Navigating Employment Lite: A Business Consultation on Hybrid Practice Models for Orthopedic Surgeons

In a recent business consult, I had the pleasure of advising an orthopedic surgeon from the South. After five years in private practice followed by another five years as a W-2 hospital employee, he reached out to discuss a unique model he had in mind—a hybrid setup blending elements of both private practice and hospital employment. Having read my book and resonated with the possibilities of running a micro-corporation in healthcare, this surgeon sought guidance on a model that would allow him to regain autonomy while still benefiting from the structure of a hospital arrangement. Together, we explored the nuances of structuring his practice using a Professional Services Agreement (PSA) in a model referred to as “employment lite.”

Meeting Purpose

The purpose of our meeting was to strategize around this “employment lite” model—a middle ground that allows surgeons to contract with a hospital through a PSA while preserving certain private practice advantages. This setup would enable him to control key aspects of his practice, such as staffing, compensation, and growth while allowing the hospital to handle many of the administrative burdens.

Read More: Every Physician Needs To Know About Employment Lite

Key Takeaways from the Consultation

The conversation spanned many critical areas, including practice structure, tax strategy, physician assistant integration, and financial planning. What follows is a closer look at each of these areas and the insights that emerged as we worked through his goals and challenges.

Proposed Practice Structure: The Hybrid Model

The orthopedic surgeon’s vision was to design a practice that balances independence with hospital support. His plan involves creating a corporate entity that would contract with the hospital under a PSA, giving him a level of autonomy while still leveraging hospital resources.

• Corporate Entity: This hybrid model would be managed through a formal corporate entity, likely an S-corp or C-corp, that would be the primary contracting party with the hospital. As he had previously run a private practice, he already had experience with a PLLC structured as an S-corp, which he could reshape for this new endeavor. We discussed the flexibility this entity could provide, including the possibility of eventually bringing on multiple partners and PAs within the practice.

• Staffing & Operations: With a plan to start with three physician partners and three PAs, the hospital would handle non-clinical staff and back-office operations, allowing the physicians to focus on patient care. The surgeon envisions this model expanding to 5-7 physicians and approximately 32 total employees within five years, with monthly revenue flowing through the corporate entity could potentially exceeding $700,000.

Corporate Structure and Tax Considerations

Structuring a practice with both tax efficiency and flexibility in mind is essential, especially for high-income earners. Our conversation explored the benefits of various corporate structures and the strategic advantages each might offer.

• S-Corp vs. C-Corp: For physicians earning between $500,000 and $600,000 (or more), the choice between an S-corp and C-corp has significant implications. S-corps are generally favored for personal income tax efficiency, but C-corps can offer more extensive fringe benefits, a consideration especially valuable for practices employing multiple partners and support staff.

• Dual-Entity Structure: We discussed the idea of a dual-entity structure—where the practice might benefit from setting up an S-corp for the primary professional corporation and a C-corp dedicated to business development activities. This setup can support more sophisticated tax planning, allowing the surgeon to retain more income while minimizing tax exposure. This structure is what I use in my business architecture. It allows me to channel my earnings through either my S-Corp or a C-Corp, based on tax efficiency.

• Sophisticated Tax Strategies: We also explored tax-saving options, including tax-efficient meetings through the “Augusta rule,” which allows for deductions on meetings conducted within a personal dwelling. Implementing advanced tax strategies can be vital to retaining revenue within the corporate structure.

  Read More: Unlock Tax Savings: The Augusta Rule - Your Guide to 14-Day Tax-Free Home Rentals

Partner and Employee Integration

The orthopedic surgeon’s long-term plan involves adding more physicians and potentially offering equity opportunities to high-earning PAs. To ensure a cohesive team with aligned incentives, we covered several strategies for integrating partners and employees into this hybrid model.

• Employment Options: Incoming physicians would have the option to join either as W-2 employees or 1099 independent contractors. This flexibility allows each individual to choose the employment status that best suits their personal and financial goals.

• Profit-Sharing and Equity: For physicians and PAs interested in long-term involvement, equity structures or profit-sharing models could be used. Physicians could even form their own micro-corporations, contracting with the main practice entity to maintain financial independence while participating in the larger practice.

• PA Compensation: Recognizing that high-earning PAs contribute significantly to practice revenue, the surgeon plans to extend these models to PAs, creating an inclusive culture that rewards productivity.

Financial Planning and Management

For high-income surgeons, financial planning is a key pillar of business success. We discussed tax-advantaged retirement contributions, wealth management, and multi-disciplinary coordination to create a resilient and optimized financial strategy.

• Retirement Contributions: Maximizing contributions to tax-advantaged accounts, like 401(k)s and cash balance plans, can significantly enhance the long-term financial stability of a practice. These contributions also serve as incentives for retaining physicians within the practice over the long term.

  Read More: Maximizing Retirement Wealth: The Case for Solo 401(k) Cash Balance Plans

• Wealth Management: Although he currently uses Vanguard for wealth management, our discussion highlighted the benefits of sophisticated planning, which may include engaging a wealth manager who specializes in the needs of high-income physicians.

  I recommended he considered Earned Wealth Management due to their expertise with physicians.

• Professional Team Collaboration: A successful hybrid model relies on the coordination of a team of professionals—a healthcare attorney, CPA, and wealth manager. For tax optimization, I recommended that he work with a CPA with experience in medical practice structures and high-income physician tax planning.

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  • Build Your Support Team to Empower Your Micro-Corporation

  • Managing A Professional Micro-Corporation: Building Your Team

Legal and Professional Support

Legal expertise is critical for establishing and sustaining this kind of complex arrangement. Having already negotiated a term sheet with a hospital, the orthopedic surgeon will be working with a specialized healthcare attorney to finalize his PSA. This collaboration is essential to ensure that all legal aspects align with his business objectives.

• PSA Refinement: The Professional Services Agreement is the cornerstone of this hybrid model. It will require careful review and likely refinement by healthcare attorneys to ensure it reflects both the hospital’s requirements and the surgeon’s practice autonomy.

• Malpractice Insurance: Securing adequate malpractice coverage is also crucial. I recommended a reputable malpractice insurance broker to provide personalized guidance on coverage options.

  Read More: Choosing the Right Medical Malpractice Insurance: What Self-Employed Doctors Need to Know

Next Steps

As we concluded our meeting, the surgeon and I outlined clear next steps to bring his vision of a hybrid practice to fruition. These steps include:

1. Finalizing PSA Review: Engaging his healthcare attorney for a thorough review and potential adjustments to the PSA to protect his practice interests.

2. CPA Consultation for Tax Strategy: Scheduling a session with a specialized CPA to solidify his tax planning and corporate structure strategy.

3. Malpractice Insurance Consultation: Connecting with a trusted malpractice insurance provider to secure coverage tailored to his practice’s needs. I recommend MEDPLI for this service.

4. Physician and PA Onboarding Strategy: Developing a structured approach to onboarding additional physicians and PAs, including flexible employment options and equity participation opportunities.

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