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Practice transition in the face of tragedy—are you prepared? (Proceedings)

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Aug 01, 2011

There are some things you can control in life but many that you cannot. The real issue is not what you can or cannot control but how you react to disasters and how well your practice can carry out a contingency plan.

No one expects death or disability but they can happen to anyone at any time. Every veterinary owner needs to consider the consequences of a disruption of service and the impact to employees and clients of the practice. If the veterinary owner is a sole proprietor, that person provides the management, leadership and day to day veterinary services for their clients. If they are not there, who will service and guide the practice? In a larger single owner practice, an owner with multiple veterinarians may have the client service covered with existing doctors or the use of relief doctors, but what if that owner provided all of the leadership to the practice? If there are multiple owners, is there a partner who can step up and take leadership responsibilities?

Like having a will, a good contingency plan for your practice includes how your family will deal with issues that will create a smooth transition. Addressing issues and building a plan will provide your family peace of mind. Identify issues that would need to be addressed under a contingency plan and commit them to writing. Make an impact assessment of these issues and the best way to deal with them. Mitigate any last minute issues by putting plans into effect today that takes care of these issues and develop a recovery strategy that addresses the issues in the long run. Your plan should identify teams and individuals that are responsible in an emergency situation. The people involved must understand their roles and the expectations that these roles place upon them and they must be fully prepared to implement their responsibilities at short notice when required.

Developing the plan

A common failing point when developing a contingency plan is to look for a one size fits all solution. Starting with a clear examination of the specific requirements of your hospital helps make sure that the plan you develop is the one you actually need.

Let's talk about practice continuation agreements. While these agreements are typically put in place for single doctor sole proprietorships, they also can be appropriate in a multi-doctor practice where leadership transition cannot be accomplished. This is a contract that provides for the assumption of practice by another veterinarian (under a predetermined plan for payment based upon value) in the event of the death or disability of an owner. So in a crisis, a hospital is taken over by another under a predetermined plan that is designed to quickly ensure the same service is provided to the client base. If you are sole proprietor this is a must. Transition to consolidators and corporations is usually not possible due to size. If the hospital goes unmanned for any length of time, the client base will quickly begin to disintegrate and once clients leave, it is difficult to get them back. Consequently, the hospital value will decrease. While we believe these agreements to be extremely important, they are not common leaving significant gaps and burdens to families and the hospital employees. These agreements should be done with hospitals that have a management structure in place and capacity to handle the additional client burdens. It may also be wise to cross train employees to assume responsibilities of any key person.

Owners and partners should also draft all letters, etc, to clients, referral sources, and staff that could be used in a tragic situation. These should be placed in a plan file.

For owners who have a single owner but multiple doctors, determine if there are potential takeover individuals in the group. Sometimes a hospital has a significant producer associate who has indicated they do not want to own but who do want to protect themselves in the event of a tragic event. Or, maybe part of the plan should be to consider offering an associate a minority interest in the practice to solidify their stay with the practice and provide the mechanism to deal with a tragic event. This can be accomplished with maybe the sale of a 10% interest in the practice.

If you are in a multi owner practice one cannot understate the value of a buy sell agreement. Having one is absolutely necessary. If you already have one, when was the last time it was reviewed? The major provisions you want to make sure are covered are when does a buy- out occur? Has a permanent disability been defined in the agreement? What are the mechanics of determining practice value? When is the practice value determined? Always best to use a certificate of value with the buy sell agreement and keep it updated so the hospital value is always known. A practice value determination left to the time of an event makes it that much more difficult to complete the transition, especially when emotions are running high because of an event. Make sure your buy sell agreement addresses ownership of the real estate as well as practice ownership. Too many agreements are drawn arranging for the buy-out of the practice and nothing is addressed to deal with the real estate. What then happens to that ownership interest? Does the agreement call for life and disability insurance? A full discussion of these items is below.