Associateships and
Contracts
Associateship
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Owner (senior) dentist(s)
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Proprietor, partner or corporate
Non-owner (junior) dentist(s)
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Employee or Independent Contractor
Why would a senior dr. want an
associate?
Economic reasons
 Income generation
 Utilization of capital base
 Overhead reduction
 Expanded hours of
service
 Excess patient load
 Expanded dental
services
Non-Economic reasons
•Buyer for practice
•Reduce involvement in
practice
•Assist new grads
•Trial period
Why become an associate
Economic reasons:
 Income without risks
 Increased clinical
skills
 Practice acquisitions
 Financing not
available
Non-economic reasons
 Transition time
 Time to set goals
 Evaluate location
 Develop
professional style
 Gain
business/manageme
nt experience
Advantages for associates to
consider
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Small or no capital outlay
Opportunity to learn from experienced dentist
Minimal organizational skill required
No decision on staffing
No decision on equipment
No decision on office design
Immediate patient pool
Immediate income
Time to adjust to practicing full-time
Gain self-confidence
Disadvantages for associate to
consider:
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Loss of autonomy
Loss of self direction
Junior partner-employee
May not be allowed to contribute to office
management
May lose desire to contribute to office
management
Loss of time
Risk of confrontation
Must adust to facilities/equipment
Disadvantages for associate to
consider (cont.)
Potential for compromised principles
 Must accept fee schedules
 Must accept staff
 Postpones initial shock
 Possible patient restrictions
 Must obey other’s rules
 Potential disappointments (amalgam
line, etc.)
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Initial Considerations
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Does the practice need an associate?
- size of practice
- number of new patients/month
- is senior dentrist turning away patients that
could be seen by an associate?
Auxiliary personnel
Facilities/equipment
Senior man’s plans
Patient load constraint
Initial Considerations (cont.)
Management considerations
 Your ego
 Personality
 Has practice been evaluated?
 Gut reaction
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Final Considerations
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Your reasons for associateship
Written letter of agreement
Expense
How patients allocated
Employee vs. contractor
Facility availability
Staff
Death/disability of either person
Restrictive covenant
Independent Contractor
Indicators of Employee Status IRS 87-41
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Personal delivery of service
Continuing (ongoing) relationship
Work on employer’s premises
Use employer’s equipment / materials
Owner controls employees
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Hiring, Firing, Paying
Worker cannot work in other location
Worker cannot suffer a loss
Independent Contractor
Advantages to (Owner) Employer
No Social Security / Medicare Tax (FICA)
 No Unemployment Tax (FUTA / SUTA)
 No Worker’s Compensation Insurance
 No withholding income tax (Fed, State, Loc)
 No retirement plan contribution
 No benefits plan participation
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Independent Contractor
Disadvantages to (Owner) Employer
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Restrictive Covenants less enforceable
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Virtually non-enforceable
Can’t force employee compliance
New Practitioner
Partnerships
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Advantages
Save expenses
 Joint purchases
 Psychological support
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Disadvantages
Sufficiency of patient base
 Mutual inhibition of growth
 Group conflict
 Long term commitment to group practice
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Financial Structure of
Associateships
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Compensation Mechanism Should …
Allow a profit for the owner
 Allow a profit for the associate
 Provide incentive for the associate to produce
 Provide incentives for the associate to collect
 Provide incentives for both to be efficient
 Be fair to both
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Office Expenses by
Category
Expenses as a % of Collections
Occupancy
8.8%
Clerical Wages
9.6%
Non-Operating Supplies and Expenses
11.9%
Chairside Wages
18.4%
Professional Supplies and Expenses
15.5%
Total Costs
62.4%
Total Profit
35.8%
Blair / McGill Advisory
Financial Structure of
Associateships
Advantages
Disadvantages
Fixed Salary
Easy bookkeeping
No incentive (assoc.)
Easy budgeting
Security for assoc.
Owner can lose
No A/R if break-up
Time Sharing
High independence
No patients for assoc.
Lower OH if offset hours
Working undesirable hours
Duplication of services
Competition for patients
Financial Structure of
Associateships
Advantages
Disadvantages
% Gross Production
Easy bookkeeping
No incentive (assoc.) to collect
Some security for assoc.
Owner must collect
Incentive for assoc. to produce
No A/R if break-up
(Owner controls policies / procedures)
% Collections
Incentive for assoc. to produce
Delayed compensation for assoc.
Incentive for assoc. to collect
Assoc. does not control collections
Complex bookkeeping
A/R Disposition if break up
Financial Structure of
Associateships
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Hybrid Methods
Salary with a bonus for production
 Variable commission
 Collections net lab expenses
 Commission with a floor
 Shared fixed expenses, allocated variable
expenses
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How are associates paid?
Usually %
 Based on overhead
 Usually 25-40%
 Lab split?
 Senior pays all other expenses
 Senior provides staff/materials
 Paid on collection/production
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Variable Commission
Example
Collections
Percentage
Applied
0 – 10,000
25%
10,001 – 12,000
27%
12,001 – 15,000
30%
15,001 – 18,000
32%
18,001 – 21,000
34%
21,001 – 25,000
36%
25,001 – 30,000
38%
30,001 +
40%
General Compensation Formula
(Production Based)
Gross Production
Adjustments
-
Uncollectibles (Charge Back)
Collections
-
Lab Charges
((Professional expenses))
Income Produced
Apply percentage (30% – 35%)
((Professional expenses))
Taxes
Net (Spendable) Income
This makes this
basically a
Collections Based
General Compensation Formula
(Collection Based)
Gross Collections
-
Lab Charges
((Professional expenses ))
Income Produced
Apply percentage (30% – 35%)
((Professional expenses))
Taxes
Net (Spendable) Income
Lab Fees
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Some Contracts Deduct Lab Fees
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Deduct Full Lab Fee vs. Partial Lab Fee
How are Fees Deducted
I am not a fan of Lab Fee Deduction
However, consideration should be
given to remakes.
Show me the Math!
More Math!
Class II Restoration
Class II
$200
less 60% OH
$120
Profit
$ 80
Procedure Time – 30min
Hourly profit - $160
Crown
Crown
$1000
less Lab fee $ 200
Total
$ 800
less 60% OH $ 480
Profit
$ 320
Procedure Time – 1.5 hrs
Hourly profit - $213.33
What about the PPO office?
Class II Restoration
Class II
$100
less 70% OH
$ 70
Profit
$ 30
Procedure Time – 30min
Hourly profit - $60
Crown
Crown
$ 600
less Lab fee $ 120
Total
$ 480
less 70% OH $ 336
Profit
$ 144
Procedure Time – 1.5 hrs
Hourly profit - $96
Associate with Lab Deducted
Class II
Associate pay (35%)
Hourly (assume 30min)
$200
$ 70
$140
Crown
Associate pay (35%)
less Lab Fee
Associate Net
Hourly (assume 1.5hrs)
$1000
$ 350
$ 200
$ 150
$ 100
Remember the office
profit was $160, so
practice still had $20 profit
per hour
Office profit was again $213,
so practice had $113 profit per
hour
Associate with Lab Deducted
Crown
$1000
Associate pay (35%)
$ 350
Hourly (assume 1.5hrs) $ $233.33
Office
less lab fee
True office production
less 60% OH
less associate’s pay
Net Office Profit
Hourly Profit
$1000
$ 200
$ 800
$ 480
$ 350
$ 250
$ 125
Lab Cases –
Who Pays? Who Cares?
Assume: $600 Procedure, $150 Lab, OH=$250, Split=33%/66%
Assoc. Pays
Assoc
Owner Pays
Owner
Assoc.
Cost Split
Owner
Fee
600
600
Split (a)
200
400
200
400
Lab
150
0
0
150
Assoc.
Owner
600
150
450
OH
250
250
Split(b)
Net
50
150
200
0
250
150
300
150
50
Bottom Line
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1st year expect $70,000-100,000
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2nd year expect $90,000-120,000
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Initially averaging slightly less
Some do better, some do worse
Owner’s make more
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However, have a lot of initial debt
Do the Calculations
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Look at an average patient schedule
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Determine if you think your schedule will be the
same
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Remember you will be slower initially
Determine daily production base on Office
Fees
Calculate your compensation based on your
contract
Under Estimate
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No Shows, Holidays, Continuing Ed, Vacation
Associateship Contracts (1)
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Should be written
Consult Attorney
Duration of contract
Employee vs Independent Contractor
Compensation
Management Responsibilities
Patient Allocation
Office Coverage (Call Schedule)
Patient Records (ownership)
Nature of Work
Employee Benefits (if any)
Time off (paid / unpaid)
Associateship Contracts (2)
Death / Disability of either party
 Dissolution
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Valid reasons
 Patients
 Restrictive covenant
 Accounts receivable
 Staff
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Modification of contract
 Renewal
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Associateship Contracts (3)
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Buy – Sell Provisions
Right of first refusal
 Mandatory purchase
 Partnership offer
 Price determination
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Restrictive Covenant
Associate leaves
 Associate buys
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Problem Associateships
Associateship that lasts more than 2
years before buy-in
 Owner needs income (production)
 Associate does all the managed care
 Associate does all the “Phase 1”
 Associate is assigned to a satellite office
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Associateship must be
beneficial to both parties.
If either party dissatisfied,
then relationship will fail.
Common Reasons
Associateships Fail (1)
Lack of written associateship agreement
 Negative production impact on owner
 Associate’s unrealistic income
expectations
 Incompatible philosophies of practice
 Inability of the practice to support an
additional full time dentist
 Associate’s unwillingness to adapt to
practice policies and procedures
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Common Reasons
Associateships Fail (2)
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Host sets compensation too high
Profitability
 Income decrease during buy-in
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General lack of patients
 Internal referral of specialty work
 Inability to see the difference for being
paid to do dentistry and ownership
 Spouse problems (usually associate’s)
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Common Reasons
Associateships Fail (3)
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Associate’s unwillingness to devote sufficient effort to building
the practice
Associate’s unwillingness to take owner’s advise because he
thinks he knows more than the “outdated” owner
Associate’s unrealistic income expectations
Owner’s unwillingness to assign patients fairly to associate
Owner’s unwillingness to spend sufficient time with the
associate
Owner’s unwillingness to relinquish any control to associate
Owner’s unwillingness to sell all or a portion of the practice to
associate
Owner’s unwillingness to listen to ideas put forth by the
associate
Out Clause
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Allows either party to terminate contract
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Specific Time Period
 Usually
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1 to 6 month
1 month to short
 Not enough time to finish treatment started
 Not enough time to find a new job
6 months to long
 A long time to live in a bad situation
 Suggest
2 to 3 month (60 to 90 day)
Competition Agreement
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Distance from practice
2 miles in a large metropolitan area
 10-15 miles in suburban area
 20+ miles in a rural area (especially if next
dentist is more that 100 miles away)
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Time Period
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Usually 1 to 2 years from the time the
contract is terminated
Competition Agreement
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Generally not easily enforceable
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Independent Contractor
 Minimal
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Consideration
 Legal
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enforceability
fees to fight – Win or Lose
Some contracts define a
damages/losses in dollar terms
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Increased enforceability
Competition Agreement
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Working for a clinic/practice with more
than one locations
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The covenant should only state a distance
from the primary (or single) office you work
in (even if you work at other locations)
Locating Associateships
(How)
Goal Setting
 Locating
 Interviewing
 Negotiating
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Locating Associateships
(Where)
Dental Society meetings
 AGD website
 Family, Friends, Mentors
 Extramural rotations
 Placement Programs
 Dental Suppliers
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How might a senior dentist
locate an associate?
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Individual contacts
Dental School placement
services
National and State dental
organizations
Practice consultants/brokers
Dental Supply Companies
Ads in dental publications
Colleagues/alumni
Advanced Education programs
Dental School faculty
Locating associateship
opportunities
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Start early (up to one year in
advance)
Dental School placement service
State society placement service
Dental Supply companies
Dentists in your area of choice
Classified ads in dental
publications
Consultants/Brokers
Bulletin boards
Visit dental meetings
Locating Opportunities:
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Dental School
Placement Service
State society
placement service
Local dental society
newsletter
Supply Reps
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State society
journals
Practice consultants
Lab Techs
Word of Mouth
Networking
Direct Mailings
Have Attorney Review Contract
After you have worked out all the other
issues, you need to have someone
review your contract for legal content.
 You will not be able to determine all the
Legal-eze
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Example:
 Disputes
will be managed in a Court of
Nebraska
 Disputes will be managed in a Court in
Nebraska
The trouble with the
rat race is that even
if you win, you’re
still a rat.
LILY TOMLIN
Questions?