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This Episode

Interview w/ Jeff Sansweet

You Will Learn

 – When restrictive covenants (aka noncompete clauses) may or may not be enforceable.
 – Legal pitfalls to consider when buying into a partnership or bringing in a partner.
 – The importance of both clinical harmony and business harmony within a (potential) partnership
 – How long of a “trial period” for a partnership track should you expect for a pain practice?
 – Which type of entities should you consider when forming your practice?
 – Why it’s important to sign a lease in the name of an entity rather than in your personal name.
 – Legal considerations for locums anesthesiologists.
 – How is a typical noncompete structured?  In what states noncompetes enforceable?
 – What are the differences between a typical urban noncompete radius vs. a suburban or rural radius?
 – What type of noncompete should you expect as a seller of a practice?
 – What are the different considerations for a noncompete with a contract with a big employer vs. a small employer?

Resources & Links

This week I talk with healthcare attorney Jeff Sansweet about all sorts of legal issues and questions faced by physicians. If you’ve ever wondered about whether or not you should engage an attorney, the most important parts of an employment agreement, or considerations for selecting an entity type for your practice, you won’t want to miss this episode.

Show Transcript

[[this transcript was auto-generated]]

Jeff: [00:00:00] There aren’t strict rules on what is it enforceable and what is not. Instead, it’s up to a judge or a jury as to what’s quote reasonable in time and geographic restriction. The general trend is that judges don’t like to restrict people from working sooner.

Justin: [00:00:20] Hey, this is Justin Harvey, your host of the anesthesia success podcast. My wife has an anesthesia resident and I’m a financial planner and I work with anesthesia and pain doctors as my clients. This podcast is designed to help the anesthesia community informed about their careers, their finances, and more by taking important questions straight to the experts. Thanks for tuning in this week I’m talking to Jeff Samsweet, who is a health care attorney in Philadelphia. This is a conversation I’ve been trying to have for some time now and I think that the content of today’s discussion is going to be really helpful in thinking about things like employment agreements, enforceability of noncompete clauses, entity selection for setting up practice, and lots of other important things with regards to legal questions surrounding the practice of pain and anesthesia. I learned a ton in speaking with Jeff and I hope that you do as well. Note the usual disclaimers will apply for this episode, so the content of this discussion should not be construed as legal or tax advice. Jeff is an attorney but there are many state specific issues addressed and you should have a qualified attorney familiar with your state and your situation, address your specific legal concerns. In addition that we recorded this episode outside on a beautiful sunny afternoon, so there might be a little bit of background noise and with that out of the way now for this week’s show,

Justin: [00:01:39] hello everyone. Welcome to this episode of anesthesia success. I’m here with my friend Jeff Sand. Sweet Jeff is a health care attorney based out of the Philadelphia area and we’ve had some great conversations recently pertaining to helping early career physicians with some of the legal questions and issues that they run into in the course of growing their clinical practice. So I’m really grateful that Jeff has given us a little bit of his time here on this sunny day or sitting outside drinking a beer and having a conversation about helping, positions address their legal needs during the, the years in which they’re building their career. So Jeff, thanks for joining me today.

Jeff: [00:02:12] My pleasure, Justin. Thanks for having me. And hello to all you listeners out there, let me just tell you a little bit about my background and how I got into this business. I went to a university of Pennsylvania Undergrad. It was an accounting major and then went on to Villanova law school. And right out of law school joined a small firm that mostly represented doctors and dentists and a little more than 33 years later. I’m still at the firm now. I’m basically known as a health care attorney. That phrase didn’t even exist back in 1985. But I represent physicians from residency all the way through retirement. In thereafter I review employment agreements for residents and fellows, helped them also become partners when when the time comes and review all those documents, represent a lot of medical and dental groups also and help them hire the physicians and dentists and help them structure the buy ins and buy outs.

Jeff: [00:03:15] Also have helped many physicians and dentists buy and sell practices, mergers. Also helping the real estate field with leases that were a little bit of labor law employee issues. I also have my master’s in taxation so I can help with any tax or employee benefit issues that arise. Basically an attorney that can help physicians and dentists, with any and all of their legal needs. And the Nice thing about it too is that because I have so much experience dealing in these matters that, that I, I kind of know the language, know the issues more than say a typical corporate attorney or contract attorney that doesn’t really know the field. So that’s, that’s where I’m coming from.

Justin: [00:04:01] That makes a lot of sense. So it’s, I think it’s great, you know that from the very beginning of the career to the conclusion of the career with the pie in and the sale of the practice, you kind of managed the beginning, the end and everything in between. So what I want to do is kind of unpack what are the, what are the legal needs of a position? So especially, you know, this podcast is designed to address the needs of anesthesiologists and pain positions. And so those are two obviously different specialties that in the legal context are going to have slightly different needs. So let’s talk about like an early career pain physician. For example. You know, you’re, you’re wrapping a residency and fellowship and you’re starting out in practice on your own. You’re trying to make a decision of maybe buying into a group and understanding what does it look like for me to buy into a group? How do I know if I’m getting a good deal? How do I know if I even need an attorney for these things? How, how would you kick off that conversation with somebody who’s having that internal dialogue?

Jeff: [00:04:52] That’s a good question. I mean you definitely should engage an attorney. Obviously that’s a self serving comment of mine cause that’s how I make a living. Right. But whether you’re joining a practice as an employee or independent contractor or starting your own practice or becoming a partner in a practice, there’s a myriad of, of legal issues and you know, after all the years and you spend and the money you’ve spent on your own, your medical education, you really owe it to yourself to get a good group of advisers. You know, including an attorney in the healthcare field, including an accountant who knows healthcare and including a financial planner, an insurance person. you owe it to yourself to, to, to do that.

Justin: [00:05:42] Now when it, whenever you are engaged by an early career physician, do you find that you are coming in as, as part of a team that this position is assembling or are you maybe sometimes the first person with like the boots on the ground, like they need you maybe where they need an accountant and a financial plan

Jeff: [00:05:58] It kind of depends on what they’re doing. If they’re, if they’re going to be calm, if they’re signing their first contract as an employee of a, of a private practice or have or have a hospital or surgery center institution. many times I am the first person that they talk to. and they don’t necessarily need an accountant yet or they don’t think they do where they don’t necessarily need a financial planner and insurance person yet. So many times I am the first person to, and I review the employment agreement if they’re looking to, to set up their own practice or buy into a practice. then you need all of that like right away. I mean, you definitely need a good accountant to give you tax advice. You definitely need a financial planner and you know, to deal with, financial issues and an insurance person if it’s not the same person to deal with disability insurance and life insurance and kind of somewhat coordinate everything.

Jeff: [00:06:57] But if you’re just signing an employment agreement and you haven’t really made any money yet and you don’t have any money to invest and you don’t have, you’re not married, you’re single. So you’re not that worried about protecting your family or your spouse in case something happens, you know, you might just need an attorney to begin with. I work more in conjunction with other advisors when you’re buying into a practice or becoming a partner rather than say just signing an employment agreement. I mean you, you may still have the need for a CPA and financial planner, but it doesn’t necessarily have to be as coordinated as much until you’re kind of moving up in the world and, and owning something.

Justin: [00:07:35] Makes Sense. So let’s take a concrete example and kind of lay out the landscape here and you can talk us through the legal considerations. So say I’m a pain physician, I’m 33 I just wrapped up fellowship and maybe I’ve had a job with another private practice that didn’t work out and I’m looking to really have, have one that’s going to work out and I want to invest my time with a practice that I think is going to be a good fit for the longterm. So I’m with a smaller group, maybe there’s two other doctors and the bringing me in as like a partnership track potentially. And I’m looking at an employment agreement and I’m looking at this sort of potential partnership opportunity and I come to you and I say, Jeff, I feel like I need an attorney. I don’t know why, but I think that you probably have some expertise that you could offer here. What kinds of questions are you asking of me and of these partner, the other perspective partners in order to make sure that I’m as informed as I can be.

Jeff: [00:08:26] Boy, that’s a good question. You’ve got a half hour. I’ll answer it. So a couple things. So first of all, and you’re, so in your scenario you were already, you’re working somewhere and you’re obviously thinking about going somewhere else. Yeah. So one thing that you, that I would ask and, and, and an important issue is do you have a noncompete in your current employment agreement that might restrict you from going to this other practice? Obviously, if you’re moving out of state or you know, it’s not issue, but if you’re, the other practice that you’re looking at more favorably, you think, is within a restricted area, that’s a problem. And I’ll explain why. I mean, you may, many doctors are under the false impression that restrictive covenants aren’t enforceable. You know, they, they, you know, somebody told them that at, at a, at a bar or whatever or they heard that. And that may be true ultimately, but it also could act as a deterrent.

Jeff: [00:09:29] And I’ll explain what I mean. So let’s say you’re working somewhere and you have a restrictive covenant that says if you leave, you can’t work within a 10 mile radius of this office. And the practice that you’re thinking about joining is, you know, nine and a half miles away. So it’s, it’s close and, and you know, you’ve had, you’ve gotten the advice from somebody that, you know, they’re not really competitive. You know, they have different drawing areas. It’s really a completely different location. If it went to court, you’d be fine. So don’t worry about it. That’s not really the best advice because what, what could happen is the other, what’ll happen is this, the practice that you’re thinking about joining will most likely ask you if you have a noncompete. You kind of have to answer honestly and say yes and

Justin: [00:10:26] You’re saying it’s not best to start off relationship, with lying to a perspective lawyer.

Jeff: [00:10:29] No, not at all. Sometimes people don’t disclose everything and then it’s not exactly lying. But the problem is this. If the practice, you want to go to consults with their attorney and that they have a good attorney, their attorney will ask, well, does this, does this person have a noncompete? Yes. You know what? What’s the parameters as a fall within it? Yes. Then that attorney may say to that group, don’t even talk to that person. Don’t hire that person because we can get the middle of a lawsuit. There’s a tort and at least in Pennsylvania called interference with contractual relationships and that practice could get sued for hiring you if it knows that you have a noncompete that could ultimately be violated. So even if ultimately in a lawsuit you might win, meaning the judge may say, you know, yeah, you know what, nine and a half miles, it’s, it’s far enough away.

Jeff: [00:11:23] Even though the contract says 10 miles, we’re going to not enforce it. You’re fine. The problem is the other practice may not even, you may not get to court cause the other practice just says, sorry, we’re not going to talk to you. So that’s one impediment. If you have a noncompete, assuming that’s not an issue. Okay. So then I would ask the doctor who’s thinking about doing something else, like, why aren’t you happy where you are? Why aren’t you pursuing your current deal? And if they say, well, I don’t like the way the practice run. I don’t like the owners. They’re not offering me partnership. I’m not making enough money. All of those reasons, it’s probably some of those reasons are more, right. So, so then I would, you know, then obviously, if the new group has, has provided you with a employment agreement to look at, we would go over that.

Jeff: [00:12:14] If they haven’t yet. And they’re just in the talking stages, then clearly the key issues are that you’re going to be an a partner right away or you’re going to have to, are you going to be an employee? Is there going to be some sort of honeymoon period of six months or a year or two before you become a partner in this practice? And what are the parameters of partnership? You know, are you going to be able to buy in, is there no buy in which would be awesome or, or is there going to be a buy in? And if so, what’s the amount? How is it structured for tax purposes? Over what period of time can you pay? What sort of ownership interest where you have? Would it be equal? You know, will you have an equal vote? How old are these other guys that you’re joining?

Jeff: [00:12:56] Are they all ready to retire and leave you with everything, which could be good or could be not good? You know, do they have significant buyouts? And the biggest one is, one of the biggest ones is how do we divide the pie? Is it done? If it’s, you know, a pain practice is done purely on productivity, eat what you kill or is it equally or is it some combination of that is it, you know, we split 70% of the pie by productivity and 30% of the pie by ownership. You know, there’s all sorts of variations. Is there a, is there a common set up for that as far as maybe a component that is incentive based for the position specifically and then a component that is like a profit share or how do you, how have you typically seen that device? It’s a good, it’s tough to say typical in this situation because there’s a lot of variations.

Jeff: [00:13:50] In my experience in the, in the pain world, the groups that I’ve seen, most of them have have leaned more towards equality than productivity, but there really is no one way of doing it that there really is no most common way of doing it. And things change and each practice is unique and the situation varies too because some, you know, maybe some practices allow people to work four days a week and you know, maybe some work three days a week and some work five days a week. And you know, maybe some dues, different types of procedures that use more overhead, right? So you really have to analyze each situation. And sometimes it’s just the, it’s kind of the environment and the history and the philosophy of a group. And maybe, you know, there’s certain groups that feel like we don’t want to compete with each other.

Jeff: [00:14:46] We all work around the same, we’ve all known each other, we trust each other, we all put it in the same amount of time. We all do similar procedures, so we just want to split everything equally. We don’t want to go nuts with what you’re a little faster or you, you know, and where others are completely the opposite, completely opposite. Others are, you know what, if you want to take eight weeks vacation and I’m taking three weeks vacation cause I’m a workaholic, we’re splitting everything by productivities. So that’s fine. We, you can do whatever you want. So a lot of it boils down to the philosophy of the group and typically a well functioning group, people have this same philosophy.

Justin: [00:15:27] That makes a lot of sense. And I think you make a great point in pointing out, not only do you want to have a group that clinically you align with the way their methodology and their practice and that and their ethics, but also from like a practice of business and ethos of, I mean the finances standpoint, it’s, it’s good to sort that out ahead of time. And honestly that’s difficult to do, I would imagine.

Jeff: [00:15:49] Yeah. And I’ve seen like for example, there was a radiology group that, that they allow 12 weeks vacation. Mm. I mean that’s just, I, I, it’s unbelievable. But that’s their philosophy. They could obviously work more, probably make more money by not taking so much time off in hot and need one, one or two less doctors. But that’s, that’s just the philosophy of that particular group. Whereas others, you know, you hear of doctors that are workaholics and take two weeks off because that’s, they just, they can’t relax on vacation, that that’s their whole life. They don’t have kids, they don’t have family, they don’t have other interests. So it’s not always just about the money.

Justin: [00:16:29] Yeah. So let’s talk a bit, a minute for about the buy-in. So there’s, you know, there’s a partnership track. We kind of put that in air quotes. Like it basically means you come in and make less money, right. Or potentially, or you’re being vetted for partnership and there’s a period of testing. Correct. Often during this time, your salary, if the market rate for your, for your skills as 400, maybe you’re making two 75 for a few years. And that is an essence, some sweat equity. Correct. Potentially sweat equity into buying into the business. So talk about the mechanics of that and how you might counsel somebody who’s trying to vet that process.

Jeff: [00:17:00] Sure. and that’s kind of one of the most fun things I enjoyed doing. I mean we’re even going to pull in an agrarian means. Okay. But negotiating a buying deal and looking at the numbers and figuring out if it makes sense. I enjoy, what can I say? I’m strange. Yeah, that’s great. so you, you, you gave him pretty good example of let’s say you know, you’re a pain management doc and you work for two years because typically it’s a two or three years, sometimes even four years until partnership. You see variations, but that’s the two and three is the most typical. if you’re like right out of fellowship and let’s say you’re having a guaranteed salary of $300 a year for the first two years with like no bonus, let’s say, and then comes time and they like you and you want to become a partner, they want you to become a, typically there’s a, the buying consists of two different components and structure from a tax standpoint and in a couple of different ways to make it favorable for you.

Jeff: [00:18:00] The employee, one is there may be some out of pocket payment for your shares if it’s a corporation or your membership interests. If it’s an LLC and that out of pocket payment may be tied just to the value of the equipment and the furniture and the hard assets of the office, which may not be that high. and then typically the, the, the larger amount is for quote goodwill and potentially accounts receivable if that’s part of the buy in. And just describe what goodwill, yeah. Goodwill is basically what a willing buyer and seller agree that the practice is worth over and above the tangible assets and the accounts receivable. It’s the fudge factor. It’s the subject of amount. It’s the fact that the practice is known in the community and the, and the office is known in the location is known in all the goodwill that the, the doctors that have owned the practice of built up over the years.

Jeff: [00:18:56] And that’s true with any business, not just with the medical practice. So it’s the subjective value of the, of the business. And that can be valued in many different ways. And that’s typically what’s negotiable. I mean I’ve seen pain practices and anesthesia groups and other specialties where there is no goodwill by it. Zero meaning you know, we feel like, like you mentioned sweat equity, you worked for a couple of years at 300 you know the partners were making four or 50 or 500 and when we retire we don’t really expect a big buyout. So in effect, you know, maybe you, you pay us each $20,000 for shares and day one of year three or four you’re a partner and you share fully in the profits and compensation the way we do. So I have seen that it’s not that common though. Most of the time there is some sort of goodwill payment.

Jeff: [00:19:50] It very significantly, it can be based upon a percentage of the gross collections of the practice. It can be based upon a percentage of the net income of the practice. It can be completely subjective. It could just be that you’re the eighth person that buy in and everyone that’s bought in before you has paid $100,000 for goodwill and we’ll never going to change it. And that’s the way it is. It doesn’t make any sense, but that is what it is. Okay. And in order for me to VAT advise whether whatever the proposal is is fair, you know, I want to find out like what have they done in the past? Is this, does this mirror passed by ins? I want to see the fund last two or three years’ financials. You know, you

Justin: [00:20:34] To be clear if I’m the physician and I’m asking these questions, I’m asking for the financials, then I’m going to come to you. My attorney advisor and hand hand them over and have you vet that?

Jeff: [00:20:45] Correct. And can and, and they often have their own account and look at the financials too because I’m not an accountant. I can’t, I can’t, I don’t look at it to see if there’s something funky going on or something’s out of whack. I look at it to say, okay, what are the gross collections been? What’s the overhead? What are the doctor’s taken home? Right. That’s mostly what I look at is their debt there. So I don’t look at it from the standpoint that an account necessarily would have, wait, there’s a problem here, but I’ll look at the financials and, and then see what the proposal is and what, to give you a concrete example, let’s just say that on average, the doctors, the owners of the, of the pain practice make a half a million dollars a year and they value the goodwill as 100% of a year’s net.

Jeff: [00:21:33] So they value the goodwill at $500,000 per doctor. So when you buy in, you have to pay $500,000 typically, you don’t have to go to the bank and write a check. If you’re buying a practice, like especially in the dental field, you do, but if you’re buying into a pain practice, you don’t have to go to the bank and borrow $500,000 instead, what often is done is, is you give up, say a $100,000 of income over a five year period. So instead of making 300 a year and bumping up to 500 a year, you know, maybe you make 400 a year for five years and it’s a pretax way of buying in. So you’re not getting the 500 and paying a hundred you’re just getting 400 and paying tax on 400 so it’s taxed once. Correct? It’s pretax basically that wasn’t, so you’ll make 400 and the other doctors will make 600 right?

Jeff: [00:22:32] So they pay tax on the extra hundred it’s a little bit aggressive from an IRS standpoint, but I’ve never seen it be a problem that over 30 years. And you have to structure the contract, right and word it right. But that’s an example of how it could work. And in that situation it’s not a bad deal. Now, in other situations, and I’ve had several of these recently where I’ve told doctors, and this is rare that I’ll tell a doctor, don’t do this deal. I usually say, look, we can negotiate it the best that we can. Make it the fairest we can. And then you have to decide, do I want to become a partner, do I want to stay an employee for a while longer or forever and that, and for some people that’s fine, right? Or do you want to leave and go somewhere else?

Jeff: [00:23:17] But recently I’ve had a couple of deals where I specifically tell the doctor you can’t do this. This is a terrible deal. And that’s a situation like this. So let’s say you’re making 300 a year as the pain partner, we’re paying associate and then their proposal is that you buy in and the buy in say $1 million. And because of that and the way you have to pay it, instead of making 300 a year, you’re going to make 200 a year for five years. Let’s, ah hmm. And I have seen deals like that that are absolutely wrong. Don’t make any sense because in the medical field for a buy in to be reasonable. Okay. Cause it’s not a, it’s not a public company. It’s not widgets. You’re not, it’s completely different. You’re making money based upon your labor for the most part. And pain practices don’t have a lot of necessarily ancillaries or other staff that are making money for them that it makes it really worth that much more.

Jeff: [00:24:16] So if you’re going to make way less money as a partner for a long period of time. And in this situation too, there’s a couple older doctors that are ready to retire and want a significant buyout. It’s a terrible deal and it’s unfair and it doesn’t make sense. If you have a deal where you go from say 300 a year and may be you go gradually three 25 three 75 for 25 for 50 that’s reasonable after factoring in the buyin, that’s much more reasonable. So it’s not just the buyin, it’s how it’s structured from a tax standpoint. It’s what it’s going to mean from a net income division standpoint and what it’s going to cost you when the other doctors leave. Okay. So it’s a combination of all of that and a lot of it’s math, you know when you’re looking at the math. The other thing that’s super important is what say you have in things, and this, this changes based upon how many doctors there are. You know, if you’re one of two, it’s different than if you’re one of 15 partners. And that’s how voting and governance issues are extremely important. And I’ve seen it, it’s very common where you’re maybe like a treat treated as like a junior partner. Yeah. With less of a vote or no vote for some finite period of time before you have an equal say with that whole concept is, is a big issue for a lot of people.

Justin: [00:25:43] Okay. Something you mentioned earlier that I want to come back to you. So you talked about in considering a buy in, there’s an out of pocket payment potentially in combination with like, a decreased salary for a period of time. And this is essentially purchasing a split of hard assets, meaning the equipment, the goods, it’s stuff you can put your hands on as well as the goodwill. Right? So I don’t want to spend too long here because our listeners eyes are gonna glaze over. But I’m curious from a tax standpoint, right? Is there a difference between buying assets and or buying goodwill and is that something you should try to, do you have a say in, in the tax treatment at the purchase and how should you optimally configured that? If you could write your own ticket?

Jeff: [00:26:24] I mean a lot of this depends upon if the practice is done, other transactions before they’re going to want to keep them consistent from the text and put in the reason for that. If you’re like number two, then you have more negotiating power because it hasn’t been done a certain way before, in which case the best thing for you to keep the out of pocket payment as low as possible. Because what happens is if you pay $20,000 for your shares, that is not deductible. You can’t it. So you’re paying with after tax dollars, you get what’s called basis in your share. So when you sell them down the road, you don’t have to pay tax on what you get back. Right. So the more you can allocate to the goodwill, to the reduction in compensation, the better for you because you’re not, it’s it’s pretax.

Jeff: [00:27:13] And on the flip side, the reason why the practice won’t necessarily agree to that is because from their standpoint, from the owner’s standpoint, whatever they receive, if they get 10,000 or 20,000 for their shares, they either recover their basis tax free or they’re paying lower capital gains tax on that amount. Whereas on the salary difference portion of it, when they make more income, they’re paying tax at the higher ordinary income rates. For their standpoint, it’s better to do it the other way. So that’s why there’s give and take between the two. But if you’re negotiating a blind and they’ve done three or four ins over the last 10 years, it’s going to be treated consistently from a tax standpoint because it basically needs to be in case the IRS ever audits them or if they have the same accountant that they’ve had. So you’re, you’re not often able to influence the structure, but sometimes you are able to influence the allocation between the two. Sometimes instead of, in my example, 20,000 for the, for the stock and 500,000 of salary reduction may be you pay 100,000 for this stock and for 20 for the, you know, so it’s not necessarily set in stone. So you usually do have some bargaining power there.

Justin: [00:28:31] Okay, great. Very helpful. Let’s, let’s pivot and I want to talk a little bit about setting up a new partnership and or operating agreement. So maybe me and a couple of my buddies, we just finished fellowship and we are like the bright eyed bushy tailed idealists who are going to go out and conquer the world and we’re going to just roll up our sleeves and pound the pavement for five years and build an amazing enterprise from scratch. Okay. And we want to lay a solid foundation legally from an entity standpoint and from a, you know, just making sure we cross our t’s and dot our i’s and we come to you. And again, this is what we say, there’s two of us or maybe three and we want to do it right. What kind of documents do we need it? How should it be organized in order to protect ourselves and optimize for taxes?

Jeff: [00:29:13] Very good question. First, let me start by saying you’re nuts for considering doing that,

Justin: [00:29:16] but that’s beside the point.

Jeff: [00:29:19] So assuming you’re very entrepreneurial and don’t mind taking risks and your business like and in that, that’s great. Congratulations. Yeah, so the first thing is don’t go to legal zoom and set up your own editing because I’ve had people do that and screw it up. Either screw up the name, it’s screw up the type of entity that and all their savings is a couple hundred bucks. So don’t set up the entity on your own. Don’t use an operating agreement from the Internet. Okay. That’s my first advice. Okay. So assuming you haven’t done that, you hope to make millions of dollars a year, you should pay a couple dollars for legal advice. Yes, exactly. Okay, so some of this is state specific. Okay. Because there’s different nuances from a liability and tax standpoint in different states. But let me just, just assume for now we’re in Pennsylvania and my advice probably won’t be that different in other states, but each state is a little bit different. So the first thing is if you know there’s two or three of you, you don’t want to set up a partnership, nobody does that anymore. There’s liability issues. So that’s not even a consideration. You really have two considerations. One is a corporation and one is a limited liability company and just about every state recognizes the limited liability company status these days.

Jeff: [00:30:41] The reason why you want to be one or the other is for liability purposes. And let me dispel something that you may not realize, that people don’t, don’t understand necessarily. When you set up an LLC or a corporation, you don’t protect yourself from your own malpractice. You can never protect yourself from your own malpractice, from personal liability. So if there’s two or three of you and you screw up and somebody sues you, you obviously have insurance, they’re going to sue you, they’re going to sue the entity and both of you should have malpractice insurance. But if the recovery is an excess of your coverage, which is very unusual, but let’s say it’s a $10 million verdict and you have $3 million of insurance, the entity will not protect the individual who’s committed the malpractice. So they can go after you individually. What the entity protects is your partners.

Jeff: [00:31:39] So if there’s two or three of you and you are on vacation and your partners screwed up, the one on vacation can’t be held personally liable for malpractice if you’re set up as a limited liability company or a corporation. So they’re not going to have to write a check for damages. But is this going to impact their entity, the viability of the business? It should not because the business hasn’t, the business should have malpractice insurance and the doctors individually, it’s all part of. So typically if you don’t see verdicts and excess to the insurance, but if, but if, if they are, they typically would go after the doctor individually on, on top of that. So you might have to write a check. Okay. So you can’t protect yourself from your own malpractice. But the key is you protect yourself from your partner’s malpractice and you protect yourself from the practice of an employee, a physician assistant or nurse practitioner or ssociate physician you have, if they commit the malpractice, you can never be on the hook personally for that.

Jeff: [00:32:42] The other liability protection you have is if you know down the road you sign a lease or a loan with a bank and you’re not asked to personally guarantee it, then you can’t be held liable for that too. Okay, so from a liability standpoint, LLCs and profession and corporations are the same. Okay, so you’re going to be one or the other from a tax standpoint based upon different changes in the law, they’re pretty much the same. Two years ago there were, there were big differences, but now most of the tax advantages are the same whether you’re a limited liability company or corporation. So you’re kinda like, well, which one should I do? And some of it comes down to mechanics. Some of it comes down to CPA preferences and some of it comes down to costs. For example, in Pennsylvania, if you register as a limited liability company and your pain practice or any medical practice, you have to register as a professional limited liability company.

Jeff: [00:33:47] It’s a subset of limited liability companies. And when limited liability companies first came into existence in Pennsylvania, there was an annual fee payable to the state. It’s just a registration fee of $200 a year per member. No big deal. Who Cares? The $200 has gone up every year. It’s currently $520 a year. So it’s not nothing. So in order to be a professional, limited liability company in Pennsylvania, each member has to fork up 520 bucks, okay? If you’re a professional corporation in Pennsylvania, there’s no annual fee, so you save a few dollars. Okay? That’s one difference. One other differences. If you’re an LLC or limited liability company, the owners don’t get W2’s, they don’t get paychecks, they get draws and distributions without income taxes withheld. So they have to make quarterly payments and it’s a little more complicated, okay? If you’re a corporation, you actually are also employees of the corporation as owners.

Jeff: [00:34:57] So you get paychecks with withholdings. So you can set a salary of say $200,000 a year and the taxes will be taken out for you. You don’t have to worry about that. And then you periodically pay bonuses or s Corp distributions. So it’s a little bit different from a mechanical standpoint. Some accountants prefer one over the other. You can actually, to make it more complicated, do a hybrid. You can set up a limited liability company but elect to be treated as an s corporation for tax purposes. And there’s some accountants that love doing that.

Justin: [00:35:30] That’s how I’m set up at Quantify.

Jeff: [00:35:31] There you go. So and for our law firm for example, was set up many years ago and it’s as a c corporation, not in s corporation. And just to quickly see versus s is just the tax election and anybody setting up a business these days, a medical business, these days we’ll want to be an s corporation for a lot of reasons. Not as c- corporation. Our law firm happens to be a c corporation, but it’s kind of like a dinosaur. And the negatives of being secret ration we deal with, and it’s not a big deal, but if you’re setting up, if you go with professional corporation these days as a new entity, you clearly want to make an s corporation election to avoid issues at the end of the year and to avoid double taxation problems if you sell the business down the road to some private equity company or something like that. So the bottom line is you really have two choices, limited liability company or a professional corporation that Alexa s corporation status. And for the most part it’s a toss up and you know, talk to your legal advisor, talk to your accountant to help you decide, you know, which one to choose.

Justin: [00:36:39] So we’re going to have an operating agreement for that entity. What are all the organizing documents it’s needed?

Jeff: [00:36:44] They’re called different things in different states. But for, for example, in Pennsylvania, if you set up an LLC, a limited liability company, it’s called a certificate of organization. It’s a simple document. You can file it online in Pennsylvania, your lawyer can do it for you. There’s a filing fee. I think of 125 bucks, extremely simple name, address what the business is doing and you’re done. You buy it online, you get a certificate like a week later if you were setting up a corporation, its articles of incorporation and the docketing statement, both of which once again you can do online, very simple, $125 filing fee and you’re done. Very simple. You also want to, get a tax ID number and employer identification number through the IRS. You can do that online. You get it immediately. Very simple. Then from a documentation standpoint, if you’re an LLC, you need an operating agreement.

Jeff: [00:37:47] It’s basically a partnership agreement, but it’s not called a partnership agreement because you’re not a partnership. You’re a limited liability company. So it’s called an operating agreement. And in that operating agreement you deal with issues like governance and vote and how you bring in new partners. And what happens if somebody dies or is disabled or retires and how you withdraw, how much notice you have to give, how you expel a partner. All of those things are typically dealt with in an operating agreement. and you should have that in place before you actually start operating. Cause I, I’ve seen issues where I have a client that happens to be a dental practice but they for whatever reason I didn’t represent them then but they were in a rush. They buying this practice together because the doctor was disabled and they, they bought the practice and some lawyer, he didn’t know what they were doing quickly put together some agreement that they didn’t even really understand or go through.

Jeff: [00:38:51] They ended up signing a draft red line version and now I’m helping them. I’ve been trying to help them for the last six months agree on what they really agreed to and now they’re arguing whether or not the one they signed that was black line is actually legal or enforceable. And I think they’re going to end up splitting up. So get your ducks in order before you like buy a practice, set up a practice, get that agreement signed and you can get one Boyer to represent the group if you want. But you can also each individually get your own lawyer to look at it from your standpoint. Now to backtrack for a second, if you set up a corporation as opposed to a limited liability company, and I probably see, I would say for new entities forming, it’s on the 70 30 limited liability company over corporations these days.

Jeff: [00:39:44] That’s kind of the trend, but if you set up a corporation, the document, it’s not called an operating agreement, you will typically have at least three documents. You will have bylaws, which are somewhat can, but you’ll have bylaws dealing with voting in meetings. You’ll each have employment agreements, even though your owners, your actually employee, she’ll have employment agreements that talk about how you’re compensated, how much notice you have to lead, the give to leave, how you could be fired, whether or not you’re going to have a restrictive covenant in your agreements, scheduling issues, location issues, all those types of things. And then you’ll have a third agreement either called a buy sell agreement or a shareholder’s agreement that we’ll deal with. What happens if somebody dies or is retired and how they get bought out and some voting issues and how you bring in new partners.

Jeff: [00:40:40] So all the same things you’ll have in an operating agreement, but it’s broken down into three different documents because of the way things are structured.

Justin: [00:40:48] So if I come to you and I’m one of these one of two physicians starting this practice, we’re going to pick one of those two sets of documents before we hit the ground running.

Jeff: [00:40:56] Correct. And then once the LLC is set up or you know, whichever one we go with, we’re going to in the name of the LLC, signed the lease and granite cards to go buy the equipment correctly and all that stuff.

Jeff: [00:41:07] That’s actually a good point to bring out in terms of signing the lease, cause I’ve seen this happen. Make sure you do sign the lease in the name of the entity. Okay. And when you sign it, unless you’re going to have to personally guarantee it, which if it’s a new venture you probably will. But if you ever signed a lease where you don’t have to personally guarantee it, signing the entities name so you can’t be held personally liable. Right. Because I have a client who actually, unfortunately it was a pediatrician and he wasn’t doing that well and do declare bankruptcy and he signed a lease and the lease was in the name of the entity. But on the signature line it just had his name and it didn’t say president and the, and the landlord tried to hold him personally responsibility to declare bankruptcy for the corporation shires that the landlord tried to hold him personally liable and he got I, I’m out of or, but he got a litigate or to help and he ultimately won the case. But if he had just put president on there, it would have helped. So just make sure when when you sign the lease, you know, you’re the end of these listed and the, and the officer name is listed on there.

Jeff: [00:42:14] But in almost any new venture, you’re going to have to personally guarantee it. Just like with a, if you get a bank loan, if you get a loan for, you know, $200,000 to set up the practice, almost all the time, all the partners are going to have to sign a personal guarantee. But if you’ve been in business five years, 10 years, then you shouldn’t have to, whether, you know, in a new lease or a construction loan or a line of credit, you typically you shouldn’t have to sign a personal guarantee, in which case, you know, if for some reason that the entity went under, you couldn’t be held personally responsible.

Justin: [00:42:47] Okay. Makes Sense. So, very helpful. So we spent a lot of time talking about the pain physicians. Let’s talk a little bit about an anesthesiologist who might want to hire you. So one of the, I recently interviewed, in an, it’ll be an probably a prior released episode by the time this one goes live. a gentleman who does locums placement. So physicians who do locum tenens work, they do, they’re often self employed. They will work for a short, you know, short time stints essentially all over the place. And the context for the legal needs there are pretty different than or not, you know, we’re not forming a, an, an LLC with a another physician necessarily. We’re, we’re just, we’re a sole operator and we want to make sure that we’re legally protected and we have what we need from a, an entity and or why ability standpoint. So if I’m that anesthesiologist who is making a great income but doing it in a locums context as an independent contractor, how might you and I interact?

Jeff: [00:43:44] Okay. That’s a good question. I have reviewed locums contracts. In fact, I just had it problem with one recently so I can explain that to you. But yeah, yeah, it is a lot simpler. And I would to be honest with you, most people that signed locums agreements don’t get a lawyer because the agreement is typically can won’t be changed. but let me give you some insight on that. First of all, if, if it’s something you’re going to do on a regular basis and it’s not just for a couple months in between jobs, but it’s something for whatever reason you like to do, want to do, don’t want to commit to a place for a couple of years or whatever. It doesn’t hurt to set up a limited liability company and make that be the contractor, but it’s not, it’s not really crucial. You don’t have any employees and you know you’re still potentially liable for your own malpractice. So I, unless you’re doing other things besides just doing loc I probably wouldn’t bother setting up an entity and just be then independent contractor individually.

Jeff: [00:44:49] But the locum contract, even though it’s typically canned and you can’t do anything about it, one thing you want to make sure is that you’re not committing that they’re not gonna tell you you committed to something unless you’ve committed to it. And writing, because I just looked at one, it was a particular contract where the, it was right. It will written in the contract. If you verbally accept an assignment, then you’ve accepted it. And then there were all these parameters in terms of well if you verbally accepted and then we send you the written details of the compensation and the, and the location, the hours. If you don’t turn it down in writing within like 10 days, we’ve assumed you’ve accepted it. Okay. So it’s pretty stringent.

Justin: [00:45:37] That is stranded

Jeff: [00:45:38] It is stringent. And what happened was my client, was a nice nice woman but she

Justin: [00:45:43] So just so I understand the client would have signed an agreement with the locums company at the beginning that said, I agree to these terms with regards to getting new employment and that the rise of that employment were, if you agree verbally and we send you a term sheet and you don’t sign it after a certain period of time, it’s implicit agreement and that it’s a formal legal that point.

Jeff: [00:46:05] Exactly. That is, that’s unusual. That’s the, it’s the only one I’ve ever seen like that. But it was there. And what happened was she, I’m not sure what to believe necessarily cause I don’t have all the details, but she says that they told her it was going to be like eight to 10 patients a day and no call. And then that’s what they verbally told her. So she said sure. And then took them away. They never really sent her anything in writing and all of a sudden it turned into instead of eight to 10 patients, they like 30 patients a day with call every other and she says she never committed to it in writing or by email and now they’re hassling her and telling her you committed and so on and so forth. I literally, today I helped her write an email back to them basically saying I never committed, you know, I verbally didn’t say okay to this and in any event the contract allowed her to terminate on 30 days notice terminating the assignment and she wasn’t going to start for another 35 days.

Jeff: [00:47:07] So I think she’ll be okay. But the takeaway is you probably should have somebody take a quick look at the locums agreement. They’re typically two or three pages long, you might be able to change something, but at least you’ll be able to understand it. Because a lot of my clients that I get that call me that have a problem with the contract, it’s because they never understood it to begin with. Right. So the main thing is to understand that. So to know that if there’s some owners provision like that in your locums agreement that you make sure you don’t verbally commit to anything in that example until you really, until you actually get something in. You know, it’s so easy with the email now, there’s no reason why you can’t get an email confirming that. So they’re really, the local thing is really just to, you know, run it by a lawyer.

Jeff: [00:47:54] It will probably take the lawyer 20 minutes to a half hour to look at it. Yeah. You might be able to change something. You might not. so that’s in the context of a contract review. There’s not really an entity or other illegal at, not, not really. I mean, I don’t see any reason to set up an entity. I know some people do. They like to, you know, Xyz Llc, it looks cool. They can tell their friends, they haven’t LLC. You know, you could set up a separate bank account, you could run stuff through it. But if you set up an LLC yourself, most likely you’re gonna be taxed as, as, as a flow through entity. Meaning you’ll do a schedule C, you’ll report it on schedule C as a sole proprietor, but you would do that anyway, right? If you didn’t set up the LLC.

Jeff: [00:48:39] So from a tax standpoint, there’s no difference. So I just don’t really see any reason to do it. And in my experience, you know, in that particular context, it’s a client who’s leaving one hospital and looking for work. So she doesn’t, you know, she might be a locum for two or three years and then just retire. She might do it for two or three months and then sign an employment agreement somewhere. So it’s not permanent locums. But I still, even if you’re doing that on a regular basis, I don’t see any need to set up an entity.

Justin: [00:49:10] So, so you mentioned earlier with restrictive covenants, this is like, this would be like a noncompete colloquially or the inability to work for a competitor if you leave a certain organization, this would be part of the contract that you signed with your employment agreement. I know this is an area in which you’re an expert, so talk a little bit about what is a restrictive covenant one, are they enforceable or not enforceable? When should you be concerned or not concerned? And how should a physician think about this in the context of a new employment agreement?

Jeff: [00:49:38] Sure. Well, first of all, the fact that restrictive covenants are covenants not to compete exists at all, is a, is a big part of our practice. So I’m glad they’re still enforceable in some states are I have much less work to do. So, in any event, a typical noncompete would be structured like this. And in an employment agreement it would say something like, after you terminate employment with the practice for a two year period, you will not practice medicine. Or potentially, you know, it could be specified pain management or anesthesia, that particular sub specialty, but you are not practice medicine within a 10 mile radius of any existing offices of the practice.

Jeff: [00:50:24] That’s a typical noncompete or restrictive. And there’s variations on that. I mean, two years is the most common term for after employment. I’ve seen one year, I’ve seen three years. the only time you see something like five years is if you’re buying a practice and the cell and the seller agrees not to compete for five years because you’re paying a lot of money for that. The mileage piece of it very significantly based upon where you are. So for example, if you’re in Manhattan, I’ve literally seen it by number of blocks. Okay. The largest I’ve ever seen is in rural Texas for a hundred miles because apparently there was no other, there’s nothing near there, but more typical. If you’re in a typical urban area like the city of Philadelphia, that’ll be two to three miles. If you’re in a suburban area, it could be five to 10 miles.

Jeff: [00:51:22] And if you’re a more rural area, it’ll be maybe 15 to 20 miles. That’s kind of a rule of thumb in what you typically see. And then the biggest question is, are they enforceable because you’re going to have one in your contract. If you, I’ve had doctors coming out of residency and fellowship tell me, you know, I don’t believe in them. I’m not going to sign with the practice that has one. Then you might as well just try to start your own practice because you’re going to, you’re gonna find it tough to find a job. And in most states, including Pennsylvania, there aren’t strict rules on what is it enforceable and what is not. Instead, it’s up to a judge or a jury as to what’s quote reasonable in time and geographic restriction. You don’t know. And that’s one of the biggest problems in before I touched on the deterrence issue before, but the general trend is that judges don’t like to restrict people from working somewhere.

Jeff: [00:52:18] So some practices get around that by saying, okay, you know, fine, if you, if you, we won’t say you can’t work at another pain practice within 10 miles, but if you leave and join another pain practice within 10 miles, you owe us what’s called liquidated damages of $300,000. So if you write us a check or your new practice rights, this of check for $300,000 you can go work wherever you want.

Justin: [00:52:45] And at that point, would that position be free to take their patient base with them?

Jeff: [00:52:50] Yes. I mean you can’t take a patient list that belongs to the practice, but in today’s world with social media, people are going to know where you are. So yeah, typically the patients can go wherever they want. That’s always the case. You just sometimes can’t solicit them or take a patient list, but the patients are going to go there. So yeah, you’re basically paying $300,000 for the right to stay in the area. And I’ve seen situations where people negotiate that down where if the employer wants you bad enough, they will agree. Say in that example of 300, you know, maybe they agree to pay the practice 200 and we’ll call it even, and everybody’s goes on their merry way presumably because they don’t want to litigate. Exactly because litigation is expensive and my partners are litigator, but he talks people out of litigation all the time because does it make sense in that example for the doctor to pay his lawyer $100,000 for the practice of pay, they lawyer $100,000 and you know, and end up settling anyway, you know, on the doorsteps of going to court. So yeah, it behooves both parties to settle because you don’t want to pay an absorbent amount of legal fees.

Jeff: [00:54:00] And so restrictive covenants are typically the most negotiated item in employment agreements. A lot of it comes down to leverage and a lot of what we’ve talked about today, comes down to leverage in that if you’re either joining a practice or becoming a partner in a practice where it’s the first time they’re hiring somebody for the first time in the beginning, bringing in a partner versus they just hired three people yesterday or they just brought in a partner a year for the last three years. If they’ve done it many, many times, they’re not going to want to upset the apple cart and they’re not gonna really change things for you. Whereas if they haven’t done it that often, or you bring a great different sub specialty or you’re the first one they’re hiring, you should have a lot of leverage. either way, you know, I can help explain that to you. And even if you don’t get a lot of changes, at least you’ll understand it and have full disclosure and what’s happening. Now another thing to keep in mind, if you’re not in Pennsylvania, there are dates were restrictive covenants, post employment are unenforceable, meaning it’s certainly an any state. The employer could say, while you’re working for us, it’s full time. You can’t moonlight without our approval. We can’t work anywhere that’s an any state. But in certain states, if you leave your practice, they’re not enforceable for physicians. And those states currently include California, Massachusetts, New Hampshire, Alabama, Arkansas, Rhode Island and New Mexico. So in those seven states, by statute, the practice cannot restrict you from leaving and working anywhere you want. Okay? So if you get a contract in one of those states for employment and there’s a restrictive covenant, it shouldn’t be in there.

Justin: [00:55:57] Interesting. So, does that also mean that if I’m in California, if I’m in Los Angeles and I’m working for a practice and I build up a very big, robust practice and I’m not a partner, but I’m a hardworking associate and I’ve got a good patient base and I don’t like the way the partnership is kind of going, are treating me. I could literally walk across the street, hang out my own shingle, bring all those patients with me and have my own thing.

Jeff: [00:56:22] Yes. That’s why in California for example, the ins are typically lower because if the practice, once some exorbitant buying from somebody, they’re just going to leave and go somewhere else. So that’s where you don’t see binds and buy outs is as high in California. That would be true and close it. Yeah. Now California and Massachusetts for many years, it’s been like that. All the other states I mentioned, they’ve been within the last couple of years. Interesting. Now you can have contrast that with this. If you buy a practice in those states or once you’re a partner in those states, then you can have a legally binding noncompete that’s legit, but it’s only while you’re an employee. Now, let me mention a few other states that have little nuances. In Delaware. Technically you can have a noncompete, meaning you can’t actually restrict somebody from practicing somewhere. Meaning you can’t go out and get an injunction and stop somebody from practicing or prevent from Saudi, from practice somewhere.

Jeff: [00:57:20] But you’re allowed to have what I mentioned before, what’s called a liquidated damages provision in the, you’re allowed to say, you know, you can do it, but if you do what you owe us this. Okay. In Connecticut and other eastern state, this is pretty new. There’s two parameters by statute now in Connecticut. One is it can only be for one year and he can’t be more than 15 miles from the primary site. It’s that specific. And it also can apply if you’re terminated without cause. So if for example, because in most contracts for example, even if the practice terminate you without cause our, you’ll believe the restrictive covenant applies, which doesn’t sound fair. Like I tried to negotiate that in every contract, not always successfully that sure if you quit or you get fired for cause we can understand that. But if the practice is comes to you one day and says, we don’t like you anymore.

Jeff: [00:58:15] We don’t like how you dress. Or even if we don’t think you’re a good doctor where we can’t afford you or we don’t like your spouse, you shouldn’t be able to practice wherever you want. And it stays where that’s up to the discretion of a judge. Correct. Presumably a judge will be sympathetic to that. Correct. And even like in New York state, there was a case about 15 years ago where that was the finding. You can’t rely on that, but that most likely it would be the case. And in one other state to other states. In Utah, you can’t go more than one year. And in West Virginia it’s not applicable. It’s similar to Connecticut. It’s not applicable if you’re terminated by the employer for any reason and it can’t be more than one year and 30 miles. And there is proposed litigation in New Jersey that would make restrictive covenants unenforceable. It’s just proposed. So clearly the trend in the country is to not enforce them, but in most states, including Pennsylvania, they are arguably still enforceable and very important and cause a lot of people to not able to take other jobs and even interview other places. If there is a deterrent in there saying you can’t compete in the area. So it’s one of the, definitely one of the most, contentious issues that you’ll find in an employment agreement. And IFC, there’s all sorts of variations like, and wouldn’t apply the first six months or the mileage would be more of a long, you’ve been there, I’ve seen everything, but it’s just, it’s something that’s, you know, hopefully negotiable and you clearly want understand that no matter what state you’re going to.

Justin: [00:59:58] And just for my own information, is that the kind of thing where you’ve seen maybe bigger. So there’s, you know, in anesthesia for example, there’s what they call the anesthesia management companies, the big boys who are big employers. Yep. Presumably they would be incented, incentivized to want to make an example out of somebody who was going to work for a competitor down the street. So they would be more likely to litigate a clause like that even in a, even in a state where maybe it was a long shot because presumably they have a legal department and it might be a, an item in the contract that you should think long and hard about and take very seriously because of the, the legal backing of an organization like that is very different from if you are the third partner in a two partner practice and they’re trying to help patients and they don’t have a legal department. And they’re less likely to litigate.

Jeff: [01:00:44] I totally agree with you. And some of the bigger groups that are maybe national may be headquartered in Tennessee or Florida, wherever and the contract was moving. Cause I, if there’s litigation and it happens in, in that venue and you might have to hire a lawyer, you may work in Pennsylvania for a company that’s based in Tennessee and have to go to court in Tennessee, it’s even worse. But you’re right about making an example of somebody. and even if, let’s say the anesthesia group loses the contract with the hospital. Okay. And the hospital wants to hire all the doctors. That can be a legal battle, you know. And if, if there’s everyone has an noncompete and the anesthesia group doesn’t have a noncompete in their hospital contract, the hospital may come to you and say we want to hire you and you may be, you may not be able to do that. So yeah, it isn’t something you want to just not worry about and you want to at least know what you’re getting into even if it may not be negotiable.

Justin: [01:01:45] And I think the important thing to emphasize here is if you’re thinking about a transition in employment, get state specific advice. Yes. State specific qualified legal advice to weigh in on the viability of the restrictive cutbacks to see how much it should impact.

Jeff: [01:01:58] Yes. And it doesn’t, I mean yeah mean you can obviously get a lawyer in that state but you don’t necessarily need to. We have in our office we have a very good resource that’s updated annually in addition to all the other research services we belong to. That gives you the uptodate, you know, low down on what the specific situation is in, in a specific, and even the, the other thing is even in a specific state, each county might be different and each judge may have a different point of view. So you never know for sure. But the one clear thing is you want to avoid litigation because that’s extremely costly and you want to know what your options are before you think about leaving one place and going into another.

Justin: [01:02:40] Sure. With regards to just general advice, you know, there’s, there’s a lot of people out there who, I actually recently engaged an attorney professionally for I think the first time over an intellectual property, Tif. And we’re still waiting to see how that’s gonna pan out. But there’s a lot of physicians out there who, other than even like malpractice would have never thought about hiring a lawyer. So what kind of advice would you give to somebody who’s just trying to understand how does the legal profession fit into the practice of medicine and how to navigate that landscape?

Jeff: [01:03:14] Well, I’m, I’m glad you brought up the point of it. Intellectual property issue and lawyer because I know nothing about that. Okay. And the law these days is almost as sub specialized medicine in that health care lawyers know healthcare and intellectual property lawyers now intellectual property and patent lawyers, no patents and criminal lawyers. So if you think you need legal advice, don’t talk to your sister in law, brother in law who does something completely different. Talk to a health care lawyer. Okay, next thing. A lot of my clients that are residents and fellows never used the lawyer for anything in that makes sense. You know, maybe they don’t even have a will yet. and they’re not even sure they need a lawyer. And they come to me and they asked for advice and I tell them, look, I can’t promise I’m going to get significant changes in your contract.

Jeff: [01:04:02] I can promise you if you engage me, you will understand everything in the contract. I will answer all the questions you have. I will do my due diligence and do the best I can to make any changes at a, at an, at a cost effective rate. and that I’ve had many clients come to me after they’ve had problems saying they wished they had used me from the beginning. So the other thing I questioned I get is, well, when should I get you involved? And obviously you don’t need to talk to me before you go on interviews, but once you go on interviews, if you’ve never your choices down and have one or two or more practice as are in that are interested in you or let’s say you’ve picked out one and you get a term sheet from them or anything in writing other than just the verbal, that’s when you want to think about should I contact you.

Jeff: [01:04:53] Because I’ve had situations where people may have signed a letter of intent or a term sheet, before they signed the actual contract. And even though it may not be legally binding, if you’ve signed a term sheet and typically you won’t get a term sheet or letter of intent from a private practice. But from an institution or a hospital or a larger anesthesia group, they might it that way cause they don’t want to spend the time and the effort on legal fees, on drafting a contract if they can’t even figure out the bullet points. But if you signed something or agree on a term sheet that has, you know, a starting salary of two 50 and a couple other bullet points and then you talk to me and you decide, you know what, I’m going to ask for more money, the group is not going to be happy with that because they feel you’ve already agreed to the items on the bullet point list.

Jeff: [01:05:43] So what I tell people, if they send me the term, she’s a book, when I tell them, look, if you’re 100% comfortable with the items on this list, that’s fine. Go for it. You don’t need me to do anything. You can sign it, then send me the contract. But, if you’re not totally sure or in situations where you don’t get a term sheet or a letter of intent and they just send you the employment agreement and there’s mistakes on there. Let’s say there’s a mistake, typos or they told you in the interview your salary be 300, it says to 18, it’s just a mistake and you go back to them and you email them or you call them and say, Hey, there’s a mistake. It should be, this should be that. You want to let them know when you talk to them that you’re probably going to have a lawyer look at it.

Jeff: [01:06:28] So this isn’t my final comments cause I’ve seen issues where the doctor on their own without incurring any costs, we’ll go back and raise eight or 10 things, the practice, we’ll make the changes on the employment agreement, send it to them and saying here, sign here. Then they send it to me. I look at it, I point out six or seven things that might be changed either in the language or the substance of it or both. And they go back to them. And then they get ticked off because they thought you already negotiated everything and now they’re saying wait a minute, so you want to be clear with them. If you go back to them, which is fine before you go to come to me that you haven’t engaged in lawyer. These are some items that you just wanted to discuss before you engage the lawyer.

Justin: [01:07:12] Makes Sense.

Jeff: [01:07:13] So that’s some general advice on that.

Justin: [01:07:15] because if they’re not willing to flex on that then it doesn’t make sense for for a position to pay.

Jeff: [01:07:19] You don’t have me look at it. I’ve also had people have me look at two or three contracts because they can’t decide, which I think is kind of silly. Like you decide where you want to go. It’s more important. This is more general advice that you’re happy that you’re going to a location that you and your spouse, if you have one like that, you like the area, you trust the group, you trust, the doctors are comfortable, then worry about the details of the contract, do it that way and you know the details of the contract typically will be less important. The other thing to keep in mind is if there’s some sort of recruitment agreement separate from the contract.

Jeff: [01:07:59] So in some situations a hospital will provide an incentive to an anesthesia group, to hire somebody and it’s a three party agreement between the practice, the doctor and the hospital. And there’s provisions in there that basically say as long as you stay in the area for a certain period of time, you won’t have to pay any of the money back. And he’s signing bonus and he relocation allowance, any money, their funding for your salary. So you want to make sure you have a lawyer look at that too to see what your obligations are. The other thing to keep in mind in general advice is make sure when you’re done, cause I’ve had this issue come up many times, make sure that when you’re done you get a fully executed agreement signed, not just by you but by the company or the practice. And because you may lose it or you may not, you know, now with computers you’ll probably keep it on your computer but send a copy to your lawyer so they keep it to so that Jill planner and your financial planner, so that from a legal standpoint, the main thing is that when you call me up two or three years from now and say, you know what, I might, I think I might want to leave.

Jeff: [01:09:08] And I don’t remember what the noncompete says and I’m not sure if I have to give 90 days notice or 120 or if I can terminate at any time during the year or if it’s just as of the end of the year. And you never sent me the signed contract and there were three different versions and I’m not sure which one was signed. The last thing in the world you want to do two or three years after you’ve been there as ask the practice administrator or one of the partners to get up and have a copy of my contract around I, I needed for my estate planning because they know there’s a problem. And you’re leaving. So just make sure that you get a fully executed agreement back so that you have it for future reference for legal needs, for the county needs, for financial planning needs.

Justin: [01:09:51] So it makes a lot of sense. So, in closing, maybe we could wrap it up with a story of a specific instance, either working with a physician or a group where you were able to, through the engagement, bring us specific insight that totally changed the dynamics of what the expected outcome was, where you were able to really help somebody in a way that they didn’t expect or get somebody more money or planning out a huge gap in a contract or, or something like that.

Jeff: [01:10:19] That’s a good question. Let me, there’s one that comes to mind immediately that I felt really, really good about. I can’t remember this specialty because it’s been probably a year or so, but it was a physician and she was pretty kind of, some physicians are very entrepreneurial, very aggressive. They want everything they expect. Everything in this particular position was kind of laid back and kind of meek and felt really uncomfortable asking for anything. She was just really happy to have the job and she didn’t even realize you could negotiate. And we talked and I encouraged her cause she did. I don’t, I didn’t negotiate it directly with the other party. She negotiated with the doctor. I encouraged her, I gave her a pep talk and she asked for it and she got a $10,000 signing bonus and she was thrilled and I think her invoice or total invoice of, of amount that she owed me was about $500 so that was the best $500 she ever spent. Or she sent all her resident friends to me and I felt really good because it took me about 30 seconds to recommend that to her and she was really hesitant to ask.

Jeff: [01:11:30] She was like, well it’s a really good salary. I just, I just feel uncomfortable. And I said the worst thing that’ll happen is they’ll say, sorry we can’t do this and make me the bad guy. Say, my attorney suggests that I asked for this, he’s seen this and other. So I felt great, which, which was, you know, you can see my smile, the listeners can’t. But it, it felt really, really good

Justin: [01:11:55] knowing that in a few minutes you’re able to provide a 2000% return on investment on that review fee, that’s gotta make you feel good.

Jeff: [01:12:02] And in a couple other situations that are a little bit different, more with experienced docs that were buying into practices that really the, the, the feeling that in a couple instances where they didn’t necessarily realize it was a terrible deal. And in one instance, you know, they did walk away and went to something that they’re much happier at. And in another instance they were able to significantly negotiate a much better buy in deal. And the other doctors who were a lot older and set in their ways and had a much different deal years ago kind of saw the light. so I was extremely happy that they were able to negotiate a much more reasonable dollar amount of the buy in and structure that kind of everybody went away happy and so that was also something that you know, I’ll always remember.

Justin: [01:12:56] Great. Well these insights have been really valuable for me and for our listeners out there, so thank you very much for joining us today on the anesthesia success bucket.

Jeff: [01:13:04] My pleasure. Thank you.

Justin: [01:13:07] Hey Justin here, this may shock you to learn, but I am actually not a fulltime podcaster. I also run a financial planning company called Quantify Planning where I work closely with anesthesia and pain docs to build and implement customized financial plans. If you’re interested in working with a financial planner who knows many of the ins and outs of your profession, shoot me an email or head on over to quantify planning.com for more information. If you’re a resident or fellow, I can also offer you a free student loan analysis if you’re interested, but there might be a waiting list. So check out the link over there to see if you’re interested in learning more about the topics we discussed today. Head over to anesthesia, success.com to join our community, residents and attendings and others to ask a question or get more free resources. If and only if you liked this episode, please leave us a review and subscribe. Thank you very much for listening to the anesthesia success podcast.

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