Handshake partnerships: Tick...tick...tick...

This practice probably couldn't have been saved, but the breakup could have been far less acrimonious.

By Gary W. Thompson, CPBC

You've probably heard "Get it in writing" hundreds of times. The advice is as good as it is old. Yet I continue to encounter doctors who fail to draw up partnership or employment agreements, deciding it's cheaper and easier to trust one another than to pay someone to draft these documents.

Consider Pete Stamper and Chris Wilkers. Both in their 50s, the Portland, OR, obstetricians had worked on and off together, in practices of four to seven doctors, since 1977. (I've changed their names and some other identifying details.) However, they generally had little direct interaction until 1998. That's when the vertically integrated health system they'd belonged to for several years disintegrated, and they decided to go back into partnership together.

Although I had set up Wilkers and Stamper in practice their first time around, I wasn't involved with this most recent union until I was called in to negotiate its breakup. The pair certainly seemed mismatched to me. Wilkers was reticent, unemotional, conservative, and set in his ways; Stamper was boisterous, opinionated, and inclined to go off on a whim. In fact, Stamper had dropped out of medicine for several years in the late 1980s, to pursue "personal enlightenment."

The new partnership had trouble getting started. When their health system went belly up, the doctors were left with no accounts receivable and had to begin from scratch. Although they were able to stay in their office, they had to take a big loan to repurchase equipment they'd sold to the health system. Nevertheless, Stamper and Wilkers got up to speed quickly and within a year had added a nurse practitioner, a physician assistant, and a part-time, salaried OB.

Business was good, but the physicians drove their bookkeeper bonkers. They often disagreed on who should be credited for what under their fairly complicated—and unwritten—compensation formula. The doctors also did a poor job of recording business expenses and saving receipts for things like dues, journals, and costs associated with attending conventions. The office manager should have stepped in and set them straight, but as you'll see, she had her own agenda.

Wilkers had been assigned to oversee the practice's finances, but he lacked enthusiasm for the task and took weeks to review and provide copies of the monthly accounting reports his partner had requested. Stamper loudly complained that he was the only one looking out for both of them, and that Wilkers didn't give a damn. The constant quibbling resulted in significant backbiting. Arguments often occurred over minor things, such as whether a file cabinet should be moved.

The partners' discord becomes a diversion

The employees, who were supposed to be shared, began taking sides and often refused to speak with or help one another. Occasionally, shouting matches took place within earshot of patients. Even though Stamper was supposedly in charge of personnel, many employees went to Wilkers instead. He tried to soothe their nerves, but because of his laid-back nature, he was reluctant to confront Stamper. Fortunately, the bickering seemingly never reached the ears of referring doctors, who continued to send Wilkers and Stamper their patients.

The practice's part-time physician, Tom Nevin, who'd known both men for many years, offered to broker a truce. During their meeting, Wilkers said he was tired of Stamper's paranoia and negativity. He demanded that Stamper stop double-checking the books and let their office manager handle the employees. Remarkably, Stamper, who'd been known to fly into fits of rage, listened quietly, then said he'd do his best to not cause problems.

For a couple of months, he succeeded. Then another crisis set him off again: The doctors discovered that their office manager, using the practice's internal strife to deflect attention from herself, had embezzled close to $50,000. Stamper had suspected something was amiss, because he'd never received prompt accountings of the practice's revenues. Now he blasted Wilkers for not taking him seriously enough.

The partners agree to split, but a key document is missing

A breakup seemed best to both physicians. Nevin, the part-timer, called me in to negotiate a deal. I knew both partners, so I figured I wouldn't have much difficulty. How wrong I was.

I arrived at their office one afternoon to find another practice management consultant poring over income reports. Stamper had decided that because he hadn't contacted me himself, I couldn't be impartial.

The meeting ended abruptly when I asked for a copy of the doctors' partnership agreement. "We never had it drawn up—we just shook hands," Wilkers admitted. "I guess we figured we knew each other well enough to work without one." With nothing in writing, everything was open to debate, conjecture, and, ultimately, argument.

At the next meeting, each partner showed up with an attorney. The first order of business was to decide who'd be responsible for the cost of the embezzlement.

"Hey, I wasn't involved with the employees," Stamper said, pointing a finger at Wilkers. "He was."

"Look, Pete," I said. "Chris didn't want that money stolen any more than you did."

"I bet he did," Stamper shot back. "In fact, he was probably in cahoots with her, which explains why I never got those reports."

And so it went. Finally, Stamper's attorney calmed him down, and the physicians agreed to charge $25,000 against each of their practice assets, a 50-50 split of their embezzlement loss.

The bigger issues—how to divvy up employees and assets, and who'd keep the present space—were even messier. Largely because of Stamper's stubbornness, it took seven months and thousands of dollars' worth of legal and practice management advice to come up with a dissolution agreement.

Wilkers signed his copies of the document; Stamper refused. Apparently, he couldn't get over the fact that Nevin, along with the nurse practitioner and the physician's assistant, had agreed to join Wilkers in a new location. "He can't take those people with him!" Stamper shouted. "I'll sue!"

By now, I was having a hard time hiding my exasperation. "Come on, Pete," I began. "They're not under contract, so they're free to go wherever they want."

"He's right," agreed his attorney.

Stamper slammed shut his laptop computer. "What a bunch of bull," he said. "I want compensation for the income and patients they're taking from me."

"That's not something that goes into a dissolution agreement," I said. "You'll have to recruit your own people."

He continued to bicker as the rest of us gathered our papers and filed out of the conference room.

A bitter two years come to a bizarre end

Finding Wilkers another office wasn't easy, but eventually we located one 10 miles from where he and Stamper had practiced. The day of the move went something like a segment from a "reality" TV program. Stamper showed up with a video camera, convinced Wilkers would take something that wasn't in the dissolution agreement. Finally, someone called the police, and a patrolman came by to ask Stamper to turn off the camera. He complained, then got in his car and sped off.

In the weeks that followed, Stamper refused to have his staff transfer patients' records. One of Wilkers' employees had to drive to Stamper's office and demand them. Sometimes, Stamper would relent and release charts; sometimes he wouldn't. Eventually, Wilkers got fed up and complained to the local medical society. The next day, Stamper agreed to hand over the remaining records.

I've talked a lot about Pete Stamper, but Chris Wilkers wasn't blameless. He doesn't voice displeasure soon enough. Several times during my negotiations with the doctors, Stamper said it was the first time he'd become aware of certain problems, whether they were real or perceived. I'm inclined to believe him.

As for the dissolution agreement, Stamper still hasn't signed it, although he has made two of the four payments the document requires of him, mostly for accounts receivable. Wilkers fears that he may never see all the money owed him—about $30,000 more—because of the turmoil that continues to swirl around Stamper. Many of the employees who'd stayed with Stamper have either quit or been fired, and rumor has it that he's behind in payments to suppliers.

Does it matter whether the dissolution agreement is ever signed? Yes, because technically, as it stands now, nothing has been agreed to. That will cause trouble if either physician wants to take issue with part of the agreement. Any further disputes would have to go through the lawyers again, or the doctors could wind up in court.

The author is president of Rocky Mountain Professional Consultants, a practice management firm in Lakewood, CO.

What a partnership agreement should include

If the doctors described in the accompanying article had a partnership agreement, they could have dissolved their practice much more easily and painlessly. Here are the major issues a well-crafted document should cover:

• Buy-in, buy-out, and liquidation provisions, including who retains the location, equipment, and records of the partnership.

• Coverage arrangements.

• Division of management duties.

• Illness, disability, and leave of absence.

• Income, expense, and profit allocation, including any deferred compensation.

• Mechanisms for settling disputes.

• Ownership and valuation of assets, including accounts receivable.

• Physicians' individual liability for lawsuits against the practice.

• Purchasing policies, including who's authorized to spend, and up to what limits.

• Restrictive covenants.

• Vacation policies.

You should update a partnership agreement when a new doctor joins or leaves the practice, or whenever the practice materially alters the way it does things.

"Many practices change policies, but the doctors don't think to redo the documents," says practice management consultant Gary W. Thompson, author of the accompanying article. "When their office manager or practice management consultant brings up the fact that they should do this, they balk at paying attorneys' fees." Spending some money now, Thompson says, can save you from shelling out a lot later for a lawyer to represent you in a legal battle.

 

Gary Thompson. Handshake partnerships: Tick...tick...tick.... Medical Economics 2001;18:51.