoxville, Tenn., sometimes creates a "physician status standards" spreadsheet, looking at all the physicians at a practice, defining roles such as employee, full partner, senior partner, etc., and within that chart, spelling out the timeframe to achieve each role as well.

For example, it is clearly stated that a senior physician becomes eligible for that status at a certain service time and for specified number of years, making it very clear up front.

"Once you set up that master schedule, you can revisit it on an annual basis, then go through a gap analysis to determine how decisions [regarding departures] will impact a practice, says Jon-David Deeson, a shareholder at PYA.

Deeson says it is critical to address issues like departures and plan in advance, even if it means an uncomfortable conversation with colleagues.

"Practices need to force themselves to have these planning discussions, to get to some agreement where you can remove a lot of the emotion associated with individual physician circumstances when they come up," he says.

State of Franklin Healthcare Associates, based in Johnson City, Tenn., recently did the physician status standard process with PYA for the 65 physicians that make up their practice.

Practice CEO Rich Panek says the succession planning exercise sets standards around compensation and workload well in advance.

"Once you put these standards in place, you know the rules you are working under and it sets the tone for an orderly transition, taking a great deal of emotion or the subjective judgment out of the decision,” he says.

Keith L. Martin is managing editor at Physicians Practice. He can be reached at keith.martin@ubm.com.

This article originally appeared in the May 2011 issue of Physicians Practice.