As the physicians of the baby boomer generation approach their golden years, many have achieved career and financial success and are looking for an arrangement that will allow them to ease into retirement. While you may not be ready to hang up your white coat permanently, you may be interested in working fewer hours and taking less call. Retirement requires more than simply removing your name from the office door, however. If you are a physician nearing retirement, it is important that you plan, discuss and make contractual agreements that will allow you to accomplish your goals and changing needs.
Explore This IssueJanuary 2012
How Is Your Practice Structured?
The structure of your practice may determine your retirement options and the legal documents that govern these choices.
If you are the sole physician in your practice, for example, you have two options: Dissolve your practice, or sell it to another physician. If you sell your practice, you will need a purchase agreement that describes the rights, responsibilities and liabilities (e.g., obligations to employees, accounts payable, malpractice causes of action) of the purchasing and selling parties.
If you are an employee of a medical practice, your employment agreement should outline the procedure and time frame for retirement. The agreement may provide language similar to the following: “Employee or Practice may terminate this Agreement without cause upon X days prior written notice….” However, retirement may be addressed separately from the clauses governing termination without cause.
If you are a shareholder of a corporation, a member of a limited liability company (LLC) or a partner in a partnership, the shareholders’ agreement, LLC operating agreement or partnership agreement, respectively, should address the rights and responsibilities of the retiring owner and the practice.
Your Buy-Sell Agreement
A buy-sell agreement describes the terms and conditions for the buying and selling of a withdrawing physician’s ownership interest in a medical practice. Buy-sell terms are found either as a provision of a larger agreement (e.g., shareholders’ agreement, operating agreement or partnership agreement) or in a separate, freestanding document. Regardless of where the terms are found, they do not typically address the special needs of physicians in their later years of practice, such as the option of working less prior to complete retirement or the opportunity to develop a semi-retirement arrangement
One recommended provision provides the physician with the option to convert to semi-retirement status. This enables senior physicians to remain with the practice on terms that meet their changing lifestyles. Often, such arrangements include a part-time work schedule, reduced or eliminated weekend or evening call or additional vacation time. These benefits are frequently accompanied by compensation adjustments so that the practice’s full-time physicians do not feel that they are financing the semi-retired physician’s new lifestyle. For example, a physician who previously worked five days a week and will be working a part-time schedule of three days a week going forward will receive three-fifths of his or her previous salary. Or, the semi-retired physician may become an hourly employee to reflect the reduced schedule. Alternatively, the arrangement can be structured to maintain the physician’s compensation but gradually reduce the semi-retirement benefits throughout the retirement period, typically one to three years. These types of packages serve the practice by extending the professional life of the physician and serve the physician by satisfying the desire to transition toward retirement.
What’s In It for the Other Physicians?
Although a physician’s semi-retirement package may appear to benefit only the physician retiring, the other physicians in the practice actually benefit as well. If a physician is granted semi-retired status, the practice’s other physicians can absorb some of the retiring physician’s patient load. This helps the other physicians build their individual practices and increases the likelihood that the semi-retiring physician’s patients remain with the practice. In addition, a physician who is unable to partially retire may leave the practice sooner than expected, creating a gap in managerial expertise and call coverage and putting a strain on positive relationship management with patients, hospitals and payers.