Exit Strategies: How to Prepare for a Retiring Physician
Here’s an eye-opening demographic fact: A startling one-in-four doctors will reach retirement age in the next five years.
Just as noteworthy, many mid- and late-career physicians are not interested in hanging in there to attain Marcus Welby status. In research commissioned by The Physicians Foundation, 39 percent of physicians surveyed say they are stepping up their retirement plans due to changes in the healthcare system.
That means the chances are good that a partner could be retiring from your practice in the foreseeable future. Ideally, an exit strategy for departing physicians is spelled out in the partnership agreement or employment contract. Some practices go as far as negotiating a formal separation agreement with departing physicians that clarifies the terms of departure, including the settlement of any money owed.
Make It a Smooth Move
At the very least, you’ll want to take some steps to minimize disruption to the practice. As soon as a retiring physician submits notice, consider creating a transition plan that addresses these key areas:
- Payout – As a group, determine whether you will be offering a buyout to the retiring partner or paying out a percentage of his or her final salary. This can be done either in a lump sum or via installments over time. The goal is to fairly compensate the retiring physician while easing the financial burden on the practice.
For example, the practice might agree to a slightly larger percentage of salary in a lump sum versus sharing ongoing practice profits over several years.
- Patients – Beyond properly notifying patients of a departing physician, the practice will need to establish continuity of care so that patients don't feel abandoned. The reality is that patients can become rattled when they learn that they will need to “start over” with an unfamiliar physician.
The departing physician and/or practice should send a letter notifying patients of the change and offering to provide continuing care or transfer records to another provider. The key is to help patients understand why the transition is happening and how it will impact their care.
- Contracts – Review any legal agreements that the retiring physician is party to. These may include equipment and building leases, bank notes and any shareholders’ agreement (for practices structured as a corporation) or operating agreement (for LLCs).
- Third parties – Your state licensing board, the DEA, third-party payers and your malpractice carrier will all need to be notified of the change in status. While the individual doctor may do some of this legwork, it's ultimately the practice's responsibility to make sure that everyone is properly notified.
- Malpractice coverage –“Tail coverage” may be necessary to cover any claims filed against a retired physician for treatment provided while employed at the practice (especially if he or she has previously been insured on a “claims made” basis). The employment or shareholder’s agreement should spell out exactly who is responsible for procuring the coverage, and the party securing the coverage should provide a certificate of insurance to the other party.
- Other providers – Switching patients to other physicians in the group is certainly an option if the practice has the capacity. But if you’re planning to replace a retiring physician, consider whether you’ll need to bring in a locum tenens or tap a local physician to cover until you are able to recruit a new provider.
- Patient records – If the departing physician’s patients will be seen by others in the group, patient records will likely be maintained by the practice. Note that patient lists, charts and other demographic information remain with the practice, not the retiring physician.
- IT issues – A physician’s departure also requires dotting the I’s and crossing the T’s with regard to IT systems. This includes changing passwords and login permissions for the practice’s scheduling, billing and/or Electronic Medical Record (EMR) software.
The only thing that’s constant is change. So make sure your practice is well prepared for the changing of the guard that will occur as physicians retire.
Healthcare Practice Strategies - Summer 2016