Why Do So Many Florida Doctors End up in Business Disputes?
As a business litigation attorney in Florida, some of my most complex, contentious, and lengthy cases have arisen from business disputes involving physicians. So why do so many doctors end up in business disputes? Here are five reasons:
1. Doctors Often Have Poor, if Any, Documentation of Their Business Partnership Obligations and Remedies.
Doctors frequently do not take the time for the preparation of adequate partner, shareholder or member agreements (collectively, “partnership agreement”). These agreements can prove critical, however, for addressing a variety of obligations and remedies between business partners. The problem is that many doctors choose not to retain competent healthcare or corporate counsel to prepare a quality partnership agreement that contemplates a variety of potentially problematic situations.
Some examples of key issues that a partnership agreement should address, but often do not, are as follows:
A procedure for dissolution of the practice and how assets, liabilities and patients will be distributed if the practice dissolves.
A dispute resolution procedure including mediation and/or arbitration to keep disputes out of the court system and shielded from the public eye.
A process and formula for bringing on new partners and compensating them.
A procedure that addresses financial obligations when a partner leaves the practice to retire or join another practice.
A process for terminating a partner with or without cause.
Voting rights, including whether votes are prorated based upon ownership percentage or one vote per partner.
A process for how one can elevate from a non-equity partner to an equity partner.
In sum, there are a host of issues that a quality partnership agreement can address that help avoid business disputes later.
2. Doctors Often Lack Practical Business Experience, Judgment or Expertise.
Doctors are usually highly intelligent and have gone through years of training in their medical craft. This acumen and skill, however, often does not translate to business experience, judgment, or expertise. In fact, many physicians have spent so many years training in their speciality area, they have had little or no exposure to basic business decisions, practices and issues. As a result, physicians often will exercise judgment that is driven by emotion or instincts instead of experience or pragmatism. Therefore, it is exceptionally important for physicians to have good professional advisors, including accountants, attorneys, consultants and human resource personnel, that can advise them on important decisions before they are made.
3. Many Doctors Leave a Practice Believing Their Non-Compete Agreement Will be Unenforceable – They Are Often Wrong.
In many medical practices and hospitals today, doctors are required to sign a non-compete agreements when they get hired. These non-compete agreements, however, can greatly impact the freedom of a doctor to move to another practice within the same geographic area.
Some physicians did not pay attention when they signed a non-compete agreement when they took a job years earlier, or the non-compete restriction may be buried in an employee handbook that the doctor signed without reading it.
Likewise, when a doctor seeks to leave and join another practice, they often do not consult an attorney about the enforceability of their non-compete agreement and operate under a mistaken belief that it will be unenforceable.
In contrast, many non-competes are enforceable against doctors if supported by a “legitimate business interest” and the restriction is reasonable in geographic scope and duration. As such, doctors need to get good advice before leaving and taking a new position within the same geographic area that is within the scope of a non-compete restriction.
4. Doctors Often Are Stubborn When in Settling Business Disputes.
Many physicians are accustomed to being the boss and having their decisions go unchallenged by lower-ranking partners or staff. Sometimes they also can have large egos or pride that may hinder good and practical business judgment.
While litigation may be a necessity in limited situations, it rarely is a profitable move for the plaintiff or defendant once you factor in legal fees. As a result, sometimes it makes good business sense for a doctor to swallow his or her pride and settle a business dispute even if the doctor believes his or her position is 100% correct in principle.
5. The Medical Profession is Rife with Financial Stress and Billing Fraud.
Any long-time practicing physician will tell you the medical profession is much different as a business today than it was years ago. Insurance companies are always looking for ways to cut their costs and reduce or deny bills. In addition, physicians have high malpractice premiums, substantial employee salaries, equipment leases, and rent to pay. Similarly, billing Medicare and Medicaid is fraught with hazards for the risk of improper billing and coding that may result in a government audit or investigation, or worse, a whistleblower qui tam case.
The point is that the issues that come with a medical practice today can lead to unexpected financial stress and, potentially, litigation with partners, lenders, vendors, employees, and the government. The risk of such litigation requires an extra level of discipline that physicians follow proper corporate formalities, obligations defined in written agreements, billing practices, and employee protocols to avoid disputes.
The best advice for doctors to avoid expensive business litigation is to take the time to retain competent counsel to prepare a quality partnership agreement that covers many of the situations that can result in expensive business litigation that otherwise may be avoided. Likewise, doctors should ensure that their office protocols incorporate adhering to corporate formalities, preparing quality partnership agreements, define employee policies in writing, and observe accurate and honest billing practices.