A Few Years Ago
For nearly 15 years, the medical practice where I worked leased space from a private equity group that owned all the medical buildings on our hospital campus. Although I always considered it a significant expense, as a traditional employee, I was simply grateful to be fairly compensated for my highly productive rural medical practice.
But the time came when our group of eight doctors began to crumble, as our employer gradually increased its control over our lives. The last straw was when they wanted to place a cap on our productivity income. Essentially, they were asking us to continue working just as hard while taking a pay cut.
In the end, our group of eight dwindled down to just two doctors.
As the group broke up and dispersed, Dr. M and I were left with the task of managing the nearly 10, 000 patients in that group. We had to reorganize our practice and envision the future we wanted if we were to stay with the practice. This created a significant identity crisis for each of us as we had to decide whether we wanted to continue working with the same employer in the same location.
Dr. M explored practices outside of the Midwest, as he is an avid hunter and fisherman who wanted to fully embrace the outdoors. He considered locations like Montana and other areas out west that would allow him to indulge in his hobbies and enjoy nature to the fullest. I pondered the type of practice model I desired and what I wished to accomplish during the prime years of my professional career. Having dedicated myself to family practice obstetrics, including completing a fellowship, I was determined to maintain this aspect regardless of where I ended up.
Know Your Assets
We had multiple meetings together as we discussed our preferences. We hired some professional consultants who met with us to discuss their perspectives and explore all the options available to us. Those meetings helped us discover that neither of us had non-compete contracts with our current employer, which turned out to be a valuable negotiation advantage. At the end of the day, Dr. M and I had control over our market share of patients, which was highly valued by our employer. This strength gave us numerous options, including the possibility of aligning with a competing hospital system that was eager to serve our community. Competition can be advantageous at the negotiation table. Although we had a strong affinity for our current organization and thoroughly enjoyed working with them, we recognized the importance of exploring all available options due to various business and economic factors. Our goal was to negotiate terms that would allow us to practice medicine in a manner that aligned with our preferences. Throughout this process (without delving into the specifics), we ultimately decided to pursue different practice models that suited our individual comfort zones.
Separate But Equal
At that time, we were both in the same building. However, to achieve our individual yet interconnected professional goals, we made the decision to work in different locations. I decided to purchase a building and remodel it into a medical office building for my practice site. My employer agreed to lease it from me as part of the reorganization process. Meanwhile, Dr. M remained in the pre-built practice site. This allowed us to recreate our own sites using individualized models that we believed would work best for both of us. We negotiated fair-market-value contracts that we felt were ideal for the practice models we would develop. We intentionally kept our contract terms separate from each other to allow for some level of separation while still maintaining a sense of unity. He opted for the traditional employment contract, which included a few additional incentives. I chose to form a professional corporation and an associated professional services agreement, which essentially functions as a contract with lighter employment terms. To maintain alignment and distinction, I decided to name my new practice site the same as Dr. M's (our old group), but added "Downtown" to it. This change in location and contract enabled me to regain control of my medical practice as an independent company contracted with my employer. This small adjustment has granted me greater control over my personal and professional life.
From a community standpoint, it appeared that I was still an employee of the same health system and not much had changed except for my location. Of course, the public was informed that this move was aimed at providing greater access to care. This change was a significant professional satisfaction for me. It restored my autonomy and control in my life and rescued me from the looming threat of burnout.Both Dr. M and I made demands regarding our clinical support. We were faced with large patient loads after several doctors had left, and I personally had to take care of 4000 to 5000 patients. In order to provide sustainable care, it was crucial for us to have sufficient staff support to meet the needs of our patients. This included the addition of nurse practitioners to support the practices, as well as the implementation of a new patient care model known as Team Care (or scribe care) medicine. In this model, each of us is supported by three nurses, instead of the traditional one nurse per doctor, who assist with visit preparation, scribe, execute orders, e-scribe medications, and prepare the patient for follow-up. Deploying Team Care was a real game-changer for us, as it radically increased our efficiency, satisfaction, and ultimately made us more productive.
Dr. M had a keen interest in wound care and became deeply involved in our local wound care clinic. Eventually, they achieved great success and assumed the role of director of wound care. Meanwhile, I agreed to pilot a patient-centered medical home model for our organization. As I delved into it, we believed it would prove to be an effective care model. Ultimately, our organization decided to move away from this after two or three years due to poor reimbursement. However, it was a great experience for me. Additionally, I took on a medical directorship over our community sports medicine program, which I had previously only done as volunteer work. This not only allowed me to diversify my experiences but also added to my income.
My Medical Office Building
I have been in my own medical office building for over 10 years now, and the hospital has a 5-year recurring triple net lease with me for the building. My wife and I placed this asset in an LLC that we named "Milten Properties". We chose this name because our goal was to build equity of one million dollars in the property within 10 years. The good news is that we achieved this without having a mortgage on the property, which is currently valued at around $1. 5 million dollars.
I enjoy working out of the building that I own because it allows me to oversee any issues that may arise. While I do have a property manager who monitors and manages the property around the clock, as the owner, I still need to supervise and approve various maintenance tasks. For example, according to the contract, I am responsible for overseeing tasks such as repainting and re-carpeting the building interior every 5 years. We had to address a few maintenance issues this year, such as fixing water drainage problems that required an underground downspout system. Additionally, we had to replace an exterior door and the AC unit in the spring, which was quite costly.
During the past month, I had the opportunity to connect with one of my patients who happens to be a painter. I am pleased to share that we have made all the necessary arrangements for him to repaint and seal the masonry on the building exterior this coming spring.
Last week, I had to sign up for a snow removal contract on the property, which amounted to $6500.
Is That Deductible?
My property manager and I, as the property administrator, are both paid annual salaries. These labor expenses are paid by Milten Properties.
My time commitment is factored into my salary compensation.
All the work done on the property is considered a deductible business expense.
All maintenance expenses for common areas, such as snow removal, are included in the triple net lease agreement. This means that they are considered covered business expenses as part of the monthly lease agreement.
A triple net agreement is a contractual arrangement in which the tenant takes on the responsibility for not only the base rent but also additional expenses like property taxes, insurance, and maintenance costs. This lease structure ensures a stable income stream for me while reducing my involvement in day-to-day property management. It offers significant advantages as it allows me to focus on my core expertise, providing quality patient care, without being burdened by property management tasks.
In my case, I calculate my triple net expenses annually and compare this total to what I was paid for the triple net component in the monthly lease payment. This reconciliation process ensures that both parties pay their fair share of the true expenses. I have found that in most years, I am owed a small amount of money through this process.
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