As the physicians of the baby-boomer generation approach their golden years, many have achieved career and financial success and are looking for an arrangement that will allow them to ease into retirement. While you may not be ready to hang up your white coat permanently, you may be interested in working fewer hours and taking less call. Retirement requires more than simply removing your name from the office door, however. If you are a physician nearing retirement, it is important that you plan, discuss, and make contractual agreements that will allow you to accomplish your goals and changing needs.
How Is Your Practice Structured?
The structure of your practice may determine your retirement options and the legal documents that govern these choices.
If you are the sole physician in your practice, for example, you have two options: Dissolve your practice, or sell it to another physician. If you sell your practice, you will need a purchase agreement that describes the rights, responsibilities, and liabilities (e.g., obligations to employees, accounts payable, malpractice causes of action) of the purchasing and selling parties.
If you are an employee of a medical practice, your employment agreement should outline the procedure and time frame for retirement. The agreement may provide language similar to the following: “Employee or Practice may terminate this Agreement without cause upon X days prior written notice….”; however, retirement may be addressed separately from the clauses governing termination without cause.
If you are a shareholder of a corporation, a member of a limited liability company (LLC) or a partner in a partnership, the shareholders’ agreement, LLC operating agreement, or partnership agreement, respectively, should address the rights and responsibilities of the retiring owner and the practice.
Beware of Existing Obligations
Physicians must not forget that obligations that exist under contracts and laws do not necessarily go away at retirement. Even a retiring physician may be bound, either directly or indirectly, by a contract that extends beyond the date of retirement. Is the retiring physician a party (or a guarantor) to a line of credit or a loan for an office build-out or equipment? The retiring physician must also act in accordance with laws, in particular those governing patient medical-record retention and patient notification. Even for a retiring physician, many legal and ethical obligations continue. A well-planned course of action can prevent issues from surfacing postretirement.
Your Buy–Sell Agreement
It’s important that you make contractual agreements that will allow you to accomplish your goals.
A buy–sell agreement describes the terms and conditions for the buying and selling of a withdrawing physician’s ownership interest in a medical practice. Buy–sell terms are found either as a provision of a larger agreement (e.g., shareholders’ agreement, operating agreement, or partnership agreement) or in a separate, freestanding document. Regardless of where the terms are found, they do not typically address the special needs of physicians in their later years of practice, such as the option of working less prior to complete retirement or the opportunity to develop a semiretirement arrangement.
One recommended provision provides the physician with the option to convert to semiretirement status. This enables senior physicians to remain with the practice on terms that meet their changing lifestyles. Often, such arrangements include a part-time work schedule, reduced or eliminated weekend or evening call, or additional vacation time. These benefits are frequently accompanied by compensation adjustments so that the practice’s full-time physicians do not feel that they are financing the semiretired physician’s new lifestyle. For example, a physician who previously worked five days a week and will be working a part-time schedule of three days a week going forward will receive three-fifths of his or her previous salary. Or, the semiretired physician may become an hourly employee to reflect the reduced schedule. Alternatively, the arrangement can be structured to maintain the physician’s compensation, but gradually reduce the semiretirement benefits throughout the retirement period, typically one to three years. These types of packages serve the practice by extending the professional life of the physician and serve the physician by satisfying the desire to transition toward retirement.
More Advice for Making Your Exit
Want to learn more about how to retire from your practice? The ACR’s business manual for rheumatologists, “The Business Side of Rheumatology,” has a chapter that addresses planning a temporary or permanent leave from your practice. Download the manual at www.rheumatology.org/publications under Practice Management Publications.
What’s In It for the Other Physicians?
Although a physician’s semiretirement package may appear to benefit only the physician retiring, the other physicians in the practice actually benefit as well. If a physician is granted semiretired status, the practice’s other physicians can absorb some of the retiring physician’s patient load. This helps the other physicians build their individual practices and increases the likelihood that the semiretiring physician’s patients remain with the practice. In addition, a physician who is unable to partially retire may leave the practice sooner than expected, creating a gap in managerial expertise and call coverage and putting a strain on positive relationship management with patients, hospitals, and payers.
For the remaining physicians, providing an agreed-upon semiretirement package for a senior physician sets the precedent for others who are ready to ease gradually into retirement. In order to facilitate a smooth transition from full-time employment to partial retirement, you must give yourself and your practice plenty of time to incorporate these changes into the existing structure.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins, LLC. He may be reached at [email protected].
