What happens when the physician you hired to become a future partner turns into someone you need to let go? In this episode, hosts Brad and Michael share the story of a plastic surgeon who hired an associate physician with the goal of eventually making him a partner. Instead, he was forced to confront a hard reality: the physician was not producing, not fitting into the culture, and costing the practice money. Tune in to learn how tools like employment agreements, termination provisions, and separation agreements can help practices navigate physician departures. Discover strategies to reduce risk, control costs, and create a smooth transition that protects your practice, your team, and your bottom line.
Listen to the full episode using the player below, or by visiting one of the links below. Contact ByrdAdatto if you have any questions or would like to learn more.
Transcript
*The below transcript has been edited for readability.
Intro: [00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real-world experiences, creating simplicity in three, two, one.
Brad: [00:13] Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host Michael Byrd.
Michael: [00:19] As business attorneys for health care practices, we meet a lot of interesting people and learn their amazing stories. This season’s theme is “What Now?” Each episode will involve a real client story with a high-pressure moment for that practice.
Brad: [00:33] All right, Michael, what story do you have for us today?
Michael: [00:36] Well, before we get into today’s story, I have a very important question for you.
Brad: [00:41] Very important question.
Michael: [00:41] Not, not just important.
Brad: [00:43] Okay.
Michael: [00:43] Okay. Do you consider yourself something of an expert when it comes to travel?
Brad: [00:50] I don’t know. Expert’s a very strong word, but I’m definitely a seasoned traveler because I feel like I’m on a plane every other week.
Michael: [00:58] Yeah, I don’t know. I might claim to be an expert.
Brad: [01:03] Okay. There we go.
Michael: [01:04] I mean, we travel about the same.
Brad: [01:05] Yeah. All right.
Michael: [01:06] Yeah. You need to get some therapy.
Brad: [01:08] Okay.
Michael: [01:08] Well, our favorite radio station had a debate recently about traveling that, considering our expert status, I could not get it out of my head.
Brad: [01:19] First off, I’m glad that the Dallas radio station, The Ticket, has been mentioned on our podcast more than once at this point, but glad to bring it back into the fold. But what did they say on The Ticket that you just cannot un-hear?
Michael: [01:32] Well, apparently, it is well known amongst elite travelers that two-wheeled bags are far superior to four-wheeled bags. Have you ever heard this before?
Brad: [01:44] First off, no, because I apparently don’t hang out with elite travelers, so no, I’ve not heard that, the four versus two-wheel logic.
Michael: [01:52] Yeah, I felt like I was missing part of some sort of crowd that I didn’t know this. But apparently, there’s more storage room in a two-wheeled bag. It really does, just from the sound of the way they were talking about it, like a subculture has formed where the two-wheeled bag people kind of look down on the four-wheeled bag people as they’re cruising through the airport.
Brad: [02:18] That’s a very niche-ey subculture. And what exactly is the argument or the dislike to the four-wheelers?
Michael: [02:26] Well, it’s hard to know where the story ends and The Ticket personalities took over because they all started weighing in on their own opinions.
Brad: [02:36] All right.
Michael: [02:37] Because Craig Miller was saying, well, the four-wheeled people are just too showy. They’re with these spiny wheels, able to spin their suitcases around as they’re walking and almost just talking trash as they’re cruising through the airports. So I’m not sure if that was just the radio personality or if that was part of the story. They did make a point about the apparently two-wheeled bags have more storage room.
Brad: [03:09] Okay. I have to know, Michael, are you two or four-wheeling it?
Michael: [03:13] Well, I feel like you need to go first.
Brad: [03:16] Okay. Well, apparently, according to Craig Miller, I’m a showy kind of person because I’m running around, four-wheeling it kind of guy. So there I go. I got four wheels. How about you?
Michael: [03:26] Yeah. Well, for the most part, four wheels. I do have one two-bag, two-wheeler, but it wasn’t on purpose. It just happens to be. And I say the four wheels are far more smooth. And if you need to, you can drag it around on two wheels if you’re on rougher terrain.
Brad: [03:43] Right.
Michael: [03:43] And so I’ve never noticed a problem with the storage.
Brad: [03:47] Yeah, I agree. I’ve never had an issue with storage because of the extra two wheels.
Michael: [03:53] Okay, well, this is maybe where I think of us as elite or maybe a little OCD, I’m not sure which, but we both have very efficient strategies on travel when it comes to packing.
Brad: [04:07] Oh, yeah.
Michael: [04:08] Are you ready to be vulnerable and share?
Brad: [04:10] Well, since no one’s listening, sure. For us, because we travel so much, first off, if I can do a carry-on, that’s it. I mean, we’re both traveling right now in a few days, and I am 100% carrying on with suits and workout clothes and multiple different outfit changes that I’m definitely carrying on. And I plan this thing out to the T, making sure that I have exactly what I need, plus an extra pair of underwear just in case you need to switch things out a little bit. But yeah, I will be the minimalist when I have a short trip. Now, you’ve also seen me when we go live in Vegas for over a week.
Michael: [04:52] Residency, yeah.
Brad: [04:52] Yeah, we have a little residency. And then I’m like, “Uh, heck it.” I’m bringing two big bags. I’m stuffing everything I own into the thing.
Michael: [04:58] Yeah. Yeah, I mean, I think the part that’s a little revealing about us as attorneys is we both are planners.
Brad: [05:06] Yes.
Michael: [05:06] And so I take great pride on business trips that I can know exactly what I’m going to wear and pack exactly what I’m going to need.
Brad: [05:15] Yep.
Michael: [05:16] And I don’t come back with a bunch of extras.
Brad: [05:18] And on that note, my team even knows I have a matrix that I build that actually has each day planned.
Michael: [05:24] Yeah. I’m not too far off from that. Not quite that bad, but close, and still has the same level of thinking. I will say, on the personal travel, I haven’t figured that out. I’m terrible on that. I way overpack.
Brad: [05:37] No, I probably a little bit overpack on those too, but I still like my matrix system of knowing what’s the theme for the day. What do I need to bring? A suit? A coat and jacket? Do I..
Michael: [05:47] A costume
Brad: [05:50] I mean, I always travel with a costume, Michael.
Michael: [05:51] I know.
Brad: [05:51] I’m not a savage.
Michael: [05:52] Yeah.
Brad: [05:53] You want to get rolling?
Michael: [05:54] Yeah, let’s do. So let’s jump into today’s story. Today, Brad, we’re going to talk about a board-certified plastic surgeon in Texas. And we will call him, much like our travel techniques, Dr. Smooth.
Brad: [06:10] Ooh, Dr. Smooth. I like that. Could be a radio personality, too. All right, go on with your Dr. Smooth.
Michael: [06:16] So Dr. Smooth is what I would call a doctorpreneur. He has a surgical practice, a medical spa, a surgery center, and he owns the real estate. His practice is, not surprisingly, called Smooth Plastic Surgery.
Brad: [06:31] Well, we do like working with doctorpreneurs. They have a lot of fun energy, and they’re always looking for new angles on their practice or other investments, so they’re a lot of fun to work with from that perspective.
Michael: [06:45] Yes. So our story starts about a year after a young plastic surgeon had joined his practice, and we have been working with Dr. Smooth for a long time. We had actually helped with the original employment agreement. But the real story begins about a year into it. We’ll call the young surgeon Dr. Rough.
Brad: [07:05] Dr. Smooth and Dr. Rough. Something tells me this dynamic won’t work well for them, but they may live up exactly to what their names suggest.
Michael: [07:19] Maybe so, Brad. Dr. Rough was off to a slow start in terms of production. That’s why Dr. Smooth called me. It’s like the year check-in and, “Hey, things are moving kind of slow. Let’s talk,” was his kind of premise.
Brad: [07:36] Yeah. Well, I’ll go with his name – slow starts are rough. For audience members not familiar, the startup phase is where you’re trying to figure out how to start cash flowing. It’s critical for this new plastic surgeon to really get going. And the funny thing is most young successful surgeons learn pretty quickly it’s not just their clinical skills they need to think about, it’s also how they are marketing themselves, how they are positioning themselves as leaders in the community or brand builders, and they really need to ramp up pretty quickly to get busy. And working on making sure that the patients have great experiences, that they’re building their online reputation, and making headway into the community or social media or building those referral relationships, depending on what type of plastic surgery they’re doing. This takes time and, more importantly, commitment from that doctor. So it could take 12 to 18 months before they really start seeing the fruits of their labor here.
Michael: [08:32] Yeah, and for an elective practice, just the art of not… you can see a consult and determine what they need, but being able to convert those into surgical candidates and have the patient, potential patient, gather trust to hire you to do it is a training process.
Brad: [08:54] Yeah, totally agree.
Michael: [08:55] So the additional problem that Dr. Smooth shared with me was that there was a lot of friction between Dr. Rough and the staff at Smooth Plastic Surgery.
Brad: [09:05] Okay. Yeah, we’ve already said a mistake that some plastic surgeons make is they’re really thinking about becoming a better surgeon, so that’s their big challenge. In reality, the challenge is obviously becoming better known in the community and really working with the practice’s team that’s there, and it’s not always easy for a younger doctor, as the team may be extremely loyal to the founder or the senior physician. And a great integration is for everyone to be part of it. So not only does the senior physician need to be rowing with them, the young physician needs to be part of it. The whole team needs to understand that for the practice to be successful, everyone needs to work together and bridge this new relationship with the added doctor.
Michael: [09:52] It’s a great point. I mean, often when we have this conversation, it turns out that the staff is really just loyal to the senior doc, and that’s really the friction, they do not want to have their lives interrupted by working with the new person.
Brad: [10:07] Yeah.
Michael: [10:07] Or if they’re pulled both ways, they are always going to go to what the senior doctor wants. In this case, after we were talking about it, it turns out that Dr. Rough was a little rough around the edges and not the nicest person to work with.
Brad: [10:24] Yeah. So we have slow production. He’s rough culturally and not so smooth with interpersonal dynamics. What did you discuss with him? How did you help Dr. Smooth through this?
Michael: [10:40] I think for the most part, he just wanted some direction. He wanted to talk through legal risk, what the contract says from an expectations standpoint, but really he wanted help solving this. So we talked about the need to engage in the hard conversation to coach Dr. Rough on how to work well with the team and to give him direct feedback on what needed to change so that it would give him a real chance to make the necessary changes.
Brad: [11:11] This is kind of awkward to say out loud, but that really sounds like good advice. Are you sure Dr. Smooth did not say that to you and you said, “I think it’s a good idea, doc”? No, do not answer that. That is surprising to hear, but knowing that it may be good advice, how did it go?
Michael: [11:29] All I heard was, “That sounds like good advice.”
Brad: [11:31] I do not remember saying that.
Michael: [11:32] And then it was like, “Well, yeah.”
Brad: [11:32] I blacked out there for a little bit.
Michael: [11:34] So we implemented a series of calls over the next three months where Dr. Smooth and I would catch up. We talked strategically about how to coach things, how to turn things around internally with the team and financially at the practice for Dr. Rough. He was also doing his part by meeting consistently with Dr. Rough to lean in and give him the opportunity to turn things around.
Brad: [12:08] I mean, had a plan and stuck with it, really trying to work with Dr. Rough. These are all really good ways to approach it strategically, taking a step back and removing emotion. I like this so far. So was Dr. Rough able to turn things around?
Michael: [12:29] Well, we went through those meetings, and one of the things we talked about was that Dr. Smooth could not force Dr. Rough to become successful. You and I have been through that, We know that ultimately Dr. Rough is a professional.
Brad: [12:48] Yeah.
Michael: [12:49] If Dr. Rough is truly going to become successful, he is going to have to take ownership and do it. And so after those coaching sessions, Dr. Smooth wanted to give him space to figure it out, build relationships with the internal staff, and grow his practice. During that time, Dr. Smooth and I had many conversations about other things, but we did not talk about Dr. Rough at all for almost nine months.
Brad: [13:26] Wow. Nine months is a long time. Sometimes it feels like that might be ignorance is bliss, but that’s not always the case. Was there another call that prompted this after the nine months?
Michael: [13:39] Yes, Brad. So now we’re at the two-year anniversary of Dr. Ruff joining the practice which was significant because Dr. Ruff and Dr. Smooth had agreed in the original employment agreement that the intention was to start partnership discussions at the two-year mark.
Brad: [13:59] Yeah, and I’d say this to audience members, it’s not that uncommon to see in a plastic surgeon or a doctor’s agreement, especially in smaller, closely held businesses, that after a two-year mark, that’s when conversations start around the ability to become an owner. Sometimes that’s all it is. Some are more robust and actually talk about how they’ll value it, how many units they can buy, and what the vesting process looks like. And sometimes it’s just a non-binding concept that we’re going to discuss it, but that doesn’t mean you’re getting anything and we’re not setting anything in stone. So what would happen from there, Michael?
Michael: [14:41] Yeah, I want to add to that, too, because this is really tricky and we get asked about it a lot. There’s not a uniform way to handle future partnership in employment agreements, it’s almost like you flip a coin. Some say nothing about it, so you may both have a vision for ownership, but you’re really just committing to two years and creating risk you’ll have to solve later. Other times it’s very detailed to create firm expectations, but the problem is things change in two years and people want to renegotiate anyway.
Brad: [15:45] Yeah, and I’ll add one more thing. We’ve seen it go both ways where a physician doesn’t join because expectations are so far off, like the senior doctor says, “You can buy in for $10 million,” and the junior doctor expects $200,000. Or the opposite, where it’s so complex that when the time comes, no one knows how to actually buy in because it feels too expensive or unclear. So there’s a good middle ground, but it’s not one-size-fits-all. Every buy-in looks a little different.
Michael: [16:22] Yeah, and to add to that, the overly detailed version often scares younger doctors off early because they’re fresh out and see big numbers and commitments. So the sweet spot is what you described.
Brad: [16:39] Yeah.
Michael: [16:39] Just outlining a timeline and intention.
Brad: [16:43] Yeah.
Michael: [16:44] And that’s what was done here. When I spoke with Dr. Smooth, unfortunately, things had gotten worse internally. One nurse had even recently quit because of Dr. Ruff.
Brad: [16:57] Oh man. We’ve talked about this in other episodes, but losing staff is tough and that becomes a real cost. Regardless of how likable they were, it can impact morale. It also affects culture and creates the added expense of having to find a replacement.
Michael: [17:22] To make matters worse, financially things were even slower than before, which, Brad, I don’t know if you knew, but that’s not the direction you want.
Brad: [17:32] This is fascinating. Keep going.
Michael: [17:33] Yes.
Brad: [17:34] I’m learning. Every time you talk, it’s amazing.
Michael: [17:36] Thank you. I like that.
Brad: [17:39] Yeah.
Michael: [17:39] In fact, Dr. Ruff was actually losing money for the practice at this point.
Brad: [17:44] So the two-year mark, which is supposed to trigger ownership discussions, is actually triggering a completely different conversation because it sounds like there are a lot of issues surrounding Dr. Ruff.
Michael: [18:01] Exactly. So we shifted to what the contract says about termination and the strategy to let Dr. Ruff go. The contract had a 90-day termination provision.
Brad: [18:17] Okay. For audience members less familiar with contracts, typically in a physician employment agreement, you’ll see provisions for termination with or without cause. Without cause means it’s just not working out, and either side can give notice, 15, 30, 60, 90, or even 120 days—and continue working and being paid during that period. It usually goes both ways. Then there’s for-cause termination, which includes specific triggers like losing a license, losing hospital privileges, breach of contract, or inability to practice. Those tend to be more serious, whereas without cause is more like, “This isn’t working, here’s my notice.”
Michael: [19:47] Yeah, and so the most common for physicians, to your point, you almost always see—90 is by far the most common. Sometimes you see 60 or 120, so it’s kind of down the middle. And the only other thing with cause is there is some risk to the practice because a physician employee may have employment rights they can allege, so it’s much more risky in terms of a potential bigger fight.
Brad: [20:21] Yeah. Well, was Dr. Smooth going to terminate with or without cause based on the contract? Because it sounds like it could go either way.
Michael: [20:31] Yeah, that’s a great point. We had a big discussion about it, and there was definitely consideration either way. Dr. Smooth decided he wanted to go the termination without cause route.
Brad: [20:47] Okay. So we’ve established that means there’s, in this case, a 90-day window. But let’s talk about once they do leave, that’s really unfortunate sometimes when the real battle begins, which is after termination. Depending on how the contract is written, with or without cause can have a significant impact on post-termination obligations for both the practice and the physician. That can affect restrictive covenants, non-solicitation obligations, repayment of bonuses, tail insurance, ownership of medical records, treatment responsibilities, and other incentive compensation. So it makes a big difference what happens once termination is triggered. That list can get pretty long.
Michael: [21:40] Yeah.
Brad: [21:41] What are your thoughts?
Michael: [21:41] Yeah, this employment agreement had a lot of that, including a non-compete provision.
Brad: [21:46] Okay.
Michael: [21:47] And Dr. Smooth’s stress at this point was continuing to pay compensation for another 90 days because of the without-cause decision. This was a losing proposition, Dr. Ruff was losing money—and the practice also had to cover tail insurance. At the time, Dr. Ruff only had three cases booked in the next 90 days.
Brad: [22:18] I’m assuming that’s bad, so I’ll go with bad. It sounds like the math is really not working, especially in Dr. Smooth’s favor.
Michael: [22:27] Yeah, and the additional issue is that the practice had to pay for tail insurance, which is not an insignificant cost.
Brad: [22:39] Yeah, and tail insurance kicks in if you have claims-made insurance. That means after you leave, if a claim is made later, tail coverage protects both the physician and the practice. Sometimes there’s a vesting schedule based on tenure and who pays. Sometimes if the practice terminates without cause, they cover it; other times, if the physician leaves, they do. There are a lot of moving pieces, but we should get back to the story.
Michael: [23:14] Yeah. What was interesting here is Dr. Smooth was not particularly concerned about the non-compete. Based on everything he’d seen, he had little confidence that Dr. Ruff could compete effectively, even if he went across the street.
Brad: [23:30] So the non-compete existed on paper, but it wasn’t something that really concerned him.
Michael: [23:35] Exactly. So we developed a strategy. Dr. Smooth gave 90 days’ notice but also made Dr. Ruff an offer: if they mutually agreed to terminate immediately, Dr. Smooth would release him from the non-compete and Dr. Ruff would pay for his own tail insurance.
Brad: [23:56] That’s a very clever trade. You’re giving something he didn’t value—the non-compete—in exchange for a clean, fast exit while saving 90 days of salary and the cost of tail insurance.
Michael: [24:09] And Dr. Ruff agreed. We documented everything with a formal separation agreement, and remarkably, they parted on good terms.
Brad: [24:17] Well, Michael, we’re actually out of time. Where’s the bad part of the story?
Michael: [24:22] I know. There isn’t one. But let’s go to commercial and use our last segment to talk about how this could have gone wrong.
Access+: [24:33] Many business owners use legal counsel as a last resort, rather than as a proactive tool that can further their success. Why? For most, it’s the fear of unknown legal costs. ByrdAdatto’s Access+ program makes it possible for you to get the ongoing legal assistance you need, for one predictable monthly fee. That gives you unlimited phone and email access to the legal team, so you can receive feedback on legal concerns as they arise. Access+, a smarter, simpler way to access legal services. Find out more. Visit byrdadatto.com today.
Brad: [25:07] Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd. Now, Michael, this season our theme is What Now? And today’s story really got us into the real-world example of physicians parting ways, with Dr. Smooth navigating it thoroughly. And we had some advice at the end. But listeners, instead of recapping the story, I think we should just jump right into it. Was Dr. Smooth acting like a pirate, Navy SEAL, or cruise director?
Michael: [25:34] Brad, he was acting like a Navy SEAL. So remember, Navy SEALs have a team. Dr. Smooth started working with me a year out to get legal advice and strategy, and he wasn’t isolating on these issues. He actively worked to fix things with Dr. Ruff and with his staff to help set him up for success.
Brad: [26:04] Yep.
Michael: [26:05] And when it came time to part ways, he was very strategic. He considered risk and decided to go without cause to keep the separation amicable and avoid a fight, but still needed a clean exit and to stop the financial losses. He created a strategy to give away something that didn’t matter to him—the non-compete—in exchange for a clean break. It ended up being a win-win in a bad situation, and everyone parted on the best possible terms.
Brad: [26:51] I completely agree. In our hypothetical, a pirate would have handled this by firing all the cannons, terminating with cause, getting him out as fast as possible, and being very aggressive. It would have been driven by not paying another dollar and getting him out immediately, regardless of whether cause truly existed.
Michael: [27:29] Yeah. No risk management, just go fast and break things. For cause.
Brad: [27:35] Yeah.
Michael: [27:35] Yeah.
Brad: [27:35] So how would a cruise director have handled it?
Michael: [27:40] They would have followed the contract exactly. If acting like a cruise director, they would say, “It’s 90 days without cause, we pay him the full time, we cover tail insurance, and we enforce the non-compete.” No deviation, the contract says what it says. And that would have meant 90 more days of compensation plus tail insurance costs.
Brad: [28:15] Exactly. A cruise director sticks to the plan no matter what, the rules are the rules, and they follow the contract to the letter.
Michael: [28:32] I like this illustration because it shows what it means to act like a Navy SEAL, the ability to think strategically and still find a win, even in a bad situation. There are so many opportunities in business where slowing down, getting good advice, and thinking strategically can lead to better outcomes.
Brad: [29:09] We’ll cut that later.
Michael: [29:10] Maybe that’s the takeaway. Just kidding. But it’s a great example, and it clearly shows how a pirate or cruise director approach would not have led to as good of a result.
Brad: [29:30] Completely agree. Next Wednesday, we’re back with a special guest, Grace Lee, where we discuss: “I Want To Fire My Employee. What Now?”
Brad: [29:42] Thanks again for joining us today. And remember, if you liked this episode, please subscribe, make sure to give us a five-star rating, and share with your friends.
Michael: [29:55] You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com.
Outro: [29:57] ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues.
