Physician Medical Practice Disputes
Physician partners who go into business together to start their own medical practice rarely formally prepare in advance for resolving any management conflicts that can arise. Often they document matters such as compensation, profit sharing, or post-employment noncompete covenants, but fail to create a formal partnership agreement covering issues such as withdrawal from the partnership, dissolution, and what happens to tangible and intangible assets of the practice. However, these agreements are just as important in medical practice partnerships as in any other type of business partnership, if not more. Otherwise, needless and costly litigation can result.
The practice of medicine in Illinois is controlled by the Illinois Medical Practice Act of 1987 and state medical regulatory bodies. Apart from that, partners in a medical practice are generally subject to the same legal rules as other partnerships governing withdrawal, dissociation, dissolution, accounting, and actions against partners for damages.
Among the physician practice disputes most often litigated in court are noncompete agreements. These covenants restrict the right of a doctor to practice in a specified time period or geographic region upon separating from the practice. While groups such as the American Medical Association oppose such agreements as against public policy on the grounds they interfere with the doctor-patient relationship and patient choice in selecting providers, Illinois and Indiana courts have generally enforced them to the extent they are “reasonable.” Courts generally apply the same rules to medical noncompetes as they do to other professional noncompetes.
Besides noncompete agreements, other issues that should be addressed in setting up a medical practice are buy-sell agreements, which protect the partnership in the event a partner leaves the practice. Without one, an owner is free to sell his or her interest in the partnership to a competitor or any other party. The buy-sell agreement can provide protection by, among other things, requiring an owner to first offer the practice and other owners the option to purchase her interest, and to repay any debts owed to the practice.
Another issue to be considered in the sale of a partnership interest or dissolution of the practice is the valuation of tangible and intangible assets. A medical practice has tangible assets in the form of medical equipment, inventory, and other property. However, the primary value of a closely held practice is usually the intangible asset of goodwill, which is the reputation of the provider and practice in the community, or patient loyalty and the resulting revenue. The valuation of the practice’s goodwill will need to be determined in any dissolution or sale.
When disputes arise among partners that cannot be internally resolved, owners can try to avoid costly litigation through formal conflict resolution. The court can appoint a temporary director or advisor to ensure the practice continues operating and resolve the conflict in a way that is legally binding.
If conflict resolution strategies don’t work, as a last resort an owner can file suit to dissolve the practice, or the owners can mutually agree to separate and liquidate any remaining assets. These are drastic and expensive solutions because the business assets are typically valued well below market value when liquidated.
Physician partners ending their practices also have unique considerations in transitioning their practice to a buyer, such as how to deal with medical records, notification to patients, and determining the physicians’ involvement with the practice post-closing.
The attorneys at DiTommaso have expertise in representing physician partners and partnerships in medical practice disputes and have successfully litigated and counseled a number of doctors in such situations.