Medical Practice Partnership Models Explained Simply

There are a few different ways a physician can perform their services in modern medical practice. The choice of medical practice model is a very important decision for a medical professional. It influences the way they work, their responsibilities, the range of decision-making they have, and patient satisfaction.

Every practice partnership model has its benefits and challenges, so it is essential to research all the options before making any commitment.

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What Are Medical Partnerships?

Medical partnerships are different arrangements of a medical business. When it comes to partnerships, there has to be a minimum of two parties that enter such an agreement, so not all medical practice models can be called medical partnerships (more about it later).

These contracts obligate entities to share responsibilities, profits, and resources, as well as any liabilities. Of course, there are different forms of partnerships, but the main idea is that this arrangement gives partners tools to perform their tasks with mutual dependence. A partner in the medical partnership can be another physician, physician group, professional corporation, hospital, or private equity firm.

The largest medical association in the US is American Medical Association. Physicians in their practice can also benefit from management services provided by the Medical Group Management Association.

How do Medical Practice Partnerships Work?

There are a lot of factors that may speak in favor of medical partnerships. For many, their own medical practice might mean the chance to make all the critical decisions for themselves when others look for something more secure.

The specific commitments and rewards that come with different partnership agreements can vary, and some practice models will be more suitable for medical professionals and their patients, depending on their situation, priorities, expense management, and capital. Here are the three most common types of medical practices and how they operate.

The Three Types of Medical Practice Arrangements

1. Independent Practice

Private practice is a relatively common choice for physicians. This type of practice is not a partnership because only one entity creates it. This means that a physician is solely responsible for how the practice operates.

Independent practice is usually a smaller enterprise with an established patient base and limited personnel. The medical practice model gives physicians the most freedom and is fraught with the most responsibilities.

2. General Partnership

A general partnership is a medical practice arrangement where a minimum of two entities join their resources to operate together. It means that two or more physicians can form a partnership in which they share profits and liabilities and have to make all the decisions regarding the practice management in cooperation with each other.

The partnerships don’t necessarily require partners to contribute equally and share profits equally.  Many general partnerships have one partner with the majority of capital and entitlement to the majority of the profits. It is especially common when one of the partners is a company, hospital, etc.

3. Limited Liability Partnership

A limited liability partnership is similar to a general partnership but with one important difference. In this type of partnership model, partners are more protected in regard to their liabilities. This means that partners do not share the responsibilities for each other’s professional malpractices.

Medical Practice Partnership Agreement Example

A partnership agreement is a legal document that specifies the roles and responsibilities of partners, as well as the percentage of ownership each of them has and all the other vital details. It is crucial for the safety of partners to include a partnership agreement when entering the partnership.

An example of a good partnership agreement is a contract that includes terms of

• Division of profits and losses
• Decision-making processes
• The length of the partnership
• Authority
• The departure of a partner and its consequences
• Investments
• Practice management
• Capital contributions
• Principal place of the business
• Buy-sell agreement.

The Partnership Buy-in Formula

The partnership buy-in agreement is essentially a safety net for partners. This contract details everything that can happen to the partnership in case one partner leaves the practice.

It’s important to have this insurance when entering the medical partnership because this form of operating a business binds partners together. The partnership buy-in formula secures the future of the partnership in cases one partner leaves, dies, or gets divorced.

A contract like that binds all the partners and determines the value of the ownership interest after the partner’s departure, whether the equity of one partner can be buy-out by the other, and who can be allowed to the by-out of said equity.

A buy-out agreement is a norm with partnerships agreements because it secures all partners’ interests and helps prevent disputes in the future. In case there is no buy-out contract or clause in the partnership contract, there is a higher risk of legal complications and conflicts that may even result in the ending of the partnership.

Advantages and Disadvantages of Medical Partnerships

Before entering any sort of agreement or partnership, it is wise to explore all the options and know all the risks and benefits that come with certain paths. Here are some of the advantages and disadvantages of medical partnerships.

Advantages

• Possibility of taking more financial risks and making investments, compared to the independent practice.
• More freedom in choosing the hours of work, working part-time or full-time.
• Greater financial security.
• Ability to share resources, like equipment, when organizing care coordination.
• No or very few costs of starting the practice when joining the existing one.
• Smaller overhead expenses.
• Having a better support system (like physician assistant and other staff)  to focus on performing the services to patients instead of being forced to take care of other business-related obligations.

Disadvantages

• Less flexibility in the decision-making process regarding practice management.
• Risks that come with sharing liabilities.
• The bigger the practice gets, the more emphasis there is on policies and bureaucracy.
• Being obligated to share resources.

Tips for Structuring a Medical Practice

In the modern healthcare system, there is a place for people who care about opening their own practice and those interested in other forms of medical care, for example working in general practice or being a part of a successful partnership. There are several physician practices worth considering.

The Five Types of Medical Practice

1. Private Practice

This medical practice model is very simple. The private practice involves a physician owner  that is responsible for every aspect of a business. It’s the best model for people who want to have complete control over their practice and are prepared for all the challenges that come with it, like being responsible for patient care single-handedly. Independent practice means you can make all the decisions about how the practice should be run.

2. Group Practices

Group practices are fairly popular in the US, mainly for the many benefits they offer to physicians. Partnerships are a great way to perform services to the patients when you want more security and access to more resources as a joint venture while still enjoying some of the perks that come from having the private practice.

3. Hospital-Based Employment

In the health system it’s not uncommon for hospitals to enter into agreements with physicians groups. Employed physicians work in hospital facilities and ambulatory clinics, providing their services to the patients using the hospital’s equipment and resources.

4. Locum Tenens

This type of medical practice is excellent for medical professionals who like some change of scenery from time to time. Locum tenens refers to when a physician temporarily works in some medical facility as a “fill-in.” This medical practice model is preferred by 5% of the medical workforce in America.²

5. Independent Physician Practice

An Independent contractor is a physician or a group practice that maintains autonomy but can still provide services on similar terms to the medical partnership, for example, sharing facilities and costs of operating with physician partners, physician groups, or companies. The downside to this practice model is that it still requires some dependency on other entities, compared to the solo practice.

Many patients also find the care they need in Human Services or through programs like Medicaid services, which is also a path many physicians choose.

Conclusion

There are many different medical practice models, and all of them come with a set of benefits and challenges. Physicians at the beginning of their careers have to decide whether private practice, partnership, or independent practice presents the most advantages for them.

It is important to remember that medical partnerships, although relatively popular and beneficial, have some risks tied to them, so before signing the partnership agreement, it is good to carefully review every potential partner and evaluate potential risks that come with sharing liabilities with them.

Resources: 

1. Which terms should be included in a partnership agreement?
2. 4 Types of medical practice: Which one is right for you?