Transition Issues Breed Turmoil in Many AP Groups

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PATHOLOGY GROUP PRACTICES ACROSS THE COUNTRY have yet to solve a major problem: in private practice settings, what is the right mix of compensation and equity for individual pathologists?

The question strikes to the nub of retirement expectations. During their professional careers, can pathologists build the value of their group practice so that, at retirement time, shareholder-pathologists have an equity share substantial enough to provide a comfortable retirement? To accomplish this, the business structure of the group practice must be managed so that it has value as an established business—value that potential buyers recognize and for which they will pay.

The lack of effective strategic business planning on this point was made painfully clear during the past five or six years. As the handful of pioneering pathology physician practice management companies (PPM) criss-crossed the country offering to buy pathology group practices, a rancorous debate emerged. In groups with both younger pathologists and pathologists nearing retirement, the older pathologists were motivated to accept a rich offer from a PPM, bank the sales proceeds, then work the few years remaining before retirement. At the same time, younger pathologists, with many career years remaining, felt sold down the river if they were outvoted by the near-retirement set.

In my opinion, pathologists have done themselves a disservice by failing to spend more time on two strategic issues. First, gaining agreement among partners as to whether the pathology group practice exists either: 1) to provide a vehicle to earn income; or 2) as a business which, even as it pays income to its pathologists, is building value as a business—value which a buyer will recognize by paying a fair price if the practice were to be sold. Second, once the first strategic decision is made, the second issue is how to recognize the contributions of shareholder-pathologists. How do new shareholders buy in? How does the group practice provide a mechanism for departing shareholders to cash out?

To help pathologists and their group practice administrators better understand these questions and their solutions, THE DARK REPORT, in conjunction with Haverford Health Advisors, is scheduling a two-day program on pathology transition topics. It will be held October 24-25, 2003 at the Hyatt Regency Hotel in Atlanta, Georgia. We’d welcome your suggestions, in advance, for topics that would interest you.

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