What's Important to a Practice Owner in a Dental Associate Contract?

So, you’re thinking about taking on a dental associate. That’s all well and good, but have you asked and answered some important questions first?

For example, why are you looking for an associate? Do you really need one? Is there enough work to keep the associate busy, or might you find yourself taking a reduction in pay?

William Prescott, Esq., E.M.B.A., is a practice transition and tax attorney with Avon, Ohio-based WHP. He recommends covering a lot of ground before putting pen to paper and executing a dental associate contract.

“I think both parties independently have to understand what they’re getting into, and why,” Prescott says. “Too often, that’s not the case.”

REALISTIC EXPECTATIONS

If you’re considering taking on an associate, Prescott believes it’s important to keep expectations in line. He says that as a practice owner, you should not expect to hire an associate who will venture out into the community and bring in a large amount of new business. Nor should you expect the associate is going to bring in all of their friends and family members.

“That rarely happens,” Prescott says.

If you already have a bustling practice with 2,000-plus patients and you’re extremely frazzled at the end of each day, then sure, you need an associate. The key is that there’s already enough business for both of you, especially if you bring in an associate on a full-time basis.

In addition, Prescott suggests that private practices should not be hiring associates unless it’s for a permanent relationship. That means understanding the business of dentistry. It may be that at the present time your practice does not need an associate.

“Where everything fits, it’s great,” Prescott says. “But I can’t tell you how many lousy agreements I see. You need a contract that makes sense for both parties and is fair and equitable. And somebody better be able to explain what’s fair and equitable for everybody, because if it doesn’t work for one, it won’t work for both.”

CONTRACT REVIEW AND COVENANTS

Prescott recommends not only having someone review the associate contract you’re preparing to offer, but also help prepare it.

“It doesn’t cost much to have a contract reviewed,” he says.

One of the most important inclusions in a dental associate contract, especially from the dental practice owner’s perspective, is that of restrictive covenants.

“I would never give an associate the door to my patients without a restrictive covenant,” Prescott says. “Because if [the relationship] doesn’t work, the associate will go down the street and take all the patients. Everybody thinks compensation is the most important part of a contract, but it’s not. It’s restrictive covenant.”

Prescott recommends doing a demographics study to understand where your patients come from. Are you in a rural area where patients travel 20, 30 or more miles to the practice? Or is your practice based in a large city where patients only travel a short distance?

“If I’m representing a practice and the practice owner says I want a 30-mile restrictive covenant in downtown Chicago, I’m going to say, ‘I don’t think that’s going to work,’” Prescott says.

COMPENSATION CONSIDERATIONS

When it comes to detailing compensation in a dental associate contract, Prescott recommends using the greater of a dollar amount per month for a full-time associate, or a percentage of adjusted production. And the differential, he explains, should be calculated on a quarterly basis to reduce peaks and valleys. This method also helps maintain a happy associate.

“If I’m the associate and I’m paid on collections, not just production, I’m not going to make anything until 120 days out,” Prescott says. “I want to be paid.”

He’s also not an advocate of paying associates a draw that might have to be paid back against future compensation.

“You want to see an unhappy associate?” Prescott asks, rhetorically. “Tell him 120 days out that he has to repay $15,000 somehow. That’s not a good thing. If you’re a practice owner and you make a commitment to hire an associate, you’d better pay the associate.”

In addition, Prescott says that the inclusion of bonuses in an associate contract is almost always productivity-based, which he believes is too one-dimensional.

“I want to reward the associate based on total contribution to the practice,” he says. “That’s why the practice owner needs to do an associate needs analysis. If it’s anticipated the associate will contribute economically, it’s a go. And if not, you’d better rethink your position.”