Private Practice Salary Offer

[jdm95ls2000]

Hello everyone, thank you for feedback on my last offer. I received a different offer to join a pod practice (< 7 pods) with base salary of 100k, 5% buy-in into an ancillary company that generates about $1500/month (on the low end) for 5%, after 3x base 20% bonus, and the practice has its own surgery center, 3-4 offices. I will be brought in to do the bulk amount of cases. Per the practice, their new associate who has been in practice with them for 1 year has surpassed the 300k benchmark, so they do anticipate me making my bonus. In short, the base will be 120k (including the 5% ancillary income) and 20% incentive after 3x base. They seem to be negotiable. The contract is for 1 year. I would like to counter to increase incentive to 35%. Any other suggestions or feedback? Offer includes health insurance, application fees, malpractice, cme money biyearly, and other investment opportunities. Also, I won't have to take call at the local hospitals unless I want to. They wanted to give me a 2 year contract, but I requested it to be 1 year.
*current 3rd yr resident PMSR-3 w/ rra

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[dtrack22]

What is their overhead running?

I don't get why pod practices tell you how well you can do in your first year, or how well their last associate did (though collecting $300k even your first year isn't great and IMO a sign of someone who really isn't ready to hire). They are negotiating against themselves and making it very easy for you to justify a higher % of your collections. 20% is horrendous btw.

 

[that1guyfromFL]

Like dtrack said, it's hard to evaluate the deal completely without knowing more of the practice.

What you did share appears to be a poor offer.

In the scenario you outlined, even collecting $500k for the practice you would earn about $147k.

Some ideas would be a lower salary guarantee (say $80k) and multiple (say 2x) before your production bonuses structure kicks in. Combine that with a higher production percentage (say 35%) and you reach $185k pay on that same $500k collections. Play with the numbers.

You could also consider a short term salary of say $10k/mo for 6 months with the right to change to a pure % of collections if your business has picked up sufficiently. A pure 42% deal would net you $210k on $500k collections.

At the end of the day you must understand how these variables work for and against you if you are going to avoid being taken for a ride by an employer.

The value of the CME, insurance and other ancillary opportunities are real and need to be specifically spelled out and used in your final calculations.

You need to negotiate aggressively if you are seriously interested in this job.

 

[digest]

Like dtrack said, it's hard to evaluate the deal completely without knowing more of the practice.

What you did share appears to be a poor offer.

In the scenario you outlined, even collecting $500k for the practice you would earn about $147k.

Some ideas would be a lower salary guarantee (say $80k) and multiple (say 2x) before your production bonuses structure kicks in. Combine that with a higher production percentage (say 35%) and you reach $185k pay on that same $500k collections. Play with the numbers.

You could also consider a short term salary of say $10k/mo for 6 months with the right to change to a pure % of collections if your business has picked up sufficiently. A pure 42% deal would net you $210k on $500k collections.

At the end of the day you must understand how these variables work for and against you if you are going to avoid being taken for a ride by an employer.

The value of the CME, insurance and other ancillary opportunities are real and need to be specifically spelled out and used in your final calculations.

You need to negotiate aggressively if you are seriously interested in this job.

How are you getting $185K and $210K ? My calculations are coming out different.

 

[bunNfxr]

I would have some mixed feelings about the offer. First off, expectations on early years of gross productivity on this site end to be overly optimistic. I would look at PM management survey stats on gross productivity as a reference point, then look at what your potential is in this practice. $300K receivables in your first year is good. Now 20% is fair for the first 50 or 100K over 300, if they give you 50% on every $100K collected after that. That mitigates their risk and gives you a strong incentive to keep busy. Overhead is less expensive after you have grossed 400 than the first 300.
How do they intend to handle MACRA regulations? take the cut and keep overhead low or comply and keep overhead high? This will greatly affect what you net. The latter is good for you and bad for them.
If they are not planning on complying, they may not be able to deal with the building onslaught of regulations that will not likely end with MACRA. But the future is always unknown. If they are not preparing for MACRA(Which has almost no teeth until after 2019), then they may or may not have a business in 15-20 years.
What is the payer mix? MACRA will not matter if you have a mostly cigna and blue cross practice. Everyone talks about the private insurances following Medicare's lead, but with the exception of coding, there is little evidence of that happening so far.
Referral sources? IF they rely on private PCPs, they will be gone in a few years as MSGs and hospitals buy them up to control the market shares.
In my experience a private practice with a surgery center buy in is one of the best gigs you can be associated with, but only if the pay is fair. Don't count on renegotiating much after one year. Because at that point, they know it is harder for you to uproot again and go find something better than it is for them to hire a new associate. Particularly, if they have the lure of a surgery center ownership. Try and work it out up front.
See if you can talk privately with the recent associate and find out if he plans on staying or is about to jump ship himself, feeling used and abused. Keep in mind he may have an some pressure to limit negative information.

 

[dtrack22]

Don't count on renegotiating much after one year. Because at that point, they know it is harder for you to uproot again and go find something better than it is for them to hire a new associate. Particularly, if they have the lure of a surgery center ownership. Try and work it out up front.

You definitely want as much in writing as possible up front, assuming it is fair/beneficial for you (the new employee). Especially the practice, surgery center valuation/buy in. You should not be paying for the value you added to the practice IMO, otherwise you are paying them for your own production which they have already profited from in your first 1-2 years as an associate. The problem is when your first contract is for one year, you have to sign another contract and therefore likely have to re-negotiate. You hope that the practice owner(s) is/are fair, but my experience with podiatry practices says this is not the case far too often. I would be asking for a straight % of my collections after my first year, with that % depending on practice overhead. I don't see why you should be giving the practice more than 5% of your collections as profits for the owner(s). ie overhead is 50%, you ask for 45% of your collections. Because of the leverage issue bunNfxr mentioned, I personally would recommend staying active on the job search front throughout the year so that you have the opportunity to leave if your current employer is going to try and screw you after that first contract. This applies mostly to podiatry groups, but hospital employees (for example) are not totally immune to this.

I would look at PM management survey stats on gross productivity as a reference point, then look at what your potential is in this practice. $300K receivables in your first year is good.

I would not look at PM management (PMnews) surveys because I think they come from outdated practices, or older solo guys that now work less than full time on purpose, and therefore give the practice owner a significant advantage. In my practice the last two associates collected $544k and $478K in their first year, with the latter opening up a brand new clinic in a town of around 20,000 people (no other podiatrist in town). The difference was primarily a few extra months of lower collections due to less volume in clinic as it was started from scratch. There seems to be so much regional variability as well that survey results from a guy in NY/NJ/PA can be vastly different from a practice in TX, or CO, or OR. MGMA data will be more favorable to you as a new grad, and in my limited experience is more accurate in terms of what you can produce in a well run clinic that is actually ready to hire.

See if you can talk privately with the recent associate and find out if he plans on staying or is about to jump ship himself, feeling used and abused. Keep in mind he may have an some pressure to limit negative information.

This is excellent advice and I actually found that young associates (your peers potentially) were very open/honest about their employer, their pay, and their future prospects within the practice.



To add, I would try and get a feel for the owner(s) timeline in terms of when they expect you to partner/are able to buy in. Again, if you collect $400k in your first year, you have undoubtedly paid for yourself (assuming you get a typical podiatry contract) and the practice has made money off of you. There is no reason you should not be able to buy in after 1 year. Everyone knows within 12 months or so whether or not a long term partnership will work. I would stay away from anyone who directly says or hints at partnership not being offered until you've been an associate for 2-3 years. At that point you will have likely made the group several hundred thousand dollars and then you're giving them buy-in $ on top of that.

 

[ExperiencedDPM]

Hmmm. I’m not sure why dtrack believes that a practice owner should only be able to profit 5% on an associate. If overhead is 50%, I personally don’t hire an associate to basically break even. I have always remunerated associates very fairly, but I don’t know any of my colleagues who would pay the malpractice for an associate, health insurance, contribute to the 401k, give a few weeks of paid vacation AND pay the associate 45% with an overhead of 50%.

I’ve done more and more consulting over the years and I personally haven’t seen any associate in straight percentage make much more than 35%. One of the newer models I’ve seen pays a base of 75 grand and 20-25% of what the doc collects. So if using 400,000, the associate would make at least 155,000 and if the doc brought in 500,000 he would make a minimum of $175,000.

There are a zillion options but I personally didn’t spend many years building a practice and taking risks to only make 5% on an associate. It is a business.

Just my thoughts.

 

[dtrack22]

I’m not sure why dtrack believes that a practice owner should only be able to profit 5% on an associate.

I never said a practice owner should only be able to make 5% of an associate's collections. I said as an associate, that's what I would ask for after my initial contract is up assuming partnering is not on the table. So the practice owner says no? You negotiate. A car dealership is going to make money off of you, they are a business, but that doesn't mean you walk in as a customer and drop your pants for them. And asking for 45% of your collections when overhead is at 50% doesn't mean the owner of the practice is only profiting 5% of what you collect from billing office visits and CPT codes. Many associate contracts do not include DME as part of collections. And don't think you are getting a cut of any ancillary revenue streams as an associate, another area outside of collections where the business is getting a return on their investment.

I don’t know any of my colleagues who would pay the malpractice for an associate, health insurance, contribute to the 401k, give a few weeks of paid vacation AND pay the associate 45% with an overhead of 50%.

The associate is paying their malpractice, and their health insurance (which not one podiatry group offered to cover 100% for me when I was looking for jobs BTW), and matching their own 401k...we must, however, give thanks for the vacation...those are overhead expenses that are built into the associate's base salary and bonus structure. Those benefits are known expenses and your contract will never be such that your production as an associate doesn't pay for them.

Here is a perfect example of a podiatry contract: $100k base, 30% of collections at 3.5x base salary. Associate collects $400k, get's his/her $100k base and a whopping $15k bonus. That leaves $285k for the practice. It may or may not include DME and it counts zero dollars in any ancillary services you provided. You covered your malpractice, your 401k match, your health insurance (that you might be paying for anyways), you honestly paid for your vacation time, and left at least $85k for the owner(s). So in year two you shouldn't ask for a larger cut of collections? I'm only saying that I would. Because you know what's gonna happen in year 3? Partnership, where you are going to have an owner that thinks his practice is worth millions and wants $600k for a 25% stake that includes absolutely no real estate and surgery center shares are a separate cost. That's an actual valuation for a podiatry group, and if you don't believe me I'll give you the guys info so you can inquire for yourself.

There are a zillion options but I personally didn’t spend many years building a practice and taking risks to only make 5% on an associate. It is a business.

If you offered an associate 5% less than what he/she collects in year two as compensation, and only made 5% of the $ brought in to the practice by said associate...you aren't very good at business. But again, nobody said that's all the owner should be entitled to, only what I would recommend an associate ask for. I'm not a communist and would never force a business owner to pay more than he/she has to for labor. PT Barnum wasn't wrong, so I don't think any podiatry practice owners have to worry about this scenario any way. Last thought, there are still far too many podiatrists who are perfectly content with hiring a new associate every year or two. They keep doing it because they make enough money off of a new associate in year 1 to not even care about creating a workplace/practice where people actually want to stay.


Ok, this is my last thought. Staying somewhat on topic, an associate needs to get an idea of why the practice is looking to hire or retain you in the first place, as you may have more or less leverage in certain situations. Like did the practice overextend itself into new office locations or new markets and lose the manpower to cover it? Or maybe they never had it to begin with? You may be more valuable to a group who is losing money without you because there is an empty office every day of the week and staff not being fully utilized. Nobody wants to pay for empty chairs. Maybe its an older doc that wants to cut back days and either he or his partners need revenue to keep coming in? It could also be a practice that has a 1 month wait to get in, but hasn't locked down any new office space and can afford to go right back to 45 patient clinic days without you and not lose a penny.

 

[ExperiencedDPM]

Here’s the bottom line. After many years in the profession and many years reviewing contracts, the last thing I would recommend is being an associate in a podiatric group. I’ve just seen too many disasters for a host of reasons. My priority would be multi specialty groups, hospitals or Ortho groups.

 

[dtrack22]

...the last thing I would recommend is being an associate in a podiatric group. I’ve just seen too many disasters for a host of reasons. My priority would be multi specialty groups, hospitals or Ortho groups.

I agree. The problem is that too many graduates will have to go work for podiatry groups. I'm only trying to encourage the handful of people that will read this, to do their best NOT to get abused by current pods.

 

[ExperiencedDPM]

This is to elaborate on my prior post. Most DPM practices simply don’t generate enough income to pay an associate “well”. There isn’t enough ancillary income. And I’m NOT talking about all the crap that the practice management groups tell you to do to make money. I don’t want to sell crap at my front counter. I don’t want display cases with nail polish, foot creams, topical nail crap that doesn’t work, etc and I don’t want to rip off Medicare with “balance braces” that have NO legitimate studies to support their use.

I’m talking about ancillary income from surgery centers, MRI facilities, PT facilities, X-ray facilities, etc. That’s where the big bucks add up.

Most Ortho groups, multi specialty groups and of course hospitals provide these services and they are owned by the groups. Most DPM practices don’t, though some may have interest in a surgery center.

The hospital, Ortho group or multi specialty group can afford to pay a DPM more because they are generating ancillary income in addition to income from patient care. So if a young DPM is making 225,000 in an Ortho group and only grosses 400,000 for the group that year, they don’t worry because the young DPM fed the MRI facility, fed PT and fed the surgery center.

That is the primary reason DPMs can’t afford to pay an associate well as a general rule. They are too busy selling 10 dollar foot creams and not building MRI centers.

 

[bunNfxr]

I am going to disagree a bit. Podiatry is a business. It should be a business that provides medical services. An associate would do better to find a practice hiring an associate that values the skill set brought to the practice, the ability to take call, cover in house patients etc. That should be the value of the associate. If you are looking to make a profit after overhead is met then I think you are taking advantage of the associate. You are getting to go home early because someone else is taking call, covering the overflow of patients that used to keep you at the office and doing rounds and they are essentially paying you for the privilege. Maybe the first year as recruitment costs also need to be covered, but ultimately a practice should become a mutual arrangement more than another stream of income for the practice owner. If you don't need someone to take that workload off your hands than you don't need to hire. If you do need or want that burden reduced than you pay for that service. If the arrangement is break even, you have received value for your purchase as the practice owner. One caveat is the extra time that goes into practice management also has value and that will necessarily fall on the practice owner and also has a value. So 5% of gross revenue sounds about right to me.

Most practices don't actually have that level of need so their reason for hiring is to "grow the practice" and as such expect to gain revenue as you bring in more pateints and more money than you cost, and the practice owner benefits. There is nothing wrong with this and certainly if a Walgreens hires a pharmacist, they expect to make money off of his services and as said above. No one takes a risk without a reward. As a practice owner you are as entitled as Walgreen's to seek such an arrangement. My sentiment above is simply that a new associate would do best to find a practice that is looking to buy free time and a better reputation due to the expansion of practice offerings so that there is a mutual benefit from the associate's work rather than just making money off someone else's work. In reality there is spectrum and you want to push toward the end of the spectrum that will allow you to get out of your enormous student debt and save for retirement, while living a comfortable life.