Creating Operating Agreements to Assure Continuity

By Michael Okaty and Pamela Brown, Foley & Lardner

New physicians entering medical practice, physicians retiring from medical practice, and the general migration of physicians from one practice to another raise many practical issues. One very important but often overlooked issue is the ownership interest in physician entities and the real property that such entities own.  Unfortunately, these issues are often not addressed until an issue arises, and the path to resolution can be difficult and frustrating for all parties involved.  

In light of the fact that medical professionals generally cannot limit personal liability for malpractice through corporate ownership, asset protection planning is fundamental. The separation of real estate assets from the core medical practice business is a key method of doing so. The creation of these entities and the structure to accomplish such separation includes the proper entity structuring format as well as a proper lease agreement that serves to maximize physician protection.  

The disparity of ownership between physician-owned real estate entities and operating entities (for example, founding physicians own the real estate but new physician partners do not or owners change over time as physicians enter and exit the partnership), and the issues that such disparity may generate, can be avoided at the outset by careful and thoughtful drafting of the shareholder or operating agreements that govern the physician-owned entities. Current shareholder and operating agreements which are deficient in such relevant provisions can be revised as well to ensure that the existence of any disparities are properly managed. Properly drafted provisions that guide and manage the ingress and attrition of physicians in private practice will serve to avoid any potential conflict and contentiousness among partnering physicians. If there are any doubts whether your own operating agreement properly addresses those issues, the best time for a legal review is probably right now.

Michael Okay is a senior partner with Foley and Lardner, a law firm highly regarded for its Health Care Law and Real Estate expertise. Michael Okay is the Managing Partner for Foley’s Orlando office and Pam Brown is an Associate in Orlando specializing in real estate.