Nephrology Practice Partnership Agreements: What Should Physicians Consider?
A partnership can allow nephrologists to share ownership, responsibilities, expenses, and the opportunities associated with running a medical practice. However, a successful partnership requires clear expectations from the beginning. For physicians considering nephrology practice financing, understanding the financial and operational responsibilities outlined in a partnership agreement can also be important when planning for growth or a future ownership transition.
What Is a Practice Partnership Agreement?
A partnership agreement establishes how the owners will operate the practice and how important business decisions will be handled.
The agreement may address ownership percentages, responsibilities, compensation, decision-making, expenses, and what happens if one partner eventually leaves.
The specific terms should be developed with qualified legal and financial professionals.
Define Each Partner’s Ownership Interest
The agreement should clearly establish who owns the practice and what percentage belongs to each partner.
Ownership percentages can affect voting rights, distributions, financial responsibilities, and the proceeds a partner may receive when leaving the practice.
Clear documentation can help prevent disagreements later.
Establish How Decisions Will Be Made
Partners should understand how major business decisions will be handled.
The agreement may establish which decisions require approval from all owners and which can be made by an individual partner.
Important decisions could include:
- Hiring or terminating key employees
- Purchasing major equipment
- Taking on significant debt
- Opening another location
- Acquiring another practice
- Purchasing or selling real estate
- Adding a new partner
Having these rules established in advance can make business decisions easier.
Determine How Partners Will Be Compensated
Partners should understand how compensation and ownership distributions will work.
Compensation may reflect clinical work, administrative responsibilities, or other contributions, while distributions may reflect ownership interests.
Because partners may have different workloads, responsibilities, or ownership percentages, these arrangements should be clearly defined.
Address Practice Expenses
The agreement should also explain how business expenses will be handled.
Partners may need to determine how they will contribute capital when the practice requires additional funds and how expenses will be allocated among the owners.
This becomes particularly important when the practice is expanding or making a significant investment.
Plan for Additional Financing
A growing practice may eventually need financing for acquisitions, real estate, equipment, renovations, or other business purposes.
Partners should understand who has authority to approve new borrowing and how additional debt will affect the practice and its owners.
Establishing a decision-making process before financing is needed can prevent disagreements when an opportunity arises.
Consider What Happens When a Partner Wants to Leave
A partnership agreement should address what happens if one physician wants to sell their ownership interest or retire.
The agreement may establish whether the remaining partners have an opportunity to purchase the departing physician’s interest before it can be offered to an outside buyer.
Having a defined process can make an eventual transition more predictable.
Plan for a Partner Buyout
The agreement should also explain how a departing partner’s ownership interest will be valued.
The parties may establish a valuation process or identify a qualified valuation professional to determine the value at the time of the transition.
The agreement can also address how the buyout will be paid.
In some situations, the purchasing partner may need financing to complete the buyout.
Address Unexpected Events
Partnership agreements should not focus only on planned retirements.
Owners should consider what happens if a partner becomes unable to work, dies, or otherwise needs to leave the practice unexpectedly.
A clear process can help protect both the departing physician’s interests and the continued operation of the practice.
Consider Adding New Partners
A growing nephrology practice may eventually want to bring another physician into ownership.
The partnership agreement should establish how new owners can be admitted and how their ownership interest will be determined.
This can help avoid uncertainty when the practice grows and additional physicians become interested in ownership.
Define Partner Responsibilities
Partners may divide clinical, administrative, and management responsibilities differently.
The agreement should provide clarity about who is responsible for major areas of the business.
Clearly defined responsibilities can help reduce overlap and make it easier to hold each partner accountable.
Consider Non-Clinical Business Responsibilities
Running a practice involves responsibilities beyond patient care.
Partners may need to oversee areas such as financial management, staffing, technology, vendor relationships, compliance, and strategic planning.
Dividing these responsibilities can allow each partner to contribute based on their strengths and interests.
Review the Agreement as the Practice Grows
A partnership agreement should not necessarily remain unchanged forever.
The practice may eventually add physicians, acquire another practice, open another location, purchase real estate, or change its ownership structure.
Major changes may create a reason to review the agreement with qualified professionals and determine whether updates are appropriate.
Don’t Rely on Verbal Agreements
Partners may have a strong working relationship when they initially enter the practice.
However, relying solely on verbal understandings can create problems if circumstances change.
Putting important financial and operational expectations into a formal agreement gives all partners a clear reference point.
Work With Qualified Professionals
Partnership agreements can involve legal, tax, valuation, and financial considerations.
Physicians should consider working with qualified professionals who understand healthcare businesses when creating or revising an agreement.
This can help ensure the agreement addresses the specific circumstances of the practice and its owners.
Final Thought
A well-structured partnership agreement can give nephrologists a clearer understanding of how their practice will be owned, operated, financed, and transitioned over time.
Addressing ownership, compensation, responsibilities, decision-making, partner departures, buyouts, and unexpected events before problems occur can help protect both the physicians and the practice.
As a nephrology practice grows, reviewing the agreement periodically can also help ensure that it continues to reflect the owners’ goals and the needs of the business.
