Today we will address some factors regarding practice buy-ins and what they can mean for becoming a partner at a medical practice.

Type of Buy-in

There are typically two standard forms of practice buy-ins. The first is what I call "sweat equity" where a physician gets a fraction of what they collect in their first two to five years of practice, with payouts typically increasing on a "cliff schedule" every year. The second way to buy-in to a practice is through a cash buy-in at partnership. Typically this is done through taking out a loan through a bank that the practice has had a close relationship with in the past.

While the "sweat equity" option is typically less risky than the cash buy-in, particularly if one feels they are unsure how long they will be with the practice in the long term and is debt adverse, it might not be as attractive to physicians that would like to aggressively pay off their debt and then reap the rewards of their higher income in subsequent years.

Financial Health of the Practice

A very big determining factor in whether or not to move forward with buying into a practice is how well the practice is doing as a whole. When the time comes to take out a loan for an amount sometimes three to five times bigger than your student loan debt, it is definitely all right for the physician to ask to see the profit and loss statements of the practice. Many times young physicians are reluctant to ask to see the financial inner workings of the practice they are about to buy-in to. If you are planning on being a partner, you should really know how things are being handled from an overall revenue and expense standpoint.

If the practice is unwilling to share this information with you, that is a large red flag in my book. If you do not feel comfortable reviewing the books of the practice yourself, include your tax professional or a financial advisor that specializes in working with physicians.

Also, with the economy being what is has been over these past couple of years, I have suggested that some clients see if the practice has their P & L records available from past economic downturns, for instance from the 2000 to 2002 recession. However, in my professional opinion the financial strength of the practice itself should be the determining factor in taking out a loan for the buy-in, not necessarily the economy itself, as the economy is always cyclical.

Geography, Payer Mix and Competition

There are number of other factors that play in to whether or not you want to be at a practice long-term. Many of these things probably weighed in when you started at this practice in the first place, but let's take a brief look at some of them.

The geographic location of the practice can play in to how it evolves and thrives in the future. For instance, the client mentioned at the start of this article resided in a rather small metropolitan area and had a good amount of patients from outlying smaller communities that were traveling to see him. This can give him a little additional protection from the economy at times, because there typically isn’t as much competition in these smaller rural areas as what you would find in a major metro area that has many more practices, sometimes right down the street.

As with any practice, your overall payer-mix is another thing to consider in the long-term. However, with the new legislation passing through Congress this could possibly be less of a factor than it has in the past.

The Future of Medicine

With Congress recently passing the health care bill, there are obviously a lot of question marks with regards to where practicing medicine in America is headed. We obviously do not have a crystal ball to look into. However, for many years now, I have been telling clients that as the years go by I expect their tax rates to increase by possibly as much as 10 to 15 percent over the next 10 years and potentially have their incomes decrease at the same rate or possibly much more. There are many factors to this equation even outside of medicine; things such as our large national debt, the underfunding of Social Security, the baby boomers entering retirement and needing increased health care and reimbursements already starting to decline rapidly. Obviously these factors will affect medicine as a whole, but could have a bigger impact on those that are just now becoming partners at their practices, taking out large loans for buy-ins and have another 20 to 30 years ahead of them to practice.

Overall Happiness

As with any career and place you are employed, at the end of the day determining whether to buy-in to a practice or take an opportunity elsewhere lies on how you feel when coming home at the end of the day. Obviously the factors mentioned above are very important; but if you enjoy the practice as a whole, like the way the other partners practice medicine and want to be there long term, then moving forward with becoming a partner is probably the best thing for you and your family.