ACMPE Paper, October 2006 By: Lance C. Goudzwaard, MSHA, FACMPE This case study manuscript is submitted in partial fulfillment of the requirements for election to Fellow status in the American College of Medical Practice Executives This manuscript was prepared as part of meeting various recognition criteria as set forth and may be changed from time to time by the American College of the Medical Practice Executives (ACMPE). The experiences, thought, ideas and opinions set forth are solely those of the author. They do not reflect any position on the part of ACMPE with respect to their completeness, correctness or accuracy of the paper s contents, for example, on points of law or accountancy in effect at the time of or subsequent to the date of paper completion. 2010 Medical Group Management Association. All Rights Reserved.
FIRING THE FOUNDING PARTNER... A LOOK BACK June 14, 2006 This Case Study is being submitted in partial fulfillment of the requirements for election to Fellow status in the American College of Medical Practice Executives. 1
FIRING THE FOUNDING PARTNER... A LOOK BACK STATEMENT OF THE PROBLEM The founding partner for this medical practice performed very well while the practice was small, and as long as he had complete control. When the practice doubled in size, this individual had great difficulty with the democracy that was necessary for the practice to succeed. This Case Study will be a critical analysis of the process by which this practice terminated the employment of its founding partner. It will include a summary of the steps followed to execute this action, a critique on the process followed, and a retrospective set of recommendations regarding how this action would be performed today. RISK FACTORS The other partners met for an unofficial meeting, at an offsite location, to evaluate this situation and discuss several fundamental risk factors. The most significant concern of the organization was the popularity of this individual with the referral base. Unless handled appropriately, the result could be the addition of a strong competitor into the marketplace. Another concern for the group was this physician s history of vindictive behavior, frequently threatening to shut down key operational systems if he did not get his way. As founding partner, this individual had (1) sole access to the practice s proprietary computer scheduling system (written and maintained by him), (2) sole responsibility for 2
maintaining the practice compensation system, and (3) sole access to the practice accounting/financial systems. The remaining concerns were not as prominent in the decision-making, but did play a role in the outcome. The employment agreements were old and not well engineered to remove a partner against his/her will, but did have provisions that the group felt confident would result in the same outcome. A final concern was the limited availability of physicians in the group s specialty. Since few candidates were available, the group was prepared for a replacement to take several months; if/when a decision to terminate was reached. DATA GATHERING The Board of Directors obtained the services of a local consultant to address ongoing operational concerns believed to be related to the group s management structure. The most significant of the consultant s recommendations was his advice to hire an administrative person to handle the business aspect of the practice. The remaining members of the board insisted on following this recommendation (with limited opposition from the founding partner), and enlisted the services of this consultant to assist in the hiring process. As part of this transition, the Board also elected and empowered a new president, who was asked to work hand in hand with the new administrator to address the many issues identified during the consultants review. Once hired, the administrator was briefed on the plan, and charged with primary responsibility for contacting the corporate attorney to discuss the situation and have him help assess 3
potential pitfalls. The administrator also held discrete discussions with his colleagues, hoping that someone had as similar experience and might have advice to offer. Following the gathering of this critical information, the other partners met to discuss the situation. Believing that the practice was now in a position to overcome flaws in the governance structure, the group generated a list of alternatives. ALTERNATIVES CONSIDERED After information from multiple sources was collected and discussed, the group felt it had three basic options: (1) avoid termination of this individual, and attempt to reign in behavioral problems, (2) terminate this individual immediately and deal with the operational consequences that may result while obtaining control of key operational elements, and (3) phase out this individual s control and terminate this individual, if necessary, only once control of the practice had been successfully transferred to the administrator and Board of Directors. DECISION AND IMPLEMENTATION Prior to deciding which course of action to follow, the group decided to act on the consultant s advice, and proceeded with the hiring of an administrator. Due in part to the delaying tactics employed by the founding partner, this process took nearly 7 months. Advertisements were placed in the local papers as well as with the MGMA Job Store, and resulted in over 50 applications. These applications were filtered to 10 qualified candidates by the consultant, who performed a telephone interview with each, as directed by the group. The Board of Directors met and interviewed the top 5 candidates, and 4
unanimously selected the individual who ultimately agreed to serve as the group s administrator. With the administrator in place, the group then decided to phase out the founding partners control over key operational elements, prior to deciding if his termination would be necessary. Once the group reached this decision, the new president and administrator were asked to maintain strict confidentiality of this plan. Vital first steps included the development of the administrator s job description and corporate governance policy. These were designed to provide the administrator jurisdiction over key operational elements that were currently under the control of the founding partner. The administrator was instructed that the intent of the Board of Directors was to regain control over the practice. He should expect resistance from the founding partner, but have full support of the other members of the Board. The other members of the Board now felt empowered to ignore threats by the founding partner, and via the administrator were successfully able to gain control of key systems. Within the first 6 months the administrator guided the group in selecting and implementing a new practice management system. An IT support firm was engaged to redesign and support an upgraded IT infrastructure. Control of financial systems was regained, which provided all Board members open access to all company records. 5
Concomitantly, the group began to prepare for a potential conflict with the founding partner. Recruitment of new providers was also initiated at this time. Once the group was comfortable with the status of the practice, as well as having the administrator in control of key elements of the infrastructure, the group resolved to enforce behavior expectations that they feared to enforce prior to the phase out process. The group made a significant effort to communicate their concerns with the founding partner, and to establish clear guidelines allowing for a successful implementation of a democratic governing process. Several special meetings were held to specifically address these concerns, as well as the new form of governance the practice would employ. The transition of power took place while the founding partner was still an active member of the Board of Directors and therefore, great care was given to each decision anticipated to threaten him. The other members of the Board spent hours discussing the pro s and con s of proposals with the administrator before going before the Board for a decision. It was hoped that the necessary changes could take place without significant backlash from the founding partner. Although this drastically slowed the decision making process, the group proceeded to accommodate the founding partner. The primary goal of this group was to establish a rule by majority without sacrificing minority rights. The moment of truth arrived when the group was faced with the key decision of opening a new ambulatory surgery center. The founding partner was the only board member who was opposed to the decision. He threatened to sabotage the practices plan of building this 6
center by not showing up to a loan closing. The practice anticipated this move, and loan documents were prepared for this scenario. In response to this attempted sabotage, the Board of Directors provided the physician with notice of termination. LESSONS LEARNED Several lessons were learned while carrying out this plan. The phased approach was determined to be the best for the stability of the practice infrastructure and finances, but resulted in a range of staff problems. By drawing out the process over a long period of time, factions were formed. Once the termination was completed, the unwinding of these factions resulted in the loss of several employees. In addition, there were a number of administrative hours invested in managing the emotional transition. The corporate attorney participated in the review of employment agreements, as well as in the planning for dismissal of the founding partner. However, due to his relative inexperience with litigating these types of situations, the confidence conveyed during these meetings was later revealed as unfounded. Once the group consulted an employment specialist litigator, the vulnerability of this agreement become apparent. Part of the settlement process was a long-term payout for settlement monies. However, by making this arrangement with the exiting partner, and securing the debt with practice assets; the practice was hamstrung when rates made it favorable to refinance existing loans. In order capitalize on the opportunity to refinance; the practice was forced to pay off the remaining balance of the settlement. 7
This action plan resulted in the successful termination of the founding partner, and allowed the Board of Directors to regain control of the practice. However, due to certain vulnerabilities in the employment agreement, the group decided to avoid legal action, which resulted in the decision to settle for 125% of the buyout called for in those agreements. RECOMMENDATIONS Although the outcome of this situation was deemed largely positive by this group, if another group were faced with a similar circumstance, certain recommendations could improve the outcome. The suggested plan of action is: 1.) Select a strong physician champion and develop a provider/administrator team that will handle the day-to-day decisions. Clearly delineate the decisions that should be brought back to the group from those the provider/administrator team are empowered to address. 2.) Ensure that the administrator's job description provides for jurisdiction over operational elements that are of concern. 3.) Give the administrator full and unwavering support of the Board of Directors. 4.) In stepwise fashion, administrator should take control of: a. Practice management system b. IT infrastructure c. Financial systems d. All other operational systems 8
5.) Once the administrator has established control over vital elements, a policy should be implemented that will prevent any individual from having absolute control over any key operation element, by providing a redundant system of management and control. 6.) Once proper controls are in place, the group should make significant efforts to salvage the relationship between the group and the founding partner via extensive communication. The group should discuss the logic behind decisions made to change the practice governance policy, and clearly convey their expectations of compliance with these new policies. 7.) Have employment agreements reviewed by an expert, including the realistic enforcement of any non-compete clause. Anticipate a legal battle regardless of the quality of employment agreements, and be prepared to pay a premium for buyout. A good employment litigator should be able to give you a good estimate of exposure. 8.) Prepare the management team to address this situation with staff both proactively and after the termination has been completed. 9.) Give the provider/administrator team authority to negotiate within certain limits. 10.) Negotiate settlement dollars at current value, rather than paying a premium for the right to extend payments over time, and get a loan if necessary. 9