By Kevin K. Douglass, Esq.

Published January 2008

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Business differences between physician practice owners can simmer for months or even years before boiling over. In most instances, these differences can be constructively addressed and resolved long before the boiling point.

Disagreements can arise for any number of reasons. Physicians may disagree over compensation levels and productivity. For example, one physician or group of physicians may believe that they are doing the bulk of the work for comparatively little compensation. Tension may also build concerning succession issues. An older physician nearing retirement may be looking to cash in his or her interest in the business while a younger physician owner may be concerned about whether they will be permitted to buy the business at what they view as a fair price.

Physicians may also have different views regarding the strategic goals and objectives for the business. Certain owners may be interested in investing in the business to grow the practice while others may want to maximize their near-term compensation. Consequently, questions concerning whether to change practice locations or affiliations, expand or improve facilities or more aggressively market the practice are just a few of the issues that owners may face.

Finally, a particular physician’s personal challenges can have a significant impact upon the business. Those personal issues can take the form of health problems, substance abuse problems or other distractions that might impact the productivity and effectiveness of a physician. In short, whatever the challenge, it is important for each physician owner to objectively consider their rights and obligations so that they can make the best decisions for themselves and the practice.

The first step toward addressing ownership differences between physicians is for each individual owner to understand any legal commitments they already may have made, and learn what they can about the financial strength of the business. The physician should obtain copies of the organization’s corporate records including articles of incorporation, by-laws, share register and/or corporate meeting minutes and related documents. These records should describe some of the rules governing the business, reveal information concerning significant past events and identify the owners and their percentage interest. In addition, it is critical that the physician locate any agreements that he or she may have signed, such as a shareholder agreement, operating agreement, employment agreement or similar document. These agreements should provide specific information concerning the rights and obligations of the parties. Finally, it is equally important to understand the value of the business to you and your co-owner(s). Locating documents pertaining to the company’s recent financial performance (including financial statements, income statements, cash flow and the like) will enable the physician to better understand and appreciate the opportunities and challenges facing the business.

Do not outsmart yourself. Find an attorney, accountant or other advisor you can trust. Many physicians may believe they are perfectly capable of reading and analyzing various legal and financial documents to assess their rights. That would be a mistake. They will miss key provisions, nuances or issues that a capable attorney or accountant will spot. Just as important, it is virtually impossible to filter the information objectively when personal interests are at stake. Be selective when choosing an advisor. In some cases, you may want an individual who is connected to the business. In other instances, a more objective "outsider" may be preferable. For example, the business’s attorney or accountant may have a conflict of interest and be unable to provide objective advice to an individual physician.

In order for a physician owner to obtain a satisfactory solution to whatever issues confront him or her, he or she needs to decide what outcome is most desirable. This may seem obvious, but sometimes making decisions about a particular course of action (or inaction) can be challenging. A trusted advisor who has the benefit of the physician practice’s key legal and financial records may be in a good position to assist in defining and refining goals or objectives. The options are as varied as the problems. Any of the following could be a course of action:

· Maintaining the status quo and preventing others from "rocking the boat."

· Obtaining, relinquishing or sharing control of the business.

· Adjusting compensation or productivity requirements.

· Separating from the business through a buyout, resignation, termination, etc.

· Adding new physician owners to the business.

· Developing a strategic plan for the business.

Of course, knowing what you want and getting it are two different animals. Again, an attorney or accountant can assist you in assessing how best to accomplish your objectives. Depending upon the circumstances, it may make sense for the physician to handle whatever issues face them without the direct involvement of an advisor. The attorney or accountant can remain in the background while the owner works to accomplish his or her goals through direct communications with fellow owners or through whatever other means are appropriate. On the other hand, it may make sense for the advisor to become immediately involved in the discussions, negotiations or mediation. An advisor can also provide assistance after a deal has been accomplished by memorializing the terms in writing. The benefits to addressing and resolving the issues between physician owners are obvious. Successful resolution of issues can enable the business to remain successful and help all parties maintain or improve their professional and personal relationships.

In rare instances, physician owners may need to consider litigation as an option in resolving a dispute with a co-owner. Filing a lawsuit obviously raises the stakes considerably, but often can also serve as a valuable tool to push all parties to a resolution. In an emergency situation, such as where a detrimental corporate action is imminent or the assets of the business are at risk of being dissipated, an owner may seek a preliminary injunction to maintain the status quo in the business until a complete trial can occur. In the absence of a settlement or emergency proceeding, however, lawsuits tend to progress at a relatively slow pace, lasting several months or in some instances longer. In a typical lawsuit, initial papers are filed, documents are exchanged, depositions may occur and ultimately, the trial begins. In addition, an appeal can also be filed after the trial, extending the process. Keep in mind that a settlement can and should remain an option throughout the litigation process. Often litigation can assist the parties in more thoroughly understanding the issues each side faces and open the door to more realistic settlement options. Litigation is an expensive option, but can be worth the investment depending upon the amount of money at stake and the issues involved.

The key objective to resolving any disagreement or issue between physician owners is to make informed decisions that are focused on accomplishing your goals and the goals of the business. Learn everything you can about your rights and obligations, seek the advice of a trusted advisor, and take action to accomplish your objectives through discussion, negotiation, mediation or, if necessary, litigation. A successful and less stressful outcome can be achieved if problems are addressed in a constructive manner before they reach a boiling point.

Kevin K. Douglass, Esq., is a shareholder in the Litigation Services Group of Babst, Calland, Clements and Zomnir, P.C.