Can The Practice You Are In Or Considering Joining Support An Associate?

IS IT TIME FOR AN ASSOCIATE?


This may be the most frequently asked question PARAGON consultants encounter. Dentistry must be the most associate-active of profession of all health-care professions. Dentists seem to always be considering bringing an associate into the practice. Unfortunately, however, very few dentists bring in an associate at the right time or for the right reason. In fact, many dentists go through numerous associates without ever knowing the real reason relationship does not work out as planned.

There is a right time and a right situation to consider an associate. But first let’s discuss the wrong reasons we encounter over and over.

 The most common reason that dentists bring in an associate is because they are just not busy enough. As strange as this may sound it is true! As the dentist begins to examine the problem he realizes that he is no longer getting as many new patients as he once did. Further examination reveals that his overall patient base is getting older and older each year and these patients need less dental work – the dentist has already done the bulk of the work. He also soon realizes that the lack of new patients is a direct result of not getting the younger patients he once was getting.

The established dentist decides that if he brings in a younger associate dentist then the younger patients will start coming back into the practice. This is really a logical thought. A patient base often does grow older as the dentist grows older. The bulk of most dentist’s patients are within 10 years either side of the dentist’s age. It is logical that that lost generation may indeed come back into the practice if a younger dentist is available. After all, the new dentist is also from that same lost generation.

But the question is if this is really a valid reason for an established practice to bring in an associate? No, and in fact, this associateship arrangement is almost always doomed to fail. The problem is that the patients are coming to the practice to see the younger associate and if the associate leaves the practice more than likely the patients will follow the associate. Statistically, in over 90% of the cases we have encountered since 1988, an associate will eventually leave the practice to set up his or her own practice or get involved in another associateship!

Why? Because sooner or later the associate will discover that he is building a practice within a practice and that he really does not need the host dentist like he or she once thought. These young dentists begin to wonder why they should allow a host dentist to earn 50% or 60% of their collected production when they could enjoy 100%?

 Another common reason that dentists hire associates is to fully utilize their facility. The established dentist in this situation may only be working 4 days a week and never in the evenings or weekends. The established dentist figures that a hungry associate will be agreeable to working Fridays, Saturdays and some evenings. The facility would then be fully utilized. Good idea?

It will work for awhile but not in the long run. Why? The associate eventually discovers that he or she is building a practice within a practice and will leave to set up his or her own practice. When the associate leaves he or she often takes some staff and patients with them. This scenario happens frequently and is often very costly to the established dentist. Fro example, we know of an associate who married the host’s hygienist and took the front office person to his new practice. The result was that the host dentist lost more than $150,000 in annual gross practice revenues in addition to what the associate had been producing. It was financially devastating.

 A third common reason associates enter practices is because the host dentist is anticipating selling his practice and wants to see if the new doctor can handle it. This is a valid reason to bring in an associate, but unfortunately, it is rarely structured properly. This is typically a totally ambiguous relationship of “lets see how we like each other and then if everything works out OK you can buy me out”. There is hardly ever a contract and if there is a contract it is typically inadequate with little to no protection for either the established dentist or the associate. The host dentist is tired and wanting to slow down, but since there is no commitment by either party, he does not usually slow down at all during this ambiguous “look see” period. The established dentist will rarely refer patients to the associate so the associate is frequently not very busy. Even if the intention was to see if the associate can handle the practice, the associate hardly ever gets a chance to prove he or she can. These relationships begin on a lack of trust by both parties and generally end ugly.

There are only TWO valid scenarios for bringing an associate into your practice.

First scenario: you need an associate because you are entirely too busy! You have more patients than you can handle. You are booked so far out that you are losing patients because they can’t get into the practice in a reasonable amount of time. You need another pair of doctor hands just to keep up with your work load! In this scenario the associate will be busy right away!

or

Second scenario: you are ready to start slowing down and phasing out toward retirement. Maybe because you are tired or maybe because you have accomplished your financial goals. Whatever the reason you need another pair of doctor hands to handle the patients you are ready (right now) to pass on to the associate. In this scenario the associate will be busy right away!

There is only ONE right way to bring an associate into your practice – a fully committed equity associateship arrangement.

In the equity associate structure, the established dentist and the associate are both contractually committed to the eventual transfer of practice ownership. The equity associateship arrangement can be structured as either a Deferred PreSale (seller will remain with the practice as the buyer’s associate after the sale), or a Deferred Sale (seller will leave the practice after the sale), or a Deferred Co-Ownership Program (host and associate eventually become equal co-owners in the practice).

Regardless of the desired structure, the plan must have a clearly defined method of allowing “sweat equity” credit to the associate for what he or she contributes in practice growth over and above what the practice was producing when the associate entered the practice. There must be a comprehensive contract protecting the interests of both the established dentist and the new associate. The exact deferral period (time lag to the buy-in or buy-out date) must be clearly defined in the contract (however, it is not unusual for the host and associate to accelerate the buy-in or buy-out date in these transactions). The exact formula for determining the buy-in or buy-out price is pre-determined and defined in the contract. The exact terms of the buy-in or buy-out are pre-determined and defined in the contract. The contract clearly defines the working relationship of the parties after the buy-in or buy-out, etc., etc.

Get the point? There is nothing left to the imagination in these critical relationships. Everything is clearly defined and pre-determined by contract. The success rate of PARAGON’s various deferred transition programs is virtually 100% as opposed to the 90% to 95% failure rate of standard associateship arrangements.

An associateship definitely has its place in the dental community, but only if the relationship is structured properly. Don’t become a statistic… and please, please don’t jeopardize your largest asset. Call PARAGON for professional guidance on successful practice transitions!

 Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.