As a practice management consultant I often receive phone calls asking the question “When is the best time to add an associate?”  While most individuals are looking for a specific answer, the reply is quite involved and requires a very serious review and analytical look at the situation of the practice, the market, and the factors that best define what the impact will be to the practice.  In the coming paragraphs of this article, we will begin to explore the issues surrounding a review of when it is most appropriate to add a partner to a medical practice.

The first step in evaluating the addition of an associate to a practice is to define the objective of why an associate is wanted/needed in this medical practice.  Often, the need is defined as the desire for the current owner to have a plan of succession of services for the community in which he serves.  Many established practitioners became doctors because of their desire to provide a service for a community of people.  With this in mind, the practitioner begins the search for a person who meets his criteria as a suitable associate who would be able to provide services in the same manner in which he does.  Additionally, other needs arise when the question is raised about adding a partner.  In many markets, the need is for expansion.  The senior doctor has decided that he can no longer service his patients or provide the services that are needed within the given market in a solo practice.  Therefore, he determines that he will add an associate and expand the practice to meet the ever-growing needs of the community.  Further, many physicians decide at a stage in practice after building to a certain level and establishing and maintaining a level of income, that it is now time to begin to enjoy life more.  Therefore, their goals are to improve their quality of life.  When this is the goal, the physician may decide to add a person who has similar skills, yet brings a new set of services to the practice.  In the podiatric community, often a podiatrist who has been in practice 15 to 20 years with limited surgical training will decide to add an individual with additional training over and above their current level, which would allow the practice to expand services and take over part of the owner’s existing business.  Finally, many physicians determine that the best way to insure a smooth and enjoyable retirement is to add an associate who will be able to assume the practice and take it over in an effective and efficient manner over a period of time.  Often, while it is not stated, this becomes a primary goal as the physician wishes to have an exit strategy for himself from his practice when he is ready to retire.

Once the objective is defined and outlined, there are several steps that must be undertaken.  The first step would be a thorough and complete evaluation of the market.  Questions such as “How much competition exists in the market?” must be addressed.  The APMA has information contained on its website and in various APMA publications which indicates that the ratio is approximately one podiatrist for every 24,600 people in the population.  Given this information, the practice should begin to compute the ratio of podiatrists to population within their given market to determine the demand for podiatric services within their market.  Additionally, they should also evaluate who else in the market (family practice, internal medicine, foot and ankle orthopedics) are delivering services for the foot and ankle diagnoses.  Once this is determined, the practice should evaluate the overall market, reviewing sources of information such as the APMA website, using the phone book, having conversations with the local podiatric and state associations, as well as completing additional research as provided through internet and World Wide Web.  Overall, a critical success factor in evaluating the market will be to insure that one understands the current market and what the potential impact for growth is.  It should be noted that in many markets today, the population trends are significant that while the current ratio for podiatric provider to population is below the APMA national information, the potential for this to grow in the coming years is at best estimated by having conversations and obtaining documentation from the local and regional chamber of commerce.

A complete and thorough review and evaluation of the cost structure of the practice will need to be undertaken.  A thorough review of the overhead ratio based on current level of income as well as the potential for both growth and shrinkage within the practice.  One of the key issues related to adding an associate is what is the current space capacity of the practice.  What would be the impact of additional space as well as the need for new equipment and incremental increase in supplies? These cost factors are important to evaluate when looking at the addition of an associate.  The key question it becomes is “If the associate is to drive/generate new business for the practice, how will he be able to support these patients in the existing space, if he can?”  Next, the practice will need to evaluate the staffing level.  Will there be additional staff needed to support the new associate?  Can the existing administrative staff support a new doctor, or will additional staff be needed to support the patient volume generated through the billing and collections process.  In our article we will assume that the new doctor will have a podiatric medical assistant once his patient volume reaches ten patients per day.  This will allow the practice a period of time to absorb new patients without taking on immediate staffing costs.  In relation to the staff, we must also consider the benefit plans which the practice has.  Benefit plans, such as health insurance and retirement, are a direct result of having staff within the practice that participate in both of these employer contributed payment plans.  Should additional staff be hired, and health insurance and retirement contributions provided, there is an approximate increase over and above the base compensation of 20% – 25% for such benefits.  These are significant and should be reviewed as an important part of the staffing complement.  Finally, the malpractice insurance environment should also be evaluated.  In many markets today the malpractice situation has made it almost cost prohibitive for new providers to enter the market.  Therefore, providing an environment which allows a new provider to enter the market with a reasonable basis to provide risk-based insurance is extremely critical.

Once the cost structure is evaluated, an overall analysis of the impact on cash flow should be completed.  In reviewing the impact of cast flow, can the revenue (cash collections) grow at a rate that would provide for positive cash flow within a reasonable time frame?  The evaluation should include the timing of growth (based on a projected basis 6, 12, and 24 months) to allow the practice the ability to evaluate the needs for cash resources and cash infusion into the practice.  The impact of expense growth will be the single biggest issue which will impact the current owner.  Reasonable and accurate cost estimates for staff and incremental changes for things such as space/rent, staffing and benefits, new equipment, are critical to the overall success of the addition of any associate.  An owner who does not go through this process may become highly frustrated after a short period of time of having a new associate when he realizes that his compensation is dropping because he has brought a new associate into the practice.  This turnaround time must be evaluated so that the current owner understands the short-term impact and the long-term benefit of having a new associate in their practice.  An effective return on investment model should be developed for a three to five year period so that the owner and the associate can understand the underlying expectations and assumptions which have been developed for his addition to the practice.  In today’s market, an owner should evaluate their practice based on driving a return which is greater than their current investment portfolio, which when evaluated, would be above a 12% to 18% after-tax return.

In summary, if you are able to meet your objectives and survive the challenges and changes in your practice based on your analytical review and analysis, you are ready to add an associate and you have determined the appropriate timing for making the decision to bring a new partner into your practice.