There are several ways a doctor can join your medical practice. As the owner of the practice, it is important for you to understand the key differences between each arrangement, and ensure you have the right agreements in place.
Independent Practitioner (or ‘Associate’)
Doctors who use your staff and facilities in exchange for paying you a cut of their patient fees are independent practitioners. They do not carry on a joint business with you, rather they run their practices independently, and you provide them with services. Income and profits are not shared with you and therefore you are not in partnership. If you also practice as a doctor alongside these associates, then your co-operation is limited to using the same premises, administration, and clinical support services. In this scenario, you need to enter a Practice Services Agreement with the new doctor. This is an important document that defines your relationship, sets out your rights and obligations, and makes it clear that you are not liable for the independent doctor’s actions, debts, or liabilities, such as professional indemnity, insurance, lab fees, travel and CPD costs. If you need a Practice Services Agreement with an independent doctor, give us a call on 1300 654 590 or email us.
Employed Practitioner
A doctor engaged by you to work in your medical business who performs tasks under your direction and control will be your employee. They may be a permanent full-time or part-time employee, or a casual locum. Employees have entitlements to wages or salary, annual leave, long service leave, sick leave, redundancy pay, superannuation and other benefits. You will also be vicariously liable for the actions of your employed doctors. An Employment Contract with an employee doctor is essential. Take some time to get it right. These agreements are usually very comprehensive documents covering such things as the scope of duties, protection of intellectual property, confidentiality, notice periods, and non-compete terms. In some cases, if you are providing accommodation for the employee doctor as part of the remuneration package (not unusual in rural practices), a Residential Licence with terms tied to the employment contract may be required. The engagement of a new doctor may also prompt the tightening up or implementation of new Workplace Policies & Procedures. If you need an Employment Contract with your employed doctor or help with the drafting of suitable Workplace Policies & Procedures, give us a call on 1300 654 590 or email us.
Partner Doctor
If you agreed with one or more parties to operate a medical practice together and to share the profits and losses, then you will be in partnership. Each partner is jointly and severally liable for the actions of all the other partners. The two agreements that we think are essential in these circumstances are a Partnership Agreement and a Buy-Sell Deed. A Partnership Agreement sets out how you will run your practice. Although it includes a lot of high-level governance requirements, the most important things this document covers are the more practical ones. For example, how will the profits be split? How often will profits be distributed? How much is each partner required to work? What happens if a partner can’t work for a period due to unforeseen circumstances? Who will have access to the bank account? Who can authorise payments? How will you decide whether to take on a new partner? We can provide you with a comprehensive list of the matters you will need to consider. A Buy-Sell Deed concentrates on the exit scenarios to ensure that you have a plan in place if something comes up to trigger an exit of a partner. The document should always cover unexpected exit events such as death, trauma (injury or illness) and total and permanent disablement (TPD). Preferably, the partners take out insurance to ‘fund’ these events so that the remaining partners don’t have to quickly come up with some cash if a partner must exit unexpectedly. Buy-Sell Deeds can also extend to other ‘voluntary’ exit events such as retirement, divorce, and personal bankruptcy. In those cases, the other partners usually want a clear path to value the partner’s interest and buy them out over time. This document allows you to agree in advance on what that process will look like, so there are no fisticuffs when an exit is on the table. It is important that upon the entry and exit of partners, the Partnership Agreement and Buy-Sell Deed are updated and re-signed to ensure that they reflect the new partnership composition. If you need help getting an agreement in place with your partners, call us on 1300 654 590 or email us.
Shareholder Doctor
The disadvantage of a partnership is shared liability. If one doctor makes a bad business decision, then you may all face the consequences. Another drawback is the difficulty in ensuring the partnership agreement is signed each time a new partner enters, or an old partner exits. For this reason, medical practices are often conducted through a practice company that employs all the doctors. This is also the case for large ‘corporate’ medical practices. The practice company owns the practice assets, employs the doctors, manages the business, and provides clinical and administrative support. If a doctor has been offered ‘equity’ in the business, they will be invited to acquire shares and may also become a director of the practice company. The advantage of a company structure is that the liability of its shareholders is limited to the value of their shareholdings. Most companies have two governing documents. The first, a Company Constitution, is a contract between the company, its members, and its directors, that documents the company’s management rules – the powers and duties of the company directors, the role of the company secretary, shares and shareholder rights, meetings and so forth. The second document is a Shareholders’ Agreement that elaborates on any arrangements that the shareholders wish to put in place about strategic considerations, operational decisions, valuation of equity, and the sale and redemption of shares as doctors enter and exit the practice. It is usually our preference to forego the Shareholders’ Agreement and prepare a single comprehensive Tailored Company Constitution in these situations. There are a number of good reasons for this, and we encourage you to read this article. However, just from an administrative point of view, it makes sense. A Shareholders’ Agreement rarely gets signed by all the members and can be overlooked when new members are admitted. On the other hand, agreement to the terms of the Constitution is automatically part of the process of becoming a shareholder. If you would like help putting a corporate medical structure in place for your medical practice, call us on 1300 654 590.
How we can help
We work with a lot of medical practice owners, and we’re familiar with your key concerns. We know most of you are time-poor, but that you also value a considered and comprehensive outcome. We can provide practical tailored solutions to make your life easier while dotting all the i’s and crossing all the t’s. Call us on 1300 654 590 to have a chat today or email us.
The information contained in this post was reviewed on 24 April 2022.
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