An equal equity ownership group provides an equal share in the ownership of the group to every physician who is invited to become a partner or owner. Not every physician who works with the group must be an owner, and some may choose not to be. Why? Because as Len Nitowski, MD, the president of the DFES group at Christiana Medical Center in Newark, DE, pointed out, “Not everyone is cut out to be the owner of the candy store.”
Dr. Nitowski's group provides equity ownership to each full-time group member in the form of a corporation that gives stock to its physicians. Each member of the group is treated equally in stock ownership. His group has been a template for excellence in the academic and private sectors since its inception in 1969. A highly respected emergency medicine residency has been in place here since the 70s.
Young doctors frequently think ownership just means more money, but that they must understand the level of commitment, time, effort, and mindset required of an equity owner, Dr. Nitowski said. He also objected to the term “partnership” when referring to an equity ownership model. “Partnerships are legal constructions between two parties,” he said. “Ownership is a different animal.”
Dr. Nitowski helps evaluate job offers extended to his graduating residents, working with each to examine how well the job's structure fulfills individual desires and needs. If a graduating resident is seeking security, ownership may not be the best road to take. He also emphasizes the details of group governance: Who makes the decisions? How are those decisions made? And he asserted that it is up to the individual to decide if he wants the additional responsibility, above clinical duties, required to be an owner. This is a self-examination Dr. Nitowski said every physician should be doing: “What is the best practice structure for my practice style?”
Choosing Equity Ownership
What makes a physician good equity ownership material? I heard from a number of sources on this question, and all agreed on these five traits:
- Organized with an ability to understand and handle finances.
- Willingness to get involved.
- Decision-maker and collaborator with good common sense.
- Risk-taker willing to put in the time and effort to reap the benefits.
Arizona Emergency Medicine Specialists at Kingman Regional Medical Center was established only a few months ago. Michael Ward, DO, the president of the group, and his three partners have established clear criteria for adding new equity owners to their group: residency training in emergency medicine (Kingman has an osteopathic emergency medicine residency) and a commitment to live locally and be involved in the community. There are other physicians working for this group as employees who enjoy incentive income, salaries, and benefits with the potential for equal equity owner partnership.
This is a young group, with most of the physicians only a year or so out of residency, and all are taking a leap of faith to make this group work. They have definite ideas of which sort of physician will make the best potential colleague. “We don't operate in a vacuum,” Dr. Ward said. “New potential partners must understand the concept of what we do and how it affects the hospital in terms of our patient satisfaction levels, lengths of stay, and left-without-medical-screening rates. We are looking for people who maintain their abilities in a teaching environment, who have common sense and a desire to be independent. The solvency of the residency program is tied directly to the success and survival of our group. We're not interested in someone who just wants a paycheck.”
It will take this group a few years to establish specific buy-in and equity earning guidelines, but for now, they are doing the job and enjoying the adventure.
Power Run Amok
Not all equal equity ownership groups are enjoying the ride. One group in the Southeast is experiencing serious issues with a partner who has taken over the group, due in part to a relationship with a high-level hospital administrator. This is a prime example of power run amok as a direct result of group partners becoming complacent and allowing someone else to take the reins gradually. Instead of dividing responsibilities among all the physician owners, one physician volunteered while the others enjoyed a lighter workload. One day they realized, though, that their democratic group had become a dictatorship. As one of the affected partners told me, “It's easy to give the power away, but damn difficult to take it back.”
Steve McIntyre, MD, a business partner for Appleton Emergency Physicians at Appleton Medical Center in Wisconsin, said his group recently began encouraging each physician to participate in committees and other hospital projects by paying a hourly rate for their time. “It's that visible involvement with the hospital that keeps a contract strong,” he said. They've even set up a fund for events that promotes group visibility, and they emphasize group contributions to the hospital and community.
Understanding that all groups are not that equal or equitable, what should emergency physicians be looking for in a potential equal equity ownership group opportunity?
- A stable group with a strong relationship with hospital executives and medical staff.
- A group of physicians who are all contributing and involved with ED management and hospital committees and activities.
- A group that offers a well-defined path to ownership that includes requirements for earning an equity owner invitation, a time frame for equity owner invitation, and a formula for earning or buying into equity ownership.
- A group that will open its books prior to a written contract.
- A group whose members have an approach to patient care that matches your methods.
- A group of physicians you feel a connection with personally.
I can't quote specific numbers to you for earnings or buy-ins; every group is different. But most established equal equity ownership deals require a purchase into the accounts receivable in one way or another. Some will allow sweat equity to be a factor; others will not. Time frames will differ as much as management styles. I can urge you, however, to ask detailed questions, not only of the prospective group, but of yourself.
As Dr. Nitowski asks his graduating residents, “If the guy who sweeps up the candy store calls in sick, are you ready to pick up a broom?”
If you aren't absolutely certain the answer to that question is yes, equal equity ownership might not be for you. If not, perhaps a limited liability partnership is more up your alley. I'll cover those next month.