Address legal threats before buying into a practice

I have lost count of the number of occasions when I have written in this column that partnership in a veterinary practice is very similar to marriage. The analogy is one that potential partners must ignore at their peril. Nonetheless, joint ownership of a professional practice can be much like something else as well: a couple moving in together.

When a couple finally decides that they are willing to sacrifice some elements of their independence and begin living in the same place, a number of issues immediately arise. Beloved decorations may be relegated to the basement because the new member of the household never really liked them. There must be mutual decisions whether to continue buying certain products and from whom they should be purchased. Compromises such as these are fairly mundane; they probably don't need to be worked out prior to the decision to cohabit. Yet, bigger questions could lie around the corner, ones with much more serious potential ramifications.

What if you moved in with your best girl and found out that she was selling drugs out of the apartment? Would you be concerned if you started living with your guy and discovered that the apartment's lease prohibits non-family members from residing in the dwelling? These are questions that probably should have been addressed before you paid the movers to deliver all of your belongings to your significant other's house.

Buying into a veterinary practice without performing adequate due diligence is an analogous situation. In many instances, young doctors identify numerous advantages to practice ownership and agree to become a full or minority partner before they consider the situation thoroughly. Very simply, young veterinarians must approach the buy-in decision the same way that they would if they were moving in with a lover. That is, they need to pose the question: "Is this something I really want to be part of?" If the answer is not completely affirmative, the buyer or prospective partner must obtain a commitment from the current owner that the necessary changes will be made. Here are some examples:

Justify expenses

Some practitioners are dangerously free with a dollar. They might run an outstanding practice, but it always runs cash poor because the owner has to have every new gadget and every late-breaking diagnostic tool, regardless of whether that equipment generates revenue to justify it.

Other doctors are obsessed with volume inventory discounts. These are the guys who will buy two years' worth of a new antibiotic because they will receive a 3-percent discount for making the large order. Once in a while, you'll even come across a veterinarian who buys large amounts of product simply because he or she wants to send a message to the drug reps (and consequently to their colleagues) that they are running a stunningly successful business.

On the other end of the continuum are those members of the "make a buck at any cost" crowd. These are the owners who stretch the limits of professional propriety and practice standards in order to maximize profits. These folks might run advertisements containing questionable claims and offers. Or, they might scrimp on cleaning and building maintenance such that the practice becomes a place that one might not be proud to be associated with.

Legal questions need answers

But the most important issues for those considering a potential ownership interest in an existing practice are the legal ones. Always remember that ownership goes hand-in-hand with responsibility. When something bad happens in a business, the employees can walk away. Lenders might lose some money. But owners ultimately have to answer for everything.

So, what should the young doctor check into before she decides to "move in" as a full or minority partner in a veterinary practice? Aside from the obvious economic analyses that have been discussed widely in this column, a number of potential liability items need to be evaluated. These include:

• Is unacceptable staff behavior being tolerated?

If someone in the kennel is being rough or inhumane to the animals, it doesn't matter how long they have worked there or whether they are friends with the owner's family. Eventually, word of the abuse will get out of the clinic, and the bad publicity and potential civil and criminal penalties will come home to roost.

The same applies to sloppy management practice regarding inter-personnel relations. Is offensive language being tolerated? Is it possible that staff members may feel that they are working in an environment of sexual harassment, either generalized or specific to them? You do not want to buy in to a practice just two months before a victim finally gets to the end of her rope and sues the business.

• Are all doctors adhering to an acceptable level of practice?

It is not enough to say to yourself, "Well, the owner uses out-of-date drugs to save money, but that's okay because I just won't use them." You can't let yourself feel comfortable that you are disposing of medical waste appropriately while your potential partners cut corners in order to save on hauling expenses.

• If you agree to buy in, will they clean up their labor practices?

You may be hearing rumblings in the lunchroom that sometimes Jeannie punches in for Billie, or Doc sometimes pays Connie "off the books." Do you occasionally hear your technician complain that sometimes she doesn't get paid overtime when she should? What if the receptionists are working through their break and getting really irritated about it?

Do you feel comfortable with the way income is accounted for? As a new partner it is not safe to become part of a bookkeeping system that allows owners to pocket untaxed cash income. It doesn't matter whether you share in the income or not. This type of bookkeeping frequently leaves the minority partner wondering if he really got his share. And even if it's fair, fair doesn't mean legal.

Remember that as a potential owner, you must set your personal opinions aside and objectively assess any potential liability issues. Entering an existing practice as a partial owner is very different from buying a practice outright. As a part owner, you do not have unilateral say over policy. If you want changes, then you must have them addressed prior to the buy-in commitment.

Dr. Allen is a partner in Associates in Veterinary Law PC,a law practice specializing in business and legal counsel for veterinarians and their families. He can be reached at www.veterinary-law.com, or call (607) 648-6113.