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Divorcing your practice requires a plan

A column examining the ins and outs of contract issues

By Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted Jan. 4, 2010.

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Perhaps it's the uptick in the stock market or the pending health reform legislation, but one thing is certain, at least from where I sit: Medical practices appear to be splitting up with increasing frequency.

Within the last several months, six such practices have sought counsel through my firm to assist in navigating the murky waters of practice divorce. Some are doing so peacefully. Most are not.

When counseling clients in this area, I often use the analogy of having orthopedic surgery: It will be painful, and rehab may last awhile. However, once it's over, and you look back, you will feel a lot better and be comforted that the worst is behind you.

Before making the leap to divorce from your practice, consider the following to reduce your risk:

First, have a game plan. Ask yourself, "Where do I want to be at the conclusion of this transition?" Remember, you need to decide what the endgame looks like. Good advisers can help get you there with minimized risk.

Second, review all legal documents. Shareholder, member, employment, bank, real estate and other agreements will provide a baseline for planning your rights and liabilities with regard to your soon-to-be former practice.

A common mistake made by physicians and lawyers alike is to use the documents as a definitive conclusion for the exit strategy. Remember that with agreement among the parties, any document can be modified to reflect the new intentions of the parties to a transition.

Develop a plan that best suits your needs and, if appropriate, present it to the physicians staying with the practice or those not joining you in the new venture.

Often parties are willing to make meaningful modifications to legal documents. One of the most common is waiving a prolonged notice period required in the agreements.

While a three- or six-month written notice in advance of termination is not unusual, the practice and departing physician often wish to shorten that period. Numerous other concessions or trades by the practices are commonplace.

Third, keep things quiet. If at all possible, keep your dispute outside the public eye. There will be enough chatter in the halls of the hospital or physician lounge to fill numerous gossip columns. What all sides need is to shield the ill will from referral sources, hospital administration and, of course, patients of the practice.

If the dispute is headed to litigation, consider the private forum of arbitration or mediation. Although I am typically not a big fan of such alternative forums, this strategy does offer privacy that court proceedings do not.

Fourth, be careful to confirm in writing where you are going before you leave. This aspect of the transition is filled with traps for the unwary. While you need to pay special attention to your fiduciary obligations to your current practice, you certainly do not want to leave without securing your safe landing elsewhere.

I have seen a litany of situations where the departing physician has taken irreversible actions with his current practice only to be profoundly disappointed with the commitments of his new partners. Said another way, secure the landing before you take off.

This won't be the last word on practice divorces. In future columns I will tackle specific topics such as banking issues, lease obligations and critical insurance strategies.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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