Can I have that in writing? The importance of written agreements between doctors

Starting a new medical practice is an exciting time. You’ve taken the leap to set up your own practice with a small group of colleagues you know and trust. You all get along well, and you share similar ideas about how a practice should be run. Why would you go to the trouble of hiring a lawyer and spending thousands of dollars to draw up an agreement to govern your relationship with your new business partners? Shouldn’t a simple handshake agreement be enough?

Lawyers have a saying: you don’t need an agreement until, suddenly, you do. The truth is that a handshake agreement probably is good enough, as long as your practice remains in this initial state of harmony. While everyone is getting on well and everything is going to plan, agreements sit untouched in drawers. Minor issues are easy to deal with while everyone is feeling generous and cooperative.

Unfortunately, as a medical practice grows and encounters obstacles, aspirations and circumstances can change, and the harmony can wear thin. Sometimes it is an unexpected event that raises questions no-one thought about when the business began – this could be as minor as a disagreement over how to deal with a problematic employee, or as major as a doctor being found guilty of professional misconduct. Sometimes cracks appear because a practice is successful, and business partners find that amounts of money that previously weren’t worth arguing about gradually become contentious. All agreements come to an end eventually, one way or another. Those are the situations in which a written agreement drafted by an experienced lawyer becomes invaluable.

Verbal handshake agreements can be just as legally binding as written ones. However, written agreements have two big advantages.

Firstly, a written agreement allows the parties to fix their agreement about how the practice should be run while they are still feeling harmonious and generous towards each other. It is relatively easy to reach agreement about how to handle potential problems in a business relationship in advance, when the problems are only theoretical in nature. Written agreements allow the parties to record their agreed position about how issues will be managed before they know which side of the problem they will find themselves on, and self-interest takes effect.

Secondly, a written agreement prepared by an experienced lawyer will provide for a whole range of “what if” issues that the parties might otherwise never consider, such as:

• What happens if a doctor decides to change their area of practice?
• What happens if a doctor fails to meet professional standards?
• What happens to a partner’s interest if they become temporarily or permanently incapacitated or die?
• What happens if a partner becomes insolvent, are guilty of misconduct, or simply begins to neglect the business?
• What happens if a partner decides they want to leave and set up their own competing practice down the street?

These issues may not arise, but if they do, a written agreement ensures that everyone understands their rights and obligations and can avoid legal disputes which can easily cost ten or twenty times more than the cost of preparing the agreement. Prevention is better – and substantially cheaper - than a cure.

This article was originally published in VicDoc Spring 2021, VicDoc is a magazine of the Australian Medical Association Victoria.

Read other items in the Australia Healthcare Brief - September 2021