Dear Friend,
It’s best to look before you leap. But which way?
That was the subject of Monday's blog post, Leaving Big Medicine? Look Before You Leap. You can follow the link to read the post online, or just keep reading.
Fueled by the failure of large medical groups, the disappointments of hospital employment, and the ratcheting down of care by private equity, physicians are increasingly seeking alternatives to their current practice arrangements.
Many, alone or with others, are exploring the creation of new practices under their own ownership and control.
In this first article in our new series, Leaving Big Medicine, I want to stress the importance of looking back before leaping forward to a new practice arrangement.
It might seem counterintuitive, but before you can fully understand what you’re leaping into in your new arrangement, you need to understand the potential entanglements lurking within your current arrangement.
A Hand Grabbing Your Ankle
Let’s look at an example, an amalgam of multiple real life situations.
Dr. Marty McDoctor practices with a hospital affiliated medical group (“HMG”) in a state that permits covenants not to compete in connection with the sale of corporate shares.
Marty started with HMG shortly after he completed his nephrology training 13 years ago. He’s now extremely unhappy and has decided to join a medical school classmate, Pat, in forming a new group. They found office space across the street from Marty’s present office and are getting ready to sign a lease.
As Marty was preparing to finalize arrangements with Pat, it occurred to him that he should check to see how much notice he’s required to give his present employer. To his shock, it’s120 days.
However, that was, comparatively, the good news.
Marty believed that he was simply an employee of the large group. But as he was attempting to resolve the quandary of having to give 120 days’ notice, he discovered a “piece of paper” that he signed 7 years ago. He recalls that he signed it in order to qualify for participation in a bonus pool. But now, upon a careful reading, he realizes that the document granted him 1 share of Class B stock (out of 10,000) in HMG and bound him to a shareholders agreement and its covenant not to compete.
He’s never received notice of a shareholders meeting, he’s never been given an annual report, and he’s never been asked to vote on any corporate matter. However, the covenant not to compete prohibits Marty from practicing within 10 miles of his existing office during the three years following departure from HMG.
What if Marty hadn’t discovered those facts until he was seeing patients in his new office across the street? And what if he discovered those facts only when he was served with a lawsuit for violating the covenant not to compete?
Of course, this begs the question of whether that sort of a covenant not to compete under those circumstances would actually be enforceable. But the cost of challenging it might be a few hundred thousand dollars in litigation expenses.
But that’s just one sort of example. There are many others. And, they all boil down to the same bottom line. Unless you understand the potential metaphorical hands grabbing at your ankle, you really don’t have a clue about your ability to break free.
The Major Takeaway
“Look before you leap” is generally taken to mean focus on where you’re planning to land.
However, in leaving Big Medicine, it also means looking from where you’re about to leap.
