Acquiring a dental practice—The pros and cons of an associateship
One of the most challenging—and important—decisions for dentists establishing or expanding their practice is to decide whether to take on an associate, such as a dental hygienist.
Put simply, an associate is someone who provides dental services to a dental practice as an independent contractor for a fee. The fee is typically about 40 per cent of the associate’s collected patient billings.
Many dentists struggle with the associateship question because of the potential ramifications. The associate and the principal dentist may not get along. The associate may eventually leave and take patients to their new practice. Then there are the set-up costs that come with accommodating a hygienist or an associate dentist.
The potential upside, on the other hand, is the ability to grow your practice almost exponentially. Depending on the size of the practice, many dentists or dental specialists such as orthodontists will continue adding work stations, allowing them to significantly scale back their own workload, yet still grow their revenue. At the very least, the presence of an associate allows dentists to earn passive income while tending to more profitable patient treatments such as extractions or fillings, or even while on vacation.
Those dentists who do decide to accept an associate into their practice should keep these key points in mind when drafting an associate agreement:
Partnership or buy-out options—When building an associate relationship—particularly when it involves another dentist—assess the opportunity to develop a partnership and determine whether it aligns with your business plan and long-term goals. Partnerships can help distribute the costs of growth (such as equipment costs) and help dentists share workloads to improve work-life balance. When they go sour, on the other hand, toxic partnerships have been known to destroy entire practices and even result in legal action. The best approach is to choose your partners carefully.
Another option is to buy-out a retiring dentist. This is an attractive alternative because the purchasing party (typically a young dentist starting out in his or her career) obtains a list of loyal patients, alleviating the need to ramp-up operations and spend inordinate amounts of capital on marketing costs to build the practice. This process sometimes involves a transition period where the purchasing dentist works in the practice, becomes familiar with its patients and eventually takes the reins after the principal dentist retires.
Right of first refusal—In almost every case, the associate will be asked to enter an associate agreement with the principal dentist in order to formalize the relationship. Associates will often be granted a right of first refusal when the potential for a buyout of the practice exists. Associates who seek the right legal advice will almost always request that such a clause is included in their agreement, but principal dentists might want to consider adding one proactively. The reason is that by giving an associate right of first refusal, the principal dentist knows that he or she has always has a potential buyer for the practice on hand. This can save thousands of dollars in fees associated with the sale of a practice, not to mention the stress of trying to find a buyer—a task that confounds many dentists, ultimately forcing them to simply wind down their practices without gaining revenue from a sale.
Terms of the agreement—An associateship agreement differs substantially from a standard agreement with an employee. In the latter case, an employee is typically hired for an indefinite period. But associates are considered independent contractors who will engage with a practice for a predefined period of time. Some agreements include a probationary period when either party can back out of the agreement without consequence. However, once the relationship extends beyond that probationary period, the associate would be bound by specific termination clauses in the agreement. Some termination clauses may require the associate to provide notice of six to nine months if he or she wishes to leave the practice. A best practice is to consult with an experienced lawyer specializing in contract law to develop an agreement that protects both parties and includes provisions that cover a range of possible future developments.
Non-competition—This is a critical clause for principal dentists to include in their associate agreements. A well-structured non-compete clause will prohibit an associate from practicing dentistry within a certain distance of the practice for a specified amount of time. If the associate is planning to one day open a practice in a particular area of a city or town, they would probably have to avoid taking an associate position in that same area since the non-competition clause would preclude them from setting up shop in the immediate vicinity. It’s important to note, however, that non-compete clauses must be specific and limited in their scope. Any clause that attempts to prohibit an associate from practicing in an entire province for, say, 20 years, will almost certainly be struck down if the matter goes to court.
Patient list—Most agreements will specify that patients seen by the associate are those of the dental practice, not the associate. Similar to a non-compete clause, any agreement that includes provisions with respect to patient lists must be limited and reasonable. Many associates will negotiate agreements that specifically exclude family and friends.
Hours—The agreement should specify the days and hours of work required of the associate. In most cases, an associate position at a dental practice will not provide full-time hours, so a second or third associate position may be sought by the associate. Since the associate only gets compensated for work performed, the associate may insist on clauses to limit down-time between appointments
While these are just some of the most important points to consider when drafting a comprehensive associate agreement, there are many more that should be included. Dentists should be sure to contact an experienced lawyer for help in drafting the document, but only after defining their business goals for the practice. Those objectives will help determine which clauses need to be added to position the business for long-term bottom-line success.
George Grignano, Partner