Question: I know I need to keep the seller on for six months or a year after I buy a practice. How do I structure the agreement to protect myself as the buyer?
Timothy G. Giroux, DDS
Having been involved in over one thousand practice transitions since 2001, I can state with confidence that keeping the seller on board after a sale may do more harm than good. The following are my observations over the past years:
1. People are creatures of habit. They shop at the same store, get their hair cut at the same place, and so on. This preference for the familiar extends to health-care providers. Patients become familiar with the staff, they know their x-rays and records are with their trusted provider, and they certainly don’t want to go someplace new and get irradiated unnecessarily. If their provider leaves, they may as well give the replacement a shot since they received a nice letter of introduction.
2. Patients will almost always choose their long-time dentist over a new provider. If the selling doctor comes in once a week or once a month, many patients will wait weeks or months if given a choice. If patients are given a treatment recommendation from the new dentist, but see the selling dentist in the office, many times they will ask the selling dentist if it is really needed. Sometimes staff get caught in the middle of a perceived difference of opinion between the seller and buyer regarding treatment of patients or new policies.
3. Recent dental graduates have much more debt than older graduates. They need most of the profit of the practice they are buying to pay their debts and family financial obligations. If they can handle the amount of dentistry being produced in the practice, we suggest that they provide those services on their own to maximize cash flow.
If a buyer needs the seller to continue to perform procedures, then a basic associate agreement prepared by an attorney will protect the buyer. Obviously, the seller needs to support the buyer in all aspects of the business and can be terminated at the buyer’s discretion. Some sellers are better team players than others and can be helpful in a transition, but normally they are not really needed. The buyer is the new CEO of the business and any agreement to keep a seller in the practice should reflect that.
Thomas L. Snyder, DMD, MBA
The best way to protect yourself is to have an employment agreement prepared outlining the seller’s responsibilities as an employee in your new practice.
There are a few points to consider when crafting this agreement. The employment term should be clearly stated. If there is some uncertainty about the time the seller will be employed, opt for a shorter period such as six months, and then add a month-to-month extension to give you flexibility. The seller must agree to adhere to all clinical, administrative, and financial policies that you will be establishing to run your new dental business.
Regarding patient distribution, you must retain control and must not guarantee the seller a specific number of patients. However, if the seller has initiated treatment prior to settlement, those cases should be completed by the seller during the employment phase. If you are concerned about the seller taking on cases where the treatment plan calls for more advanced procedures, a patient distribution clause can prevent that from happening. Any payments for clinical services provided by the seller must be made to your practice and remuneration processed based on the compensation arrangement that you have negotiated. A clause should be included limiting the seller from referring any patients out of the practice for any reason without your consent, unless of course, procedures being referred out are beyond the skill and ability of the providers. The seller should also agree that he or she will maintain confidentiality and abide by the record-keeping protocols that you have established.
Clauses for termination for cause must be clearly stated so there is no ambiguity if an action occurs warranting the seller’s dismissal. Finally, the restrictive covenant and nonsolicitation agreements, which were recited in the practice purchase agreement, should take effect upon termination of the seller’s employment.
You are never protected 100% from actions that a seller may take in your employ, but making sure these issues are included in your employment agreement should help mitigate that risk.
