Payment Terms
In the event that the physician-employee exercises the opportunity to buy in, the employment or purchase agreement should provide terms governing how the purchase price will be paid. Often, the practice will be flexible in negotiating payment terms that meet the physician’s individual financial needs; however, the parties frequently agree that the physician will either pay the owners in full up front or make installment payments over a specified number of years.
If the physician is required to pay the total purchase price up front, he or she will be personally responsible for obtaining the necessary funding through bank loans or other sources. If the purchasing physician is permitted to make installment payments, he or she will be required to sign a promissory note in which the payee is the practice and the note is secured by a security interest in the equity granted to the physician. There are important tax strategies that can be implemented when installment payments are agreed upon. In the event that the physician fails to make the installment payments, the practice may be able to recover the equity interest.
In Sum
Both parties should review and understand the terms and conditions of the buy-in so that all parties enter the employment relationship with the same expectations for future ownership.
Steven Harris is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins LLC in Chicago. Write to him at [email protected].