0:00

The last issues we want

0:01

to consider in the employment agreement

0:04

and in the employment relationship itself is

0:06

what opportunities you will have in order

0:08

to become an owner of the employer.

0:11

And what exactly does this mean?

0:13

There are lots of different models of ownership

0:16

that exist in the healthcare space,

0:18

and you need to be very careful

0:20

and understanding of what the employer has in mind.

0:23

They may have in mind that you're gonna be an equal owner

0:25

of the physician group, that you're gonna be allowed

0:27

to fully participate in ownership in governance decisions,

0:31

and all matters related to the practice,

0:33

including the revenues of the practice.

0:35

In other cases, it may mean something completely different.

0:38

It may mean that you have some partial ownership

0:41

that vest over a period of time that doesn't entitle you

0:44

to all the revenues

0:45

or all the, the financial benefits

0:48

that the practice may obtain.

0:49

So it's very important for you to understand

0:52

what opportunities are gonna be presented down the road

0:55

after the completion of your initial term of employment

0:58

to understand like what it means to be an employer

1:01

of the actual employer organization.

1:03

You also wanna understand

1:05

what opportunities may exist in owning related entities.

1:08

For example, there may be entities that own

1:10

and operate equipment companies own

1:12

or operate real estate companies or own

1:15

and operate freestanding diagnostic imaging centers.

1:19

You need to understand that whether

1:20

or not you're gonna have the opportunity to buy in

1:23

and, uh, when those buy-in opportunities

1:25

are gonna present themselves.

1:27

The next thing you need to consider is

1:28

what is actually the cost of buying in whether

1:32

or not there's any debt that you'd have

1:34

to personally guarantee in order to buy in.

1:37

And what is the terms

1:39

of which you're gonna be bought out from your ownership

1:41

interest in these organizations?

1:43

It's not uncommon to see a vesting concept that applies

1:47

to buyouts where you may buy in at full price,

1:49

but you're bought out, you know, at 25 or 50%

1:53

or 75% over a stage period of time in order to keep you

1:58

invested in the entity over a longer period of time.

2:00

Uh, and the last thing you need to consider is just

2:03

how are you going to pay for your buy-in?

2:06

In certain circumstances, you can see a phase buy-in

2:09

to a practice where your distributions

2:12

as an owner are reduced

2:14

and gradually increase over a period of time to the point

2:17

where you fully participate

2:19

as an owner in the actual practice or a related entity.

2:22

So these are all very critically important issues

2:25

that need to be discussed.

2:27

You may not get them down in writing as part

2:29

of your employment package,

2:31

but you should certainly understand the circumstances

2:34

and the terms upon which you're gonna be

2:36

provided the opportunity to participate as an owner

2:40

in making a decision of whether or not you're gonna work for

2:43

or buy into a particular practice.

2:46

There are lots of different considerations you have

2:48

to weigh, including the personalities

2:50

and the age of the current owners, the ownership income,

2:54

the ancillary business income and opportunities.

2:57

What are the obligations

2:58

To buy out existing owners and debt?

3:01

Whether or not you're gonna have

3:02

to personally guarantee it, what's the amount?

3:04

Are you jointing several with all other owners?

3:06

These are all critical issues on the,

3:09

the the prior point about buying out existing owners.

3:12

You need to know if there is an avalanche of

3:15

of senior physicians that are getting ready to retire,

3:18

that could have a very meaningful

3:20

and critical impact on the go forward operations

3:25

of the practice and the amount of distributions

3:28

that are available to the owners

3:29

to fund buying out these senior physicians.

3:32

This is why not every opportunity is the same,

3:35

particularly if there are big buyout obligations

3:38

that are coming in the future.

3:40

And the only way that you can survive that is

3:43

by having more physicians come in behind you to make sure

3:45

that there's a continuing stream of owners that are willing

3:48

to pay out and keep the process going.

3:52

In addition to kind of issues that are exist in terms

3:54

of choosing the practice, private equity has played a much

3:57

bigger role in healthcare over the course

3:59

of the last two decades.

4:01

And it is a very important part of both my practice

4:06

and in everything In terms of the healthcare operations

4:08

and the healthcare environment.

4:09

We work in private equity platforms have to work

4:13

around the corporate practice prohibitions

4:15

that prohibit non-physicians from owning practices.

4:18

They typically do this by having management vehicles

4:21

that manage physician practices.

4:24

And so you need to understand if you're working

4:27

for a private equity platform

4:28

and they present you with an opportunity to invest

4:30

what exactly it is that you're investing in

4:33

and how are you gonna participate.

4:36

There's typically a financial waterfall that

4:40

pays the financial sponsor, the private equity firm itself

4:43

before other people participate.

4:45

And you wanna know if you're buying into this private equity

4:48

platform where you fall on that waterfall,

4:51

it helps you determine whether

4:52

or not you can foresee any future world

4:56

where you could actually receive any financial

4:58

remuneration from your investment.

4:59

It is not uncommon.

5:01

It's actually probably would be an exception

5:03

to the rule if there weren't vesting terms on the actual

5:06

investment opportunity there.

5:09

They're typically subject

5:10

to punitive repurchase terms if there's a

5:12

separation of employment.

5:14

And then, you know, you need to consider whether

5:16

or not if the private equity sponsor is selling its

5:20

ownership interest, whether

5:21

or not you get to participate in the sale

5:23

of the portfolio company.

5:25

My experience is that the private equity firm wants you

5:29

to continue to remain an owner in the platform.

5:32

It allows for the platform to get a higher valuation

5:36

if the physician owners remain.

5:38

And so it's not uncommon to see a requirement

5:41

that if you are allowed to participate in the sale

5:43

of the company, you can only participate between 40

5:46

and 60% of your actual ownership interest

5:49

and the actual sale.

5:50

And then you have to continue as an owner

5:52

of the platform going forward.

5:54

You know, private equity presents its own unique challenges

5:57

and opportunities for physicians in the healthcare space.

6:00

Um, and so you just need to be very careful

6:02

and very understanding of what

6:04

that relationship will look like.

6:06

In addition to private equity, we've seen a number

6:09

of different physician practices adopt what's referred to

6:12

as an ESOP

6:13

or move to an esop,

6:14

which is an employee stock ownership platform.

6:17

Um, this is essentially a retirement plan that owns all

6:22

or a portion of the practice

6:24

and that you get to participate over a period of time

6:28

and the continued growth of the platform

6:30

as it continues to advance.

6:32

Um, typically the benefits

6:35

of having an ownership interest in an ESOP are paid out upon

6:38

separation or retirement of employment with the, uh,

6:41

with the practice platform.

6:43

And it can be a very financially solid retirement plan.

6:48

Uh, addition if your employer elects to adopt an ESOP model,

6:52

um, that's a very complicated model.

6:55

Um, there's lots of different issues in terms of the vesting

6:57

and how you participate,

6:59

but if you working for in healthcare,

7:02

the ESOP is becoming a growing and more important model.

7:05

Physicians are using to monetize their platforms

7:10

and to also retain and recruit new physicians.

7:12

Uh, it's a very key tool.