In this episode, hosts Brad and Michael share the story of plastic surgeons who built a thriving practice with a clear vision for their exit strategy. Their plan was working—until new partners entered the picture. What started as a strategic decision ultimately led to the unraveling of the founders’ original exit plans. Learn key considerations when adding new partners, how to structure buy-ins and buyouts for alignment, and how to safeguard both your practice and your long-term success.
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: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences, creating simplicity in 3, 2, 1.
Brad: Welcome back to another episode of Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, my co-host, Michael Byrd. Now Michael, we’re officially starting another decade. We are young adults now as we launch into Season 20.
Michael: Thanks, Brad. That’s very exciting, and so let’s go. As a business and healthcare law firm, we meet a lot of interesting people and learn amazing stories. You want to know our theme this season?
Brad: Please, I’m ready. I’m ready. I’m ready.
Michael: This season’s theme is Unintended Consequences. We sometimes find ourselves in a situation that can be traced back to a seemingly inconsequential or unrelated decision.
Brad: Well, and this season we’ll examine these unintended consequences through real client stories and interview some amazing guests. And I’m really [00:01:00] excited about this year.
Michael: Yes. Yes. Brad, I heard a fascinating story recently. Are you familiar with the former NBA player, Jalen Rose?
Brad: Yes, I actually remember when Jalen was part of the Michigan Fab Five. Yes, I’m that old. And played us several years with different NBA teams.
Michael: Yes. He had a storied career. But Brad, he is even more famous for something else.
Brad: You’re going to make me ask, aren’t you? Michael, what is Jalen Rose even more famous than from playing basketball?
Michael: He’s more famous for his name, Jalen. Legend has it that he is the first person ever named Jalen. Now, when I heard about this story on our favorite radio station, The Ticket in Dallas, they were going off a story that they had read that actually claimed he is the first ever Jalen in recorded history.
Brad: That’s crazy. I mean, I feel like this name is so common now.
Michael: Well, I did a little independent research [00:02:00] as I do, deep research, and there is some debate if he is the first ESPN claim to have done a deep dive and found one other Jalen in human history. But regardless, Jalen Rose is responsible for the current popularity of the name and its variations.
Brad: All right. Well, since he’s the first, how did he get the name?
Michael: So, Jalen was born in 1973, and his mom, Jeanne created the name by combining the father’s name James and his uncle’s name Leonard.
Brad: My brain is now racing Michael trying to get new combo names by keep falling back to Rachel or Myrad for some reason.
Michael: You know, our partner Alex calls us Brichael, and he’s always channeling the Ben Affleck, Jennifer Lopez nickname when they were called Bennifer when they were together, but I had never thought of it as a [00:03:00] baby name. You may be onto something, future Brichael in the world. But back to our story, before 1992, the name Jalen was nowhere to be found on the baby names charts that you’ll hear about that track popular baby names. And I don’t know if you’ve ever seen them before. They’re extensive. They go into the thousands.
Brad: All right. What was the significance about 1992? And I actually think I know the answer to this one.
Michael: 1991 is the year of what you mentioned, the Fab Five in Michigan. Now, most people may not be as old as we are, Brad, not know what the Fab Five is. So that year, all five of the starters for the Michigan Wolverines basketball team were freshmen and they made it to the NCAA finals. And four of the five ended up making it to the NBA. So the team was a massive part of pop culture at the time.
Brad: Yeah. I’m guessing with Jalen Rose being on that team, the name Jalen gained some [00:04:00] traction.
Michael: Exactly. Yeah, the name debuted in the top 1000 popular names the next year according to, you can see my authority here, Brad the US Social Security Office of the Actuary for US births.
Brad: That’s a big name.
Michael: And then it was actually that first year it was number 378. And then after Michigan went to a second consecutive national title game, Jalen jumped to 216.
Brad: Wow. Did you notice if Brichael was listed?
Michael: I did not check. So I guess it’s possible that Brichael made it, rose was the first Jalen to play in the NBA when he was drafted by the Denver Nuggets in 1994. So the popularity of the name and its variance continue to grow. And I think the name Jalen actually peaked by breaking the top 100 most popular baby names at some point, all because of [00:05:00] Jalen Rose.
Brad: So what you’re saying, if Brichael plays the NBA, that name does have a chance of being a top 100.
Michael: Yes. We need to get a Brichael into the universe first, and then try to get him trained up for being a sports athlete. But believe it or not, this is not the most crazy part of the story. The crazy part is the impact of the name Jalen in Sports. Jaylen for several years has been the most popular name in the NBA. That’s number one.
Brad: Number one. That’s pretty amazing.
Michael: And here’s more. Jalen has been the most popular name in NCAA basketball, NCAA football, and the NFL for the last couple of years.
Brad: All because his mom decided combo hit the uncle and dad’s name. That’s pretty cool.
Michael: Yes. So that I hope gets you fired up for a season of unintended consequences. You ready to jump in?
Brad: Let’s go, buddy.
Michael: Alright. Well, Brad you know I like context, right? [00:06:00]
Brad: Yes. And we all know because you have an “I heart context” tattooed in your arm.
Michael: Yes. I’m not going to admit or deny that. But if I don’t have one, I think I want one.
Brad: You probably did one.
Michael: Well, I’m excited for this story that since I get to take lead on telling it, I get to go way back in the timeline before a seemingly innocuous business decision led to massive unintended consequences.
Brad: How far are we going back? Are we going back like to when the dinosaurs roam the earth? Is that how far we’re going back?
Michael: Well, according to you, as far back as we’re going, you might think that because you say that’s how old I am.
Brad: But we did go you were like the first caveman lawyer, right?
Michael: Yes. Yes. But we are going many, many years back. We’re going back to think like 20 plus years ago. So many years ago. Before you and I even knew each other, I was working with a three person plastic [00:07:00] surgery practice on the East Coast, and we’ll call them rose plastic surgery.
Brad: Good name. Accept it.
Michael: Well, the president of the practice was the namesake, Dr. Rose, but what’s interesting is that there were two other plastic surgeons who were also senior partners, and Rose Plastic Surgery was such a brand name that the community no longer really connected the practice to Dr. Rose himself, but to the practice as a whole. The practice was internationally acclaimed as one of the premier practices.
Brad: Alright. So how were you helping them?
Michael: So we started a big initiative because they were starting to think about their future. And so the first order of business was to determine their vision. Their big vision was to design an exit strategy so they could sell their ownership and obtain a return on all that they’d built over the years.
Brad: Yeah. And this is often what we’re telling the clients. You know, you’re going to do a little homework right here. You’re going [00:08:00] to need to know what your vision going to be to help us then document that business decision. Like identifying certain key goals in that exit strategy. Maybe like, what are your financial targets? What’s the timeframe for selling it? What specific conditions under which the you would want to sell it? So all those are kind of like, just simple thoughts that you start thinking about.
Michael: Great point. I mean, if you don’t know where you’re going, how are you going to how to get there?
Brad: That sounds deep.
Michael: So again, this was 20 plus years ago, and back then, there was a perception that medical practices had no value.
Brad: Yeah. You and I have heard this so many times and we go to these different conferences and I don’t know if it’s a locker room talk or doctor lounge talk, but that it did spread for a long, long time. Again, well before private equity being sniffed this area. Your practice really, you couldn’t get anything from it. No one’s going to pay you a dollar for it.
Michael: Yeah. It was for many, many years, kind [00:09:00] of one of our biggest obstacles in these conversations about practice sales – overcoming that. So the doctors had built something special and believed that they had something of value, and they realized that they were going to have to reorganize their structure, they were going to need to grow the practice some more because they felt like it would take six doctors to really be able to purchase the ownership of these three doctors over time.
Brad: All right. So what were you doing with their structure?
Michael: Well, they had run their practice more like a startup, even though it was a mature practice at the time, they had multiple revenue streams, so some sophistication, but it was all built on their original professional entity that they formed many, many years prior to that. And so, our goal was to optimize the structure, to set it up to execute [00:10:00] on this vision.
Brad: And we know there’s different stages to a business, and we recently learned an interesting concept of the different stages of business where when you first start your practice, you’re in pirate mode, which by the way, I love pirate, so I like that a lot.
Michael: You live your life in pirate mode?
Brad: I do. Yeah. Like, if I have a patch on, I’d have it on all the time, but then I can’t see. And pirate mode, you’re just kind of living off the land; you’re happy, just kind of floating around, and the business pretty much is always run by the founders at that point. However, as your business grows, eventually you run it a little bit differently. And at this point, you go from pirate mode to navy mode. And when you go to Navy mode, the group or the business typically needs to start focusing on other processes, standard operating procedures. And this is because there’s going to be some conflict shifting from the pirate mode over into the Navy mode, and this is probably where that conflict starts probably arising.
Michael: Yeah. I think they loved being pirates like you, Brad, [00:11:00] but they, it was time to move on to the more formal stage. So we did several things that you and I can unpack a bit. First, the decision was that we would put an MSO in place. We decided to split each surgical practice of the three doctors into separate medical practices. Another thing we did was we consolidated all of their non-invasive services. So back then, the word med spa didn’t exist, but it was basically those types of services, and they combined them into one business, and then they decided to take their OR and really build it out and create a surgery center.
Brad: And for those that don’t know; that a vocabulary word that Michael used, MSO, that means management service organization. We’ve talked about that often on different episodes. But the next step is when you [00:12:00] are using an MSO to put a plan together as to how you’re using that MSO and the business structuring purposes. There’s different models that are out there, but this model kind of sounds like something we call the glue plan. For context, the concept behind the glue plan is that you have multiple partners who own different independent entities, but work collaboratively together in some form or fashion. I think separate doctors who own, like you said, professional entities, but they may have, as you said, a med spa or a physical therapy company or a DME company, so there are a lot of different ways that they have different joint ownerships.
Michael: Yeah. And for those in the audience who want more context, we actually put out an MSO field guide eBook that you can find on Amazon or on our website, actually on our blog. But the purpose of us doing that book was that people hear the word MSO but there’s actually a lot of strategies of why you would use it. And [00:13:00] to your point, there is a specific strategy where the glue plan, so I’d love for you to give a little bit more information on the glue plan so that we can build up into that story.
Brad: Sure. The glue plan is really best used by partners that have a common business purpose between them, yet they’re legally independent. So this MSO now is going to function a way that’s uniting the business entity. These interwoven relationships are pulled together by the MSO, allowing the partners to pull resources for the benefit of the group and share the cost, like administrative personnel. Additionally, MSO under the glue plan can act as like a carrot for the younger physicians within the group. Besides buying into the medical practice, they can directly contract the young physicians and they can be giving opportunities to buy into other ancillaries. So the glue plan entities like the med spa and ASC or Ambulatory Surgery Center, excuse me, and the MSO are all these different organizations that they can now buy into.
Michael: [00:14:00] Yeah. I mean, it’s a great point. If you think about it, to even taking a bigger step back, you have at its core these doctors who in a way, they’re partners and they are competitors. They’re trying to seek the same patient base. And so, what are ways we can find alignment? To your point on the MSO, that’s a uniting force. Another area that we were seeking to unite is that when I mentioned the kind of the injectable business, because they were running those out of their practice, and so they were competing on that side of the equation as well. And they saw real opportunity to come together, be aligned, have one brand, and do it together. So, there’s another aligning factor.
Brad: And I think those listening, Michael, they might be wondering like they’re used to going to see doctors together in one group. You know, why would they want to separate into separate medical practices?
Michael: That’s great question. It’s not actually [00:15:00] that common of a structure doing this where they’re separated out in healthcare. It actually often makes sense and can be even required to be under one practice or one tax id as we say.
Brad: That sounds like compliance talk.
Michael: I know, right? I’ll move on. But because they were cash pay and they had functioned independently for years, they wanted to separate for liability protection, and they had a vision that the future partners would also come in under their own separate professional entities.
Brad: Yeah. Yeah. And you’re just kind of describing all these different entities that are out there. When it comes to corporate restructuring, it does take a lot of time and sometimes they don’t have that luxury, so how long did it take for it to really start being implemented?
Michael: Yeah, that’s a great question. We did this one in a year. I mean, you and I have done some that took two years just with the cleanup, the building, the strategy, the cleanup [00:16:00], et cetera.
Brad: And getting the buy-in.
Michael: And getting the buy-in and getting everyone committed to all the stuff that has to happen. But these three doctors at Rose Plastic Surgery, the first doctor they had recruited was set to start after a year. So it was really important to them to have this restructure complete by the time that doctor started. They also broke out valuations of the separate entities with a plan that each new doctor would buy out the founders over time. And so the idea was that the founders would be bought out and actually would still be practicing for a while. They saw the benefit with this extremely reputable practice for the buyout to actually happen while they were still there, so that it would maximize the benefit to these younger doctors of beginning to practice alongside these, these [00:17:00] titans of the plastic surgery world. And so, there is some complexity to the structure that we built that we won’t get into today.
Brad: Yeah. Well, I guess for the doctors, the founders money now versus money later is a win. But I know you love contact, we talked about that earlier, but are we to the unintended consequences section yet? Give more context.
Michael: Brad, I’m still bathing in the context. This is like a, a massive context lesson.
Brad: Kennedy, can you just remind Michael that this show is supposed to be 30 minutes and it’s a story with a legal analysis? Because I’m worried there’s no end in sight right now.
Michael: It’s going to pick up quickly. The recruiting of the new doctors after we got this going, was going great, and the system that was built was working great. And so over six to eight year period things are going exactly as planned. In fact, you joined and you [00:18:00] didn’t mess it up. When you started helping with it, it was amazing, and so we go a decade into this thing before a decision is made that would later become a major threat to the existence of the practice itself.
Brad: Yeah. I will say when I started working with this particular client, everything was just going great.
Michael: At around the 10 year mark, the founders are actually starting to retire. There’s, they’re removing themselves from leadership. There were four new doctors who had joined at this point. And the founders are really close to being paid off on this overtime pay off, and the vision for the group was to keep scaling so that the new four partners would then themselves be bought out under the same model. The new managing partner of the practice was aggressively recruiting and actually got four more doctors in a really short amount of time. We’re going to call the new managing partner, Dr. Jalen.
Brad: So we got Jalen and [00:19:00] Rose in the names. I suspect the names. And the practice was definitely in Navy mode at this point that we were talking about earlier.
Michael: Yeah. When the four new doctors came up for partnership after it was a two year run, they were resistant to investing in the ancillary entities, and they had pretty valid reasons. One doctor didn’t want to buy into the surgery center because he did all his cases at the hospital. Two others didn’t really have an interest in the non-invasive side, so they didn’t really want to be a part of that because they didn’t have that interest.
Brad: Yeah, I remember these conversations because to your point, these weren’t like, “No, I’m not doing it.” It’s like, “Well, why would I want to invest in something when I’m not really participating?” There were fair concerns for these particular individuals.
Michael: So, yeah, Dr. Jalen agreed. And he decided that he wanted to create flexibility to allow these physicians to invest in the entities if and when they [00:20:00] were ready. He was kind of meeting them where they were. And so, they did all become partners in the MSO at the same time because that was really the mechanism for them to be united. But it was not the ancillaries.
Brad: Was this the decision that later had unintended consequences, Michael?
Michael: Let’s go to break and talk Rose Plastic Surgery and Dr. Jalen’s desire to create this flexibility.
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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Bryd. Now Michael, this season, our theme is Unintended Consequences. And as a little quick summary, we have Dr. Jalen who shifted for his new partners to create flexibility for them to buy into the medical practice and its ancillaries. And we left off with me asking you a question that which you refuse to ask as to, was that the unintended consequences moment?
Michael: Yes, Brad. I wanted to create a little suspense for the commercial.
Brad: I appreciate that.
Michael: Yeah, so that was the moment. From the this point forward, the system designed for buy-in and buyout of a senior partner started cracking. The founders ended up being bought out with some delay, but they did get bought [00:22:00] out. The next four doctors were facing some serious friction because their buyout process was wonky to saying it nicely because these doctors, some were coming in and some were not, and some later decided to come in. And so, they were all over the place, and that really messed up the system that was built on having the doctors bought out.
Brad: Yeah. And we talk about in other shows, compliance drift, but this is just drift in general as to an idea was created as to how we’re going to can create a structure with exit strategies. And it was on solid foundation, clearly worked for the first group of docs, but then this happened and that happened and you start drifting away from the vision that was created, meaning that these people just had no reason to want to buy into these ancillaries, and that starts breaking [00:23:00] the whole glue plan and the reason why they should be united.
Michael: Yeah, and let’s go back for a second to, I mean, we all agree that they had great reason for doing it, or understandable reason. They wanted the flexibility and it made sense. The problem is human nature comes into play. So here’s something else that happened. Two of the doctors that didn’t want to buy into the med spa due to lack of interest started becoming interested a few years later. But instead of then saying, okay, I am ready to buy in, they started offering medical spa services and skincare out of their own surgical practice. And this went flat against the decision made over a decade prior when they brought all their separate stuff together. And so, now we were back, we had three, what now we’re called medical spas running [00:24:00] and competing with each other in the same physical space. And as you might imagine, this caused further division because they already were separate with the surgical practice.
Brad: Yeah. I remember this vividly. Of course it got worse because everyone really started pointing fingers at each other. And then of course they had to go after Grand Puba, Dr. Jalen, and he eventually left, Dr. Jalen that is, left and three other doctors left after that too.
Michael: You’re right. And the new doctors, they continued going forward with this flexibility model and have duct taped this model to continue running. It is a shell of its former setup, and the practice is dysfunctional to say the least, but they mostly continue to stay together and they’re still running. It’s just not nearly the same as what was built.
Brad: Yeah. What do you think it was for the [00:25:00] pivotal moment when Dr. Jalen decided to allow for flexibility on the buy-in to the ancillary entities?
Michael: Yeah, I mean, we’ve touched on it a little bit. I think there’s a couple things. As you mentioned, you got to start with the vision. We have to go back to that – well, we just must admit the wonderful, powerful context that I gave you for most of this episode. The goal as we talked about with the founders of Rose Plastic Surgery was to create a system that allowed the owners to obtain a return on their investment. And they really wanted to build it so that everyone could go through this system and benefit in that same way. And they even broke up the revenue streams to kind to set up their scaling efforts, and importantly, they implemented this glue plan to the MSO to hold them all together to row in the same direction. And so, a big part of their decision was that they [00:26:00] were going to be partners in the MSO and partners in the ancillaries.
Brad: Yeah. And the strategic approach of breaking up revenue streams to aid and scaling is actually pretty brilliant. It certainly aligns with those long-term goals that they had when they – with going back to their vision, but the implementation of the glue plan truly serves as that cohesive force. However, with the glue plan, it worked based on the founder’s focus there, and for it to work, they truly needed to be a “partnership”. But across these ancillaries and skipping this step is critical to steering towards a unified objective.
Michael: Right. And the second unintended consequence was that the equilibrium where they were surgically competitors but partners on the other revenue streams, once that was broken, it opened the floodgates for competition in these other areas. I mentioned the medical spas – the three med spas [00:27:00] in one location. Well, that wasn’t the end of it. The doctors who did not own the surgery center, one of them ended up investing in another surgery center down the street and one even built her own surgery center.
Brad: Oh my! It seems like this shift to dynamics has indeed created a complex situation, Michael. Navigating the balance between competition and partnership is challenging as it is. I mean, look at Michael and I, we barely can talk to each other, especially though when new opportunities start presenting themselves, and that adds to the intensity here. The emergence of this additional surgery center, other competing med spas suggest that they really should reassess how their partnership is structured. And it might be beneficial for them to really explore, how can we foster more collaboration between the partners, and basically find a new way to align interest and encourage mutual growth. [00:28:00] Once this is completed, I think they would have a different legal model or maybe a very similar one. But Michael, getting close to time here, so I’d love to hear your final thoughts.
Michael: Yeah, I mean, we’re going to talk a lot this season about these unintended consequences and I think it’s important to, how do you avoid that from happening? I mean, you have a what seems like a good decision or a decision that makes sense. And so, I think it requires a lot of intentionality. What does that mean, intentionality? Well, I think first and foremost, if you know what your vision is, you need to filter your decisions against that on an ongoing basis. So much of what we talk about on our podcast in general is that decisions in business are not stagnant. Like we talk about in compliance and other things. Like you can’t just make a decision and move on without understanding that business is a dynamic thing. And so, [00:29:00] if you’re trying to execute on a vision, you have to hold tight.
Brad: Makes sense to me. Well, Michael, next Wednesday, we are back again as we discussed the unintended consequences of marketing when we bring on our first guest this season, Chris Suchánek. Thanks again for joining us today. And remember, if you like this episode, please subscribe, make sure to give us a five star rating and share with your friends.
Michael: You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com.
Outro: 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. [00:30:00]
