Associateship

1. Associateship

2. An associate is an employee who holds no ownership interest.Associateship is the goal of the majority of new optometry licensees, including UAB graduates. In some instances, the employment evolves into partnership. This is in fact the most often-stated practice goal of graduating optometry students.

3. The key to successful associateship is to find a practice, visit it often so that a personal rapport is achieved with the optometrist, and regard it as a long-term opportunity rather than just a short-term source of revenue.To find such a practice requires not only practice visitations but also an analysis to determine if the prospective practice will support another practitioner.

4. In evaluating a prospective associateship, there are two basic issues to be considered: • The first (and most important) consideration is personal: does the practice present the image and offer the potential that is compatible with your goals? The answer to this question can only be provided by you. • The second consideration is economic: can the practice support another life? An economic analysis is needed to answer this question.

5. Economic analysis begins with the assessment of 3 aspects of practice: • the levels of income generated by the practice • the sources of income for the practice • the expenses of the practice The results obtained should correspond to established norms for the profession; if they do not, the reasons why should be determined.

6. The 2007 AOA Economic Survey reported the following (2006 data): • mean gross income (per OD) $530,914 • mean net income (all ODs) $131,197 • number of full examinations/year 2,134 (results from 2004)

7. AOA surveys have also shown that private practice income is derived from 3 principal sources: • Examination fees 45% of income • Sale of ophthalmic materials 35% of income • Fit and sale of contact lenses 20% of income

8. Third party sources of income also need to be analyzed and compared to national norms.In 2003, reimbursement from government (Medicare, Medicaid) and private (vision and medical) plans constituted 24% and 41% of private practice income, respectively, for a total of about 65% from third parties. In terms of percentage of patients: • Government plans 28% of patients • Private plans 48% of patients • Fee for service 24% of patients

9. Typical expenses of practice, expressed as a percentage of gross income, have also been reported in AOA surveys: • Laboratory costs 26% to 28% • Employee wages & benefits 15% to 16% • Rent and utilities 6.3% to 6.8% • Net income 32% to 34% These results should be used for comparison purposes when evaluating a practice as an associateship opportunity.

10. Another significant issue is the readiness of the practice to support another practitioner: • is the appointment book filled 2 to 4 weeks in advance • is the patient population getting older • are new patients less than 25% to 35% of appointments • is the doctor so busy a full range of services cannot be provided • is the doctor willing to reduce time in the office • is the doctor or has the doctor been in poor health • does the doctor wish to protect equity in the practice by bringing in another practitioner

11. Of course, associate income is also a key factor; the most recent UAB new graduate survey (Class of 2006) found that mean income during the first year after graduation was: • Commercial employee $97,000 • employee of MD $90,300 • employee of OD $78,050 • Self-employed $66,000 The mean for all UAB graduates was $82,500.

12. Remember—differences in income are not what they seem: Average salary for a commercial optometrist: $97,000 Less federal and state income taxes (30%) -$29,100 Less Social Security and Medicare (15.3%) -$14,840 Less the cost of health, property, -$5,800 and malpractice insurance Less the cost of a substitute for -$2,500 2 weeks of vacation Less the costs of continuing education for renewal of license -$1,000 Total net income $43,760 Average salary for the associate of an optometrist: $78,050 Less federal and state income taxes (30%) -$23,410 Less Social Security and Medicare (7.65%) -$5,870 Less the cost of health, property, -$0 and malpractice insurance Less the cost of a substitute for -$0 2 weeks of vacation Less the costs of continuing education for renewal of license - $0 Total net income $48,770

13. Where Does The Associate's Salary Come From? • the senior doctor's overflow • a service not offered by the senior doctor (treatment of glaucoma) • a specialty not offered by the senior doctor (low vision) • coverage during periods the senior doctor is absent • medical services for Medicare patients (gonioscopy) • new patients brought to the practice by the new doctor (screenings) • third party patients the senior doctor does not want to see (Medicaid)

14. It may be necessary to convince an optometrist that it is economically feasible to take in an associate. To show that an associate can “pay his or her own way” use the following analysis: 1. To pay an associate $70,000, a gross income of $210,000 is required (assuming the net is one-third the gross—it is actually a higher percentage for the associate). 2. If each full scope examination averages $200 of gross income, then 1,050 patients must be seen to generate $210,000. 3. If there are 250 working days a year, to see 1,050 patients the associate must examine 4.2 patients a day. 4. Perform this calculation using the anticipated net-to-gross ratio and average earnings per patient of the actual practice under consideration to determine how many patients an associate must examine per day to "break even".

15. “Bonus" income can also can be used to add incentive (and provide extra earnings) for the associate: • For example, for every dollar above a monthly “floor” of $17,500 gross income (i.e., $210,000 annual gross), the associate gets 25%. • The employer will earn 10% to 35% for these examinations, depending on the percentage of profit being earned by the practice. • If the associate shows no interest in earning the extra money, the employer will have learned a valuable lesson, for which the employer paid nothing.

16. A contract will be needed for the period of associateship; the key to such agreements is their negotiation: • The costs of hiring a lawyer to negotiate an employment contract are prohibitive. Therefore, the graduate and the practitioner negotiate contract terms directly. • Negotiation is made much easier when the parties know one another well; visiting a practice or working part-time for a potential employer while in school are excellent ways of forming a personal relationship.

17. There are several important principles that should be observed to effect the successful negotiation of a contract: • Use professional expertise • Begin negotiating early • Establish negotiation goals • Be realistic • Negotiate compromise items first • Know how to overcome an impasse

18. Overcoming a negotiation impasse: • The leading cause of a breakdown in negotiations is salary. • Strategies can be devised to overcome such an impasse. • One strategy is to propose that payment be divided into 3 components: • base salary • bonus (based on productivity) • fringe benefits • The base salary should be sufficient to allow the employee to live reasonably. It should be competitive with salaries for like employees in the area. • A bonus is awarded for productivity income above a certain "floor". For example, if an employee generates $4,000 above the “floor”, and the employee receives 25% of this income as a bonus, there would be $1,000 extra income paid to the employee for the month.

19. Fringe benefits may be added to a base salary to significantly increase an employee’s compensation.Fringe benefits are tax deductible by the employer and are worth more than their actual cost to the employee (because the employee does not have to pay tax on them). If paid for by an employee, they are deductible only to the extent they exceed 2% of the employee's adjusted gross income.

20. Negotiable fringe benefits include: • interview and moving expenses • accident and health insurance • costs of continuing education needed for license renewal • malpractice insurance • license renewal fee • membership in professional associations • paid vacation • life and disability insurance • costs of commuting to work or to branch offices

21. It is advantageous to draft the employment contract rather than wait for the practitioner to offer one (which is usually written by an attorney).Many UAB graduates have negotiated their associateship agreement and then written a draft of the contract.A sample associateship agreement can be found in Assignment 6 of your Practice Plan.

22. SAMPLE ASSOCIATESHIP AGREEMENT Agreement made on ________________, 20___, between _________________________, hereinafter referred to as Employer, and __________________________, hereinafter referred to as Employee. WITNESSETH: WHEREAS, Employer is and for several years has been engaged in the practice of optometry in the State of ________________. Employee is an optometrist duly licensed and authorized to practice optometry in the State of ________________, and Employee desires to practice optometry as an employee of Employer. Employer has offered Employee employment and other benefits under the terms and conditions hereinafter set forth, and Employee is willing to accept employment on such terms. Now, therefore, in consideration of the above promises, it is mutually agreed as follows. I. Employment and Duties a. Scope of duties. Employer hereby employs Employee, and Employee accepts such employment, to render optometric services, to include examination of the eyes for optical correction and for disease, and to provide necessary health care. Employer shall have the power to determine the specific duties to be performed by Employee, and the means and the manner by which those duties shall be performed. Employer shall have the power to determine the assignment of patients to Employee, and Employee must perform services for such patients assigned to him. The power to supervise the duties to be performed, the manner of performing such duties, and the terms for performance thereof shall be exercised by the Employer. The Employee shall work four days during the week and one half day on Saturday. The Employee shall spend seven and one-half hours per day with patients, plus additional time for office staff meetings or other meetings called to maintain office procedures and policies. b. Exclusive service. Employee shall devote his full working time and attention to the practice of optometry for the Employer. During the term of this agreement, Employee shall not, without the written consent of Employer, directly or indirectly render services of a professional nature to or for any person or firm for compensation or engage in any practice that competes with the interest of Employer. c. Professional Standards. Employee shall perform his duties under this agreement in accordance with the rules of ethics of the profession of optometry, as enunciated by the Code of Ethics and the Standards of Conduct of the American Optometric Association. II. Term The term of this agreement shall begin on ____________________, 20___, and shall continue for one year or until terminated as hereinafter provided. III. Compensation a. Base salary. For all services rendered by Employee under this agreement, Employer shall pay Employee a base salary of $______________ per year, payable monthly in twelve equal installments of $_______________, each beginning on the effective date of this agreement and payable on the first day of each month during the term of this agreement. The base salary may be changed by mutual agreement of the parties at any time. b. Bonus compensation. In addition to the compensation referred to above, Employer shall pay Employee, beginning on the effective date of this agreement and payable on the first day of each month thereafter, or XI. Covenant not to Compete For a period of ____ months after Employee ceases to be employed by Employer, Employee shall not, directly or indirectly, engage in the practice of optometry on his own account, or become interested therein, directly or indirectly, as a partner, shareholder, director, officer, or employee in competition with Employer within ____ miles of the City limit of _____________________. In the event of breach hereof, it is specifically agreed that Employer shall have all rights and remedies for relief as provided by law or in equity, including the right of injunction. Alternatively and in lieu of equitable relief, at the election of the Employer, it is specifically agreed that the Employer shall be entitled to liquidated damages of $_____________. Employee has carefully read and considered these provisions and, having done so, agrees that the restrictions set forth are fair and reasonable and reasonably required for the protection of the Employer. XII. Termination This contract shall be terminated immediately: a. if Employee becomes disqualified to practice optometry in the State of _____________. b. on the death of Employee. c. if Employer and Employee shall mutually agree in writing to termination. d. if the Employer's business is discontinued. e. if Employee becomes or remains permanently disabled as set forth herein. f. if Employee fails or refuses to faithfully or diligently perform the duties of his employment and the provisions of this agreement. On termination for any reason, the salary due Employee to the date of such termination shall be full compensation in payment for all claims under this agreement. XIII. Governing Law This agreement shall be interpreted, construed, and governed according to the laws of the State of ______________. XIV. Amendments No amendments or variations of the terms and conditions of this agreement shall be valid unless in writing and signed by all parties. XV. Assignability Employee's rights and obligations under this agreement are personal and not assignable. XVI. Entire Agreement--Binding Effect This agreement constitutes the entire agreement between the parties and shall bind and inure to the benefit of both Employer and Employee and their respective successors, heirs and legal representatives. XVII. Counterparts This agreement may be executed in any number of counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, Employer and Employee have hereunto set their respective hands and seals to this instrument, executed in duplicate, on the day and year first above written. ____________________________________ Employer ____________________________________ Employee

23. The objectives of an employment contract are threefold: • to create a written expression of the agreement between the parties • to achieve a comprehensive description of the agreement • to enter into a bargained-for exchange that is fair

24. A contract must contain 3 elements to be legally enforceable: • Mutual assent—there must be a “meeting of the minds”; an offer must be definite (“I may offer you a partnership at the end of the year”) and an acceptance must be unconditional, not a counteroffer (“I accept if you pay $10,000 more”) • Consideration—there must be bargained for exchange (such as employment for wages) • Capable parties—if a party is not capable (e.g., insane) the contract will be void; if the party has a temporary incapacity (e.g., intoxicated) the contract is voidable

25. A contract for personal services cannot be enforced, because persons cannot be made to work against their will. However, an action for damages may be brought for breach of a personal services contract. It also makes for a poor reference.Both verbal and written agreements are contracts. However, proof of a written contract is much easier than proof of a verbal contract. Verbal contracts also promote superficiality in negotiation and misunderstanding of contract terms.

26. If a practitioner is not willing to sign a written agreement, a letter can still be written to the doctor, thanking the doctor and accepting the employment, describing the key issues involved (e.g., term, salary, benefits, duties), and asking the doctor to inform the associate promptly if any of the terms are incorrectly stated. A copy of the letter is kept and can be used in a legal proceeding if there is a subsequent disagreement.

27. A negotiation checklist is included in the textbook, and should be used to structure contract negotiations; it can also be used to guide the writing of an associateship contract: • Conditions of employment • Term • Salary, bonus income, benefits • Equipment to be bought or owned by the associate • Patient names and addresses • Access to information in patient records (Alabama Board Regulation 630-X-12-.03 requires licensees to keep patient records for 7 years) • Covenant not to compete • Termination of the contract • Disability of the parties