Physician Partnerships: What to Know Before Joining
By Jared Andreoli, CFP®, CSLP®
Joining a medical practice as a partner may seem like the natural next step in your career, but it’s not always as financially rewarding as it appears. Physician partnerships might sound appealing, and they do have their upsides. However, they come with hidden costs that sometimes catch new partners by surprise.
Financial planning for doctors can be complicated, and many of our clients come to us for advice before deciding to join a physician partnership. This article explores some of the less obvious financial implications of joining a partnership and how to plan for success.
The Allure of Physician Partnerships
When you enter a physician partnership, you aren’t negotiating a contract to work for a hospital or health system. You’re joining a medical practice with one or more other doctors, and as a partner, you share both profits and liabilities. This approach comes with several potential advantages:
Greater autonomy and the power to make decisions
Equity in the business
Higher earning potential
Future profit-sharing
The benefits of medical practice ownership can be alluring, and for many doctors, they overshadow the financial risks.
Different Physician Partnership Models
Not all physician partnerships are structured the same way. Some practices offer equal partnerships, where all partners share profits and responsibilities, while others use tiered systems in which senior partners receive larger distributions. Income distribution may be based on equal sharing, individual production, or a hybrid model. Your buy-in amount and profit share may also vary depending on which partnership track you choose. Understanding the specific structure of the partnership you're considering is crucial to evaluating whether it's the right fit.
Understanding the Hidden Costs of Physician Partnerships
In physician partnerships, working with other doctors is rarely an issue. However, the rigors of medical practice ownership aren’t for everyone. These are some of the most critical costs to consider:
Buy-In
To join, you usually need to make a large up-front payment. In many cases, doctors take on substantial debt to buy in. Buy-in costs vary widely depending on practice size, specialty, and location, but typically range from $50,000 to $500,000 or more. Some partnerships allow you to pay over time, while others require the full amount up front. It's also important to understand the timeline for recouping this investment. Some physicians see returns within 2-3 years, while others may wait 5-7 years or longer.
Tax Considerations
As a partner, your tax situation changes significantly. Unlike W-2 employees, partners typically receive K-1 forms and are responsible for quarterly estimated tax payments. You'll also need to pay self-employment taxes on your share of partnership income. However, partnership ownership can open the door to additional tax deductions, including business expenses, retirement plan contributions, and potential Section 199A qualified business income deductions.
Overhead and Shared Liabilities
Profit-sharing means you share responsibility for liabilities and expenses.
Lack of Financial Transparency
In some physician partnerships, you may not be allowed to view complete financials before buying in. As a result, there’s a chance other partners could overvalue the business in an effort to convince you to join.
Long-Term Financial Commitments
If your partnership relies on a deferred compensation model, you might not be able to access all of your earnings right away. And if you want to exit, doing so often comes with financial losses.
Insurance and Liability Coverage
Malpractice insurance becomes more complex as a partner. If you're switching from employed status, you'll likely need tail coverage for your previous policy, which can cost 1.5 to 3 times your annual premium—often $15,000 to $50,000 or more. As a partner, you may be required to carry occurrence-based coverage or maintain your own claims-made policy with adequate limits. Additionally, as a business owner, your disability insurance needs may change. Review whether your current policy adequately covers you as a partner, and consider business overhead expense insurance or buy-sell insurance to protect you and your partners.
Legal and Contractual Complexities
Some physician partnerships are easier to exit than others. If there is no clear buy-sell agreement, partners may have trouble deciding how to buy you out of the contract. Many practice partnership agreements also come with non-compete clauses. These typically restrict you from practicing within a 10-25 mile radius for 1-3 years after leaving, though these terms vary significantly.
If you want to avoid these potential issues, make physician contract review a priority before you join.
Questions to Ask Before Joining a Partnership
When you understand the potential financial pitfalls of physician partnerships, you know that taking a close look at a practice before joining is essential. The following are some key questions to ask:
May I review the practice’s full financials?
What are the partnership's current debts and financial obligations?
How do you distribute profits and losses among partners?
What happens if I want to leave the practice?
What’s the total cost of buy-in? How is it calculated, and has it been recently appraised?
Does the contract include any non-competes or restrictive covenants?
How are capital calls handled if the practice needs additional funding?
What is the partnership's accounts receivable aging? (This reveals billing efficiency)
Have any partners left recently? If so, why?
What insurance policies does the practice carry, and what are my coverage obligations?
Consulting a financial advisor and healthcare attorney before signing is essential. Anytime you’re considering joining a medical practice, a thorough physician contract review is absolutely vital.
How a Financial Advisor Can Help
If you don’t already have a physician financial advisor, it might be time to seek one out. At Simplicity Financial LLC, we focus primarily on financial planning for doctors. We have a nuanced understanding of physician partnerships, and we can help you make this critical decision.
These are some of the ways we may be able to assist:
In conjunction with your attorney, we review contracts for potential risks
We help you weigh your buy-in against potential return on investment (ROI)
We will model income scenarios as an employee vs. as a partner
We’ll analyze long-term financial implications
Given the financial complexity of physician partnerships, we also coordinate with attorneys and tax professionals to help with due diligence.
Plan Ahead: Timeline for Decision-Making
Don't rush into a partnership decision. Ideally, you should begin your due diligence 6-12 months before you join. This gives you adequate time to review financials, consult with advisors, and negotiate terms. A typical timeline might look like this: initial offer and term sheet review (month 1), financial analysis and attorney review (months 2-3), negotiations (months 3-4), and final decision and signing (months 5-6). If a practice pressures you to make a quick decision or won't accommodate a reasonable review period, consider it a red flag.
Considering Joining a Physician Partnership?
Physician partnerships can be rewarding, but before joining one, it’s important to carefully weigh the costs.
Simplicity Financial is uniquely equipped to help you navigate these decisions and create a personalized financial plan. While based in Milwaukee, Wisconsin, we work with clients nationwide through in-person, phone, and video meetings, providing the flexibility busy professionals need.
We are proud members of the XY Planning Network and the National Association of Personal Financial Advisors (NAPFA), two exclusive fee-only organizations with rigorous screening processes that help to keep us on the cutting edge of financial planning.
Get started by scheduling a free consultation, or reach out to us by emailing jared.andreoli@simplicityfinancialllc.com or calling 414-207-6473.
About Jared
Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and achieve their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full day meeting with clients who value his partnership to solve problems—big and small.
After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.
Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER®, CFP® and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.