Solo-Group Relationships for Dental Practice
Using a solo-group relationship for owner-dentists and dentists needing an office for a practice without the formality of a partnership agreement, a corporation or a salaried associate agreement is an important possibility for dentists to consider in their practices. It is basically an agreement to share the expenses of an office so that the owner-dentist can cut down on his or her expenses and the incoming dentist can lower the amount of money that it would cost to set up a practice. The incoming dentist can then also develop his or her patient base individually for future use. There must be an agreement in writing to cover a number of subjects that come up in day to day operations or which may arise in the future.
The most important part of the agreement is detailing what the incoming dentist’s contribution to the expenses involved in running the practice. A monthly rental or use fee based on gross production is a common arrangement, as is a fee based on the number of days worked by the incoming dentist. This section of the agreement must put in writing the number of operatories for use by the incoming dentist on particular days of the week and for what hours, what is the arrangement for use of the lab, the pro-rata share of supplies used by the office, what is the arrangement for used of chair-side assistants and hygienists, and use of office staff and office equipment. The amount of the rent paid for by each dentist should be laid out here. Additionally the amount of expenses for new acquisitions of dental equipment should be detailed. There should be a time period for payment for the use of the facilities by the incoming dentist and an agreement as to what should happen if the payment is not made on time.
The shared space of the facilities is a section of the agreement that allows each dentist to cut down on the overhead of the use of the office. The dentists must agree what parts of the office are for the common use by the dentists and what are select areas for use by the individual dentists. This includes what operatories are to be used by the two dentists and what parts of
the lab are for common use. The time restrictions must be laid out in the agreement so that the shared facilities are used by each dentist for certain days and for certain hours, and if there is an understanding that facilities can be used for emergencies.
The use of office staff and office equipment should have a special section of the agreement because duplication of such expenses may be unnecessary. Here, who has the authority to make personnel decisions such as hiring or firing staff should be laid out. The incoming dentist may also bring some of the office staff in with his or her part of the practice, and the agreement must set out the responsibilities and use of individual staff. Also, office equipment may be used commonly and the ability to use the equipment and for what purposes should be documented. Additionally the purchase or replacement of office equipment needs to be addressed.
The requirement for each dentist to obtain malpractice insurance and particular licenses required to practice is a necessary part of any agreement in a solo-group relationship. The amount of coverage for each dentist should be detailed. Included in this section is the protection against liability of each dentist for the other’s actions.
In case one of the two dentists becomes disabled, dies or decides to retire the agreement should include how the office is to function continuously with losing patients. Details of how the office is to handle the replacement of a dentist in case of the absence of either the owner dentist or the incoming dentist must be laid out clearly.
The termination of the relationship between the two dentists should have its own section of the solo-group agreement. If the owner-dentist wishes to sell the practice or bring in a new associate or another dentist into the solo-group relationship, the rights of the initial incoming dentist must be laid out clearly. The initial incoming dentist may have a right of first refusal built into the agreement so that he or she has an option to buy into the practice in case a sale
A properly written solo group agreement can provide savings for each dentist, and these are just a few of the provisions to consider. Protecting the arrangement from conflicts is an absolute necessity.
What to Include in Written Associate Agreements
Taking on an associate in a dental practice requires that the owner dentist and the incoming associate agree on many things having to do with the way the practice is run and the rights and responsibilities of each party. A written associate agreement must be developed so that any future problems between the dentist and the associate are resolved out of court.
Initially it is important that the compensation for the associate be confirmed in detail by the agreement. If the compensation is by salary then there must be a provision regarding production of the dentist. If the new associate is right out of dental school then the requirements for production may be somewhat lower than for the owner dentist. The provision can be called an “advance” or “draw” in which case there can be an agreement to pay back the owner dentist if the compensation is more than the amount of fees generated by the associate. The associate may be paid on a per diem basis and thus might be able to claim similar benefits to those of employees of the office. In that case, paid holidays, paid vacations, paid health insurance, paid sick leave and items such as paid malpractice insurance need to be addressed.
The “re-do” of defective dentistry or completion of cases by a successor association should be addressed in the associate agreement. The percentage of the regular fees charged by the owner dentist to re-do work should be stated, with a figure of 50-75% of the regular fees charged for such work a common agreement. This avoids the possibility of an owner dentist withholding some of the compensation of the associate to pay for this work, and the litigation which may result.
The associate agreement should contain details such as hours of work per week expected, hours that the dental office is open, and coverage for emergency service or weekend coverage. The responsibilities of the associate for business and administrative work, as well as the provision of office personal to accomplish those tasks should be clearly expressed. The associate should have it understood how many hygienists or chair-side assistants will be provided and what hours they will be available. The expected distribution of new or existing patients to the associate should be stated. The coverage and limits of malpractice insurance required for the associate to practice in the office should be clearly set forth.
Who is to pay for business related expenses, fees for membership in professional associations or licenses should be laid out, as well as costs for continuing education, travel costs and promotional expenses. A section on disability income and insurance should be included.
Often there is a disagreement as to which dentists have custody of patient charts and records, and a provision for that as well as a statement regarding the confidentiality of those records and for what purposes they can be used. Liability for misappropriation of such records should be addressed as part of this section.
The associate’s right to buy into the practice is a very important section of any associate agreement, and because it may involve a considerable amount of money it should be carefully drafted. The right may be an open option to buy into the practice at any time or there may only be a right of first refusal option included to allow for the associate to have the first chance at buying into the practice should another associate or dentist make an offer to purchase the practice.
The right of the owner dentist to control any part of the practice of the associate such as the methods in treating patients, the types of dentistry offered as opposed to referring to specialists, or the ability to control other employees of the practice should make it reasonably clear as to whether an associate is an independent contractor or not for the purposes of state and federal labor laws.
Finally, the possibilities of litigation between the owner dentist and the associate should be addressed. Who is legally responsible for malpractice or other negligent acts should be stated, as well as who bears the responsibility for attorney’s fees. Hopefully, a well drafted associate agreement will avoid litigation between the parties.
Guidelines in Hiring A New Associate
Hiring a new associate is one of the most important decisions a practicing dentist will ever make. The permanence of the relationship created will influence not only a great percentage of the dentist’s present practice, but will form the basis for the rest of the dentist’s career and his or her retirement as well. The decision making process is necessarily analyzed from both a business and legal perspective.
Compatibility is a key concern of course. Personality conflicts can destroy a business relationship and lead to disaster for both parties. As well, if the new associate considered is a new dental graduate, then consider the school he or she attended, the courses completed, and the specialties studied to find out if the practice will benefit from this particular dentist’s talents.
Recognition of business goals of each party, and having them embodied into a written agreement, must take place at the outset. Does the new associate want to supply a capital contribution, contribute equipment, or share in the profits of the practice? If so, then consider formalizing a partnership with stated shares, creating a limited liability company with individual capital contributions, or other form of corporate structure.
If not, then the new associate may want to be considered either an independent contractor or an employee. In both circumstances an agreement is suggested and essential to preserving the relationship in the eyes of the law and the IRS. For tax purposes either party may choose an employer-employee relationship, particularly if the new associate can’t contribute much monetarily or the owner of the practice wants to maintain reasonable control over day to day practice activities.
The IRS is very critical of labeling associates one way or the other without significant supporting evidence. They look at whether the dentist owner has the “right of control” over the associate, with regards to day to day control over dental treatments. The involves questions as to who gives and takes instructions on what topics, who is allowed to make decisions as to work hours, and who decides what equipment is to be used and what patients will be seen. Secondly the IRS looks at financial control of the practice, or who pays for business expenses, the investment of each in the business and equipment. Finally, the compensation package is key, for using a W-2 form, or certain benefits packages nearly always establishes an employment relationship. A written employment agreement should lay out all of these details.
An independent contractor relationship can benefit both parties if each wants more control over his or her treatment of patients or can contribute some capital, equipment or employees to the practice. A 1099 form for compensation is then a key indicator of this type of set up and there is much less control.
Either in corporate structure, an employer/employee relationship or an independent contractor agreement, the requirement to carry malpractice insurance is critical to include in any document. It must be made clear that each party in order to continue the relationship must maintain a specific amount of professional malpractice insurance. Indemnification by the associate and insurance policy holder of the practice owner in addition to this expressed requirement for holding insurance should be in writing. If a policy lapses, is not renewed or is not the right kind of policy to cover all treatment made during the relationship (even after the relationship if concluded), then bitter disputes about principal agent liability may ensue.
It is necessary to include explicit language in any agreement with a new dental associate on competition both during and after the relationship ends. Who the associate can contact as a patient if he or she leaves the relationship, how far away must a new practice be set up, and the duration of any non competition clause must be laid out. Restrictive covenants not to compete are always interpreted under state law according to their reasonableness, and each case is considered individually by the courts along these lines when considering enforceability.
Buy in options, or buy out options must be included in any agreements, particularly in circumstances such as retirements, death, disability, change in location, or change in career. A right of first refusal by one party or the other in any large business change is often included.
Changes in business strategy and growth of each dentist’s career objectives should be allowed for in any agreement. Productivity goals as a part of compensation, benefits upon retirement, and addition of new employees or associates are subjects that need to be addressed.
Adding a new associate or turning over the practice to a new associate over a certain period takes place in the lifetime of almost every dental practice. It is essential to get it right, and get it in writing at the outset to make the transition and the relationship productive for both parties.