A physician hire meant to secure a practice owner’s retirement lasted just four days. In this episode, hosts Brad and Michael share the story of a board-certified plastic surgeon who was eager to find a physician to eventually buy his California practice. Under pressure to retire, he rushed into an employment and succession arrangement with a physician he barely knew, relying on an “airtight” contract to protect the future of his practice. Tune in to learn why even a strong contract cannot replace proper due diligence, trust, and the right fit when planning for a physician transition. Discover strategies to help protect your interests, reduce legal risk, and create a smoother path toward a successful practice transition.
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: [00:01] 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 the Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd.
Michael: [00:20] As business attorneys for health care practices, we meet a lot of interesting people and learn their amazing stories. Brad, this season’s theme is “What Now?” ? Each episode will involve a real client story with a high-pressure moment for that practice.
Brad: [00:35] I’m just so excited, Michael, I almost cut you off. What do, what do, what do we have today?
Michael: [00:39] Well, I have a question for you, Brad.
Brad: [00:40] Okay.
Michael: [00:41] Did you celebrate the big day on July 1st?
Brad: [00:45] Huh. Big day on July 1st. Michael, I love a good holiday and a good party, but I’m certain that the big day you mean is July 4th, fireworks, barbecue, bald eagles, shredding, patriotic, having a tear for our country. Are you telling me I’ve been celebrating three days my whole life too late? I’m just confused.
Michael: [01:07] Close, but no sparkler, Brad.
Brad: [01:10] Okay.
Michael: [01:10] Do you know why July 1st is actually a day for celebration?
Brad: [01:14] Because it kicks off the second half of the year, new quarter, fresh start. Everyone celebrates, the calendar resets. I have no idea.
Michael: [01:24] Yeah. I like your thinking, but no. July 1st is Bobby Bonilla Day. And it might be home to one of the greatest employment agreement negotiations in history.
Brad: [01:36] Yes, I know the story about Bobby, and did not realize I should be celebrating. However, what an interesting sports story it is, a great long-term planning by Bobby B. Catch the audience up, Michael, on who Bobby is.
Michael: [01:49] Okay. Well, for those who don’t know, he was a famous baseball player and a famous New York Met. Back in 2000, the Mets owed Bonilla $5.9 million.
Brad: [02:04] And think about this, most people are thinking professional sports team, what is $5.9 million? Cut the check, shake hands, everybody goes home happy. Where’s the drama, Michael?
Michael: [02:15] This is where it gets interesting. So Bonilla, in a very insightful moment, decided to negotiate a payout over time instead of just them writing the $5.9 million check, and so he spread payments out with interest in guaranteed payments once a year starting in 2011 all the way to 2035.
Brad: [02:47] Wow. That’s a long term there, Michael. And I think maybe you buried the lead there. He took $5.9 million into $30 million just by agreeing to wait on that payout.
Michael: [02:59] Yep.
Brad: [02:59] That is probably the most patient money I have ever heard someone wait for.
Michael: [03:03] Yep. No, good math, Brad. And here’s the punchline. Every year on July 1st, hence the celebration, Bobby Bonilla receives a check for $1.19 million from the Mets, and he has not played in the Major Leagues for 25 years.
Brad: [03:20] Think about that. Somewhere right now there’s a guy getting paid seven figures every summer to check his mailbox. Michael, I need to renegotiate. I would like a Bobby clause in my deal with you.
Michael: [03:34] Okay. Well, I want the same deal.
Brad: [03:36] Oh, damn it.
Michael: [03:37] So now Bobby Bonilla is a story about money being everything.
Brad: [03:43] Yeah.
Michael: [03:44] But with the World Cup recently, I recalled an employment negotiation where money was not everything at all.
Brad: [03:50] Oh, now you have my attention. Somebody actually turned down money.
Michael: [03:54] Yes. Do you remember a few years ago when the famous soccer player Mbappé, who’s the star player for France in the World Cup, was in a contract dispute with his prior club?
Brad: [04:05] Mbappé, yes. Great player, of course. Tell the audience, what happened?
Michael: [04:09] So he was in a contract dispute, and he was offered a package worth over a billion dollars to play one single year in Saudi Arabia. This is back when the whole LIV tour thing and all of that money was going out in sports, and so Saudi Arabia decided that their club wanted to get Mbappé for a year.
Brad: [04:35] A billion, with a B, a billion for a year? I would like to play striker, goalie, or drive the team bus for that, if that’s possible.
Michael: [04:46] Yeah. I would do whatever they asked, almost. But he turned it down, Brad.
Brad: [04:52] Oh.
Michael: [04:52] And he wouldn’t even negotiate. His entire focus was playing for his dream team, Real Madrid.
Brad: [04:59] Real Madrid, great team. So one guy takes a discount and gets paid forever, the other guy walks away from a billion dollars to chase a dream. Two completely different definitions of a good deal, I guess.
Michael: [05:12] Exactly. And that tension, what people say they want versus what actually drives them, is at the heart of our story today. So let’s jump into our story about a doctor who was hiring a physician and learned that the terms of a deal are only as good as the people signing it.
Brad: [05:29] That’s a pretty good transition. I’m pretty proud of you, Michael.
Michael: [05:31] Yes. Yes, I’ve just patted myself on my back too. All right, let’s get started. Ready?
Brad: [05:37] Yes. Let’s go, Michael.
Michael: [05:38] All right. Our main character is Dr. Certain. He is a board-certified plastic surgeon in California and the solo owner of his practice. For the past 10 years, he had been trying to hire a new doctor, someone who would be an employee for a few years, then a partner for a few years, and then eventually buy him out.
Brad: [06:00] Well, Michael, that story, the opening part at least, sounds like the sensei plan. I know we’ve talked about that in other shows, but the idea, audience members, is the senior doctor wants to bring in a younger doctor that you will train how to be a great physician and learn your ways, and then as they grow with you, eventually become a great leader. So that’s the typical sensei plan in which they eventually, if going correctly, buy you out.
Michael: [06:29] Yes. So the practice, we will call the practice Mets Plastic Surgery.
Brad: [06:35] Ooh, based on the opening there, Michael, I don’t think that’s a good start. I’m assuming we’re referring to the New York Mets, and I’m hoping we’re not going to discuss maybe the doctor’s named Bobby or something like that.
Michael: [06:47] Oh, yeah, that would’ve been good. I didn’t think of that.
Brad: [06:50] Yeah.
Michael: [06:50] But yes, I don’t know that there’s anything positive to be associated with the Mets, including today. But we’ll find out more as we get into it.
Brad: [06:59] Okay.
Michael: [06:59] So for context, over this past 10 years that he had been doing this, and we hadn’t worked with him at this point, so I’m catching all this at this point in the story, he had hired four different plastic surgeons, and none of them lasted more than 18 months before leaving.
Brad: [07:18] Yeah, you said his name was Dr. Certain, but four in 10 years, that sounds more like a revolving door. What happened to all of them?
Michael: [07:26] Well, Dr. Certain did fire two of them.
Brad: [07:29] Okay.
Michael: [07:29] And then two left on their own. And of course, 18 months, none of them ever made it to becoming an owner.
Brad: [07:35] So the sensei plan kept really losing its students before any of them really earned, I guess, for using the sensei plan, their black belt maybe. Michael, this is a pattern. This is not bad luck.
Michael: [07:48] Yeah, I don’t even think they got their brown belt or whatever the ones below that were. But yes, it is a pattern. Our story starts with this call from Dr. Certain, and he wanted our help with the fifth doctor because he was going to bring him on, he wanted to try again, he wanted some guidance, and as I said, we had not been involved with the practice up until this point.
Brad: [08:11] Well, everyone knows, Michael, the fifth time is a charm, right?
Michael: [08:15] Yeah.
Brad: [08:15] So where do we even start with Dr. Certain?
Michael: [08:19] So as we got up to speed, it became clear what was really driving Dr. Certain at this stage in his career. He was not looking for a colleague.
Brad: [08:29] Okay.
Michael: [08:29] He was looking for someone to buy him out. He communicated that he wanted to be out of practice and on the golf course, figuratively, two years after the new doctor joined.
Brad: [08:39] Yeah, and let’s, audience members, take a step back and let’s talk about the challenges that we often see with physicians nearing retirement, and the biggest challenge is, believe it or not, timing. Finding the right successor does take longer than most practices and physicians really think about, especially the solos, and if the senior physician wants to retire in two years, the practice really needs to start recruiting immediately. A rushed transition can also place tremendous pressure on that incoming physician to immediately generate revenue, retain patients, and it really, unfortunately, sometimes creates some unrealistic expectations and disappointment on both sides. And finally, many retiring physicians view the incoming doctor as their exit strategy, but the younger physicians frequently are trying to evaluate their actual opportunities that may be different than the prior generations. The younger docs may be hesitant to commit to long-term buy-ins, long-term obligations, or even an undefined path to ownership without clear economics and governance. Michael, what are your thoughts?
Michael: [09:45] Yeah, the only thing I’ll say in this story to defend Dr. Certain is that he had been trying for 10 years.
Brad: [09:53] True. That’s true.
Michael: [09:54] So he did try to make this happen with a runway, but now those pressure points are very real because now it’s like, okay, well, how exactly are we going to recruit a doctor and what is that going to look like if we’re going from zero to full sail in a two-year period? And so as I started asking questions, I was becoming more and more concerned with Dr. Certain’s approach.
Brad: [10:25] Concerned how, and what, I guess more importantly, what were you hearing?
Michael: [10:29] Well, Dr. Certain had been introduced to a new doctor-
Brad: [10:34] Okay.
Michael: [10:34] From another plastic surgeon. So we’ll introduce this new doctor to the story. We will call him Dr. No-Name.
Brad: [10:42] Why Dr. No-Name? That doesn’t have anything with the Mets, does it?
Michael: [10:48] No.
Brad: [10:48] Okay.
Michael: [10:48] Because to Dr. Certain the name did not matter.
Brad: [10:51] Oh, Lord.
Michael: [10:51] I think he would’ve taken almost anyone at this point with a license and a heartbeat. So the surgeon’s name and everything else about him was unimportant-
Brad: [11:01] Yeah.
Michael: [11:01] Seemed unimportant.
Brad: [11:02] Okay. Yeah, I’m going to go with the audience is probably having the same thought I’m having. That does not sound good. What else do you mean is unimportant?
Michael: [11:11] I mean that when we were asked to write the employment agreement, Dr. Certain and Dr. No-Name had not met in person, not once.
Brad: [11:20] Hold on. You’re drafting a career-long buy-me-out agreement between two people who have never been in the same room?
Michael: [11:29] Yeah. I mean, he’s got this two-year tightrope that you just talked about, the pressure points, and he’s going super-fast. And yeah, had not met him. So Dr. No-Name, as it turns out, was moving back to California and looking for a practice to eventually own. So on paper they checked each other’s boxes for what they were looking for, but they hadn’t checked anything else.
Brad: [11:55] You keep saying that. Okay, hold on. Did Dr. Certain interview him at least?
Michael: [12:01] Yes, Brad.
Brad: [12:01] Okay.
Michael: [12:02] Dr. Certain had one 30-minute phone call with him just to walk through the terms, and at the end of that call, they agreed to move forward.
Brad: [12:10] Okay. A 30-minute call. Michael, people spend longer basically picking out paint colors than that to try to find their future partners.
Michael: [12:19] I mean, this guy could’ve been a serial killer, and he would’ve not figured that out.
Brad: [12:24] Oh, Lord.
Michael: [12:24] And he might not have been a doctor, and he wouldn’t have figured this out. But they were mutually desperate, so as far as they were concerned, they were a match made in heaven or some other place.
Brad: [12:36] You’re dropping some serious bombs here. I guess back in our red flag season, the ding button would’ve been broken at this point.
Michael: [12:43] Yes.
Brad: [12:43] You can’t leave the audience and me hanging here. What else happened?
Michael: [12:46] Okay. We’ll find out soon enough. So, I want you to talk a little bit about what you should expect to see in a physician employment agreement and kind of really hone in on the range of things we see as to how do you talk about a future buy-in inside the employment agreement?
Brad: [13:05] Yeah, and the first thing I’ll just say in general, when you do have that future partner, it’s really important to specify that in the agreement. I know that depending on where you are in your career, as a more senior physician, you might not even want that language in there. But we definitely, in this case, would say it’d be something to think about. But before anyone starts talking about partnership buy-ins or succession planning, there needs to be a solid employment agreement in place. That’s just where you start with that piece. And that employment agreement really is going to establish the expectations during this courtship phase of the relationship and often lay out the foundational rules of what they want that future ownership discussions to be. Many physician disputes arise between doctors because the parties really don’t focus on the potential partnership opportunities. They kind of overlook those details,
Brad: [13:53] and then they just kind of throw together that employment relationship, which also is a big component to the entire deal.
Michael: [14:00] Yeah, I mean, the employment agreement sets the guardrails, and I loved what you said about setting expectations because you often will find, at least it will say, “Hey, we’re going to be contemplating ownership at the two-year mark or 18-month mark, and this is how we’re going to go about the process.” Sometimes it’ll even have more detail in it and really start spelling it out. And then, of course, there are times commonly where we’ll see them that it doesn’t say anything about it. But Dr. Certain, in our case, wanted something very different, Brad.
Brad: [14:36] Okay.
Michael: [14:37] He wanted a contract that laid it all out in ironclad terms, could not be terminated by either side, and neither side could terminate during the employment phase, and he wanted the purchase of the practice to be binding at that moment in time.
Brad: [14:56] Okay. This is where the story is… I mean, it’s been unusual somewhat, but this takes a very unusual turn. Most physician employment agreements are designed with flexibility in mind. They typically allow either side to end the relationship with notice if it’s not the right fit. So a lot of times you’ll see a 30- to 90-day termination without cause. What Dr. Certain was proposing was essentially a ride-or-die employment agreement, which I’ve never heard of, where neither side could walk away, and the future purchase of the practice was actually contractually locked in from the very beginning. This is extraordinarily uncommon because it requires both parties to predict today how they’ll feel and perform and work together in the future, and whether they like it or not, it’s going to happen.
Michael: [15:46] Kind of makes me think that this was a culmination of the four doctors who left before him. He’s like, “I’m going to lock this guy down.”
Brad: [15:54] Yeah, no doubt.
Michael: [15:55] But after a lot of back and forth and a lot of pushback from us, we drafted an agreement designed to lock the parties in. Dr. Certain wanted certainty that this doctor would buy his practice so that he could retire in those two years, and he would not budge on that.
Brad: [16:16] All right. The man’s name is Dr. Certain, and he is chasing certainty. I don’t even know if that’s a real word.
Michael: [16:25] We’ll roll with it today.
Brad: [16:27] The universe is not being subtle here, Michael.
Michael: [16:29] No. No, it is not. Now, with all of our pushing and prodding, he did make one concession. He did allow us to put in an ability for him to terminate the contract for cause if there’s a cause reason during the employment period.
Brad: [16:47] Yeah, and audience members who are not familiar with cause, cause could be a host of different things, but typically a bad actor, they did something bad, they lost their license, they’re disabled, something of that sort. All right, Michael, what happened?
Michael: [17:00] They signed the agreement.
Brad: [17:01] Okay.
Michael: [17:02] And Dr. No-Name started, and then Dr. Certain called me after four days.
Brad: [17:07] I’m sorry, did you say four years, four months? Four days is what you said?
Michael: [17:12] Four days. He told me that Dr. No-Name was a terrible fit for the practice and needed to be gone immediately.
Brad: [17:20] Oh, no.
Michael: [17:20] In fact, he told me that he had already terminated him with cause that same day.
Brad: [17:27] But, but, okay, I’m afraid to ask, was there cause involved to terminate him?
Michael: [17:33] We will never know, Brad. Because here’s the twist.
Brad: [17:36] No.
Michael: [17:37] Dr. No-Name wanted out after four days too.
Brad: [17:40] Oh, no.
Michael: [17:40] And he was thrilled to have the contract terminated because he couldn’t get out of it otherwise.
Brad: [17:46] Oh, so the airtight, unbreakable, you’re certainly going to be with Dr. Certain for the rest of your life, buy into my practice contract, became the escape hatch for the guy who wanted to leave.
Michael: [17:57] Yes. Fifth time was not a charm, Brad. Let’s go to break and talk about a legal application and hear what happened with Dr. Certain.
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Brad: [18:41] 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 before we get back into this crazy story with Dr. Certain who’s not very certain recap, maybe we should give a little bit of recap for our audience.
Michael: [18:58] Yeah. Dr. Certain, plastic surgeon who was downtrodden after many failed attempts to recruit his successor to his practice, and he was desperate, and he met someone equally desperate, Dr. No Name, who was looking to move to California and buy a practice. And so they rushed through the process and signed ironclad agreements. Dr. Certain was trying to gain certainty through his contracts, and then four days later, they parted ways mutually, although it was technically a termination with cause by Dr. Certain. And so now we’re kind of here to talk about the aftermath.
Brad: [19:39] Yeah, and audience members, throughout this season, we’ve talked about the different ways that physicians can act. They can act like a pirate, they can act like a Navy SEAL, or they can act like a cruise director. And Michael, how was Dr. Certain acting, in your mind?
Michael: [19:52] Well, Brad, I think it’s pretty obvious that Dr. Certain, especially at the end, was acting like a pirate. He was desperate, and he had this end in mind of being on the golf course in two years, and he had these prior experiences, and so he was trying to control those experiences just by driving a sledgehammer through the process of rushing and finding a doctor and not finding anything about him and getting an employment agreement that locked everything in. It was truly a going fast and breaking things moment. And of course, it only took four days for it to blow up in his face.
Brad: [20:37] Yeah, and audience members, just think about the history of this pirate here. I mean, this is the fifth person. And you talk about moving things and breaking things, you know, he fired now, at this point, three of the five, who wanted out desperately because he was acting like a pirate. He did not understand how to nurture. I mean, going back to the Sensei Plan, it’s about being a mentor. And in this particular case, he didn’t even understand that aspect of what he was trying to bring in, which brings us back to the fact that he fired him without even speaking with you. Whether or not we ever even found out if there was cause. But luckily, as we all know, or at least should know, in an employment agreement, if both parties agree otherwise, you can terminate the agreement, and it sounds like they were desperate to separate.
Michael: [21:27] Hopefully he had his patch on the day he fired him over his eye.
Brad: [21:30] No doubt.
Michael: [21:31] Well, talk about, Brad, what would a cruise director have done?
Brad: [21:39] Yeah, I would say, in some ways you would think Dr. Certain was trying to act like a cruise director because he was trying to plan ahead. As you said, it was over 10 years of tracking in which he was trying to bring people in, so you’re like, “Oh, well, he was planning ahead.” But in reality, he just kept acting like a pirate throughout the process because a cruise director would’ve planned ahead, had a formula, had a plan to bring on that doctor through the Sensei Plan, get the team involved, spent the time interviewing him, making sure this person was going to be a good fit, and not let the desperation of a pirate take over, realizing that if the person wants to retire, they need to find the right person and spend the time and energy it takes to bring that person on. And then most likely, a cruise director who wants to follow the Sensei Plan would have built out a more reasonable contract that made sense to both parties. That’s typical cruise director mentality, although, going back to if it wasn’t working out and the cruise director did have a no-fire clause, may have tried to ride it out a little bit, the ride and die clause that we were talking about earlier. What are your thoughts?
Michael: [22:50] Yeah, I mean, I agree. The cruise director would’ve definitely followed the process, and they would’ve had a system in place, and they would have been adaptable to the circumstances. And I think that these circumstances required a lot of adaptability because he had kind of gotten himself into a bind at this point after the prior failed plastic surgeons that didn’t make it with the practice.
Brad: [23:23] Absolutely. All right, Michael, let’s move on to how would a Navy SEAL have acted?
Michael: [23:27] Yeah, I mean, they would’ve adapted a strategy for the situation. So, think about, okay, now we’re at this two-year mark. How do we land the plane of bringing someone on? And really, I think there’s a conversation to be had at the two-year mark. Do we even really want to go with the employment route? Should we put the practice on the market at this point in time and try to find someone who’s just going to come in and buy the practice and, you know, in with the new and out with the old, and maybe you’re on the golf course faster, but you don’t have this, what clearly was a problem in the past in the sense that Dr. Certain, there’s something that would happen when he worked with somebody else that didn’t work well. But the main thing is that having a team to really think about, “Okay, here’s the problem we’re trying to solve. We know it didn’t work before, and how do we adapt to it?” And if Dr. No-Name was the person, yes, there has to be some more vetting to make sure he’s the fit for whatever the strategy is.
Brad: [24:39] Yeah, it’s a good thought there, Michael. A Navy SEAL would’ve had to, acting like a Navy SEAL, think about, “Okay, I need to expand my options, and maybe I’m not a good sensei, or maybe I don’t have time to be the sensei. Maybe I need to join a larger group. Maybe I do need to sell my practice to meet those goals that I want, or bring on someone who’s a more senior-level physician who’s leading a bigger group that wants to buy a practice and buy me out right away instead of trying to do the Sensei Plan and kind of pivot.” But we’re almost out of time, Michael, so two things. One, what did end up happening to Dr. Certain, and give us your final thoughts.
Michael: [25:13] He ended up calling me almost eight years later, and he was still practicing.
Brad: [25:18] Yeah.
Michael: [25:18] He wanted my help, and believe it or not, he was trying to do the same thing. I worked with him through two opportunities. They didn’t actually join the practice, and it was really rough trying to guide someone who still had not learned lessons. I was able to use what I learned about Dr. Certain the first time to protect him from himself because both of those opportunities were also terrible fits. Now, I also learned that the real source of all these bad fits was Dr. Certain himself.
Brad: [25:51] What? Oh.
Michael: [25:51] He’s not a very nice human being.
Brad: [25:52] Oh, no.
Michael: [25:53] But as far as I know, he’s still practicing now over 10 years after his golf declaration. So yeah, you asked for final thoughts.
Brad: [26:06] Yeah.
Michael: [26:06] This story really illustrates the downside risk to tapping into pirate energy or cruise director energy. It could’ve ended in the same way in a situation that really needed that slow is smooth, smooth is fast approach because we had two years to make this happen, and there was no room for a mistake. And I think he really failed to see that he had to get this right, and he couldn’t just make someone bound by a contract to make him stuck with it. That’s not an effective way to make it happen.
Brad: [26:50] Excellent. Well, audience members, that’s all the time we have today, but don’t worry, we’re back next Wednesday when our partner and series regular, Jay Rie, joins us, and we address, “I’m hiring my first injector. “What Now?” ?”
Brad: [27:00] 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: [27:10] You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com.
Outro: [27:16] 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.
