Hospital sponsored practive

[DiveMD]

What are the advantages or disadvantages of staring a practice with hospital sponsorship? Do they have you by the gonads for years to come or do you have some kind of independence? Anyone with experience on this topic?

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[orbitsurgMD]

What are the advantages or disadvantages of staring a practice with hospital sponsorship? Do they have you by the gonads for years to come or do you have some kind of independence? Anyone with experience on this topic?

It depends on the deal and on the community. Most of the arrangements I have seen structure the agreement as a forgivable loan of up to a certain figure per month for a certain fixed number of months, typically 24, which accrues as a balance that is paid down at a prescribed rate once your monthly collections exceed a set figure. You are then granted a forgiveness of the balance by a certain percentage per month that you remain in practice at the hospital after the end of the funding term. If you collect enough in excess of your minimum during the two years from startup to pay off the accrued balance, then you are free and clear. If after the two years startup you change your status (e.g., leave staff, drop Medicaid, participation with which may be a condition of the agreement) then the balance is typically due at once, possibly with interest. Usually the term of the forgiveness period is equal to the support period.

Everything depends on the ability of the community to support an ophthalmologist. Hospitals are usually looking only to get someone on staff so they can claim a specific level of surgical coverage to qualify as a facility providing a specific level of emergency care, for which they receive large grants, many millions of dollars. They don't concern themselves so much with practice viability. If the community can support you on your own, you can do well. If it can't, you can find yourself struggling to keep your doors open until you have earned back your startup loan balance and can move on to better practice locations.

 

[orbitsurgMD]

I started a solo practice about four and a half years ago. I considered an offer like this but chose to finance without the hospital. I have done fine by my own pathway and have been able to be more selective in my choice of contracts. I can't see how a hospital deal would have left me any better off. FWIW, I was topside on my practice operations costs by month five. That has been the experience of others as well.

 

[orbitsurgMD]

You should treat the hospital offer as a line of credit with which you will draw on to pay the current expenses of your practice, including your rent, utilities, insurance, staff salaries, monthly payments on equipment loans and EMR vendor fees and your personal draw for living expenses. In a bank-financed startup, the need is the same. Consider that you will have loan payments for capital equipment that will go at least five years, so that won't be wrapped entirely in the startup package, only the months during which you will be drawing. If the area you are looking at can really support a new ophthalmologist, figure you might only be drawing for ten months, and then probably not the full monthly allowance as your collections start coming in and you get busier. Once you hit the break point for taking a draw, say $20K per month for at least three months running, then the amount in excess of $20K collected (again, example, you actually negotiate this figure) is paid back against the principal. So if you hit the $20K x 3 months at one year, and averaged $27K/mo collection over the second year, you would have paid back $84K by the end of your income support period. So if you drew out $150K and paid back $84K, you would have $66K subject to earn-off forgiveness, usually on terms of 1/24th of the principal per month for two years or 1/36th over three years (again negotiable.) You have to decide whether the restrictions imposed on you in exchange for the agreement are worthwhile to you.

You might also consider a stipulation in your agreement that the hospital will not recruit or sponsor another ophthalmologist practice in the area without your permission for a reasonable period of time, say five years. This would protect your practice during the most vulnerable period of your startup.