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Sam Walton’s Failure Is a Lesson for Medical Groups

October 5, 2015

Sam Walton has a lesson for you. No, it’s not buy low and sell low. It’s something very different.

Before Walton founded the Wal-Mart chain, he operated variety stores. (To anyone under 50, see Wikipedia.)

His first store was wildly successful. That is, until he realized that he had signed a short term lease with no renewal option. At the end of the few year term, the landlord not only took back the space, he took over the operation of the store.

Has your medical group made the equivalent mistake? Many have. They’ve put themselves in the position that the hospital or another medical group can take over their business as legally, easily, and cheaply as Walton’s landlord took over his store at the end of the lease.

For example, a hospital based group, let’s call it Trusting Falls Medical Group, has a three-year exclusive contract with St. Mark’s Community Memorial Hospital. Its leaders spent scores of hours recruiting physicians to the group. They’ve developed trust with the referring physicians, with the medical staff at large, and maybe even with the local community in general.

Then, towards the end of the contract term, the hospital announces that it’s not going to renew the contract with Trusting Falls. Instead, it’s going to send out a request for proposal to four large, national groups. How will the “winning” group staff the facility? With most of Trusting Falls’ physicians.

You can do much to avoid this type of situation by taking to heart what Walton did next. He made sure that he always held very long term lease rights. I’m not saying that you can get a 99 year exclusive contract, but you can build protections into your current contracts that diminish the economic burden in the event of non-renewal and that make your “store” less likely to be shifted to new ownership.

Note that this issue, in slightly different dress, also impacts office based practices. For example, you wouldn’t be the first cardiac surgery group to find that the hospital has recruited more than half of your surgeons to become the “poster docs” for the hospital’s new cardiac care center. Your position in the new regime? There isn’t one.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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