August 22, 2022

Top Legal Mistakes Dentists Make
Part II

In our previous post in this series, we looked at some of the top legal mistakes our attorneys see at the beginning of a dentist’s career. In this post, we will look at legal mistakes we often see dentists make in acquiring and running a practice.

Legal Mistake No. 3: Trying To Wear Too Many Hats

We often see this mistake after a dentist has signed a lease or bought a practice without involving any professional advisors. In addition to running a practice or working as an associate, the dentist also tries to handle every aspect of setting up the new practice.  This could include negotiating and signing a new office lease.  It could also include conducting due diligence on a practice to purchase, or drafting an employment agreement.

The problem is that, regardless of how great a dentist the person may be, they are not trained or experienced as a real estate broker, or accountant, or attorney. If the dentist does not know what to look for, he or she could have problems down the road. For example, the dentist could be paying over-market rent.  The lease also could have hidden costs that the dentist did not know or understand. The practice financials could be hiding red flags.  The dentist could be exposed to potential liability or unfair competition from a former employee.  Therefore, dentists should build a team of advisors to help them both to start and run a practice.

Takeaway

Dentists should consider having a broad network of advisors in place before they own a practice.  This could include a real estate broker to negotiate a lease or to purchase a building for an office.  This may also include a practice broker to assist with finding a practice to buy and negotiate the terms. A healthcare attorney can prepare and/or review the lease or purchase documents and also prepare employment contracts and other documents.  Bankers, financial advisors and CPAs can help with making financial decisions or conducting due diligence.

Legal Mistake No. 4: Jumping Into Partnerships

Often it makes economic sense for dentists to join their practices.  Doing so can reduce overhead costs and create economies of scale.  However, if not done correctly, the results can be catastrophic.  Some of the nastiest and most costly legal battles we see involve partnerships that have gone sour. Often there is long-festering resentment over patient load, productivity and finances that can boil over into the office environment, affecting both staff and patients. In many ways, these disputes are like divorces, where personal feelings can get in the way of economic sense. To carry the divorce analogy further, a properly drafted and executed partnership agreement is like a pre-nup.  It will dictate what will happen to the partnership in the event the dentists go their separate ways.

To complicate matters,  if the dentists that make up the partnership did not properly form the partnership, they could suffer some unintended consequences.  Under Arizona law, a court can find that a general partnership exists even if you don’t intend to create one. For example, if you share office space and staff with another dentist, you could be in a general partnership with that dentist, even if you didn’t agree to become partners.    This can create significant liability because under A.R.S. § 29-1026, partners in a general partnership can be personally liable for the actions of their partners.  For example, if there is not a proper partnership agreement in place, and another dentist in the partnership commits malpractice, you could be personally liable for the malpractice.

Takeaway

Before you join your practice with another doctor, you should discuss and clearly identify how the relationship will work.  You should create a separate legal entity and document how the partnership will work.  Experienced healthcare lawyers can help with this process to limit your liability and create exit planning in the event the partnership does not work out.

Disclaimer

This post is for informative purposes only and should not be used as a substitute for consultation with a licensed attorney. It provides general information and a general understanding of the law.  However, this post does not provide specific legal advice. No attorney-client relationship is created by the posting of this information.  If you have specific legal questions after reading this post, you should contact a licensed attorney.