Top 8 Questions to Consider in Orthopedic Surgery Pre-Ownership Track Employment Agreements

Orthopedic surgeons often face a critical decision as they finish training: What kind of practice setting makes the most sense for their goals and lifestyle?

We see three main settings:

1. “Classic” Academic Employment — These roles often combine clinical work with non-clinical responsibilities like teaching, research, and publications. Total compensation is often lower, but this may be offset by more reasonable volume expectations and an opportunity to pursue more altruistic academic advancement and unique career growth potential.
2. Pre-Ownership Track Employment — These roles offer a chance to become a partner or owner in a practice after working as an employee for a set period (usually 1 to 4 years). Total compensation can be quite low initially, maybe the lowest of these three categories. However, the advantages of autonomy and control over your practice, along with the potential for the highest future earning potential, can make these very attractive.
3. Perpetual Employment — These jobs are often with hospital systems or private equity-backed groups, and offer ongoing employment without ownership potential. They usually exchange higher volume for higher compensation, often tied to work RVUs and Compensation-per-RVU rates. They also typically offer the highest starting salary and might reduce the business management risks associated with independent ownership. However, may not always offer the best long-term earning potential and autonomy that often comes with successful private practice ownership, and often don’t offer the same altruistic and non-clinical career advancement opportunities that may be present in attractive classic academic positions.

Each of these models has pros and cons. You should give serious thought to which setting aligns with your long-term goals, especially before making a commitment that could affect your finances and lifestyle for decades.

In this blog, we’ll break down the 8 key issues you should consider when evaluating and negotiating a pre-ownership track employment agreement in orthopedic surgery.

Top 8 Issues

1. Understand Starting Compensation Norms in Pre-Ownership Track Deals

Most pre-ownership track offers begin with a lower base salary and signing bonus than you might see from hospital systems.

In our firm, we often see orthopedic starting salaries in this setting fall between $350,000 and $500,000. Some offers include additional call pay, which might push that number a bit higher. Even if call pay is included, it’s often well below hospital-employed compensation levels. It’s rare for your offer to be significantly more than this unless there is a hospital recruitment agreement attached.

Hospital-employed orthopedic surgeons often start out earning $500,000 to $800,000 or more in guaranteed pay, which can make these private practice opportunities feel less attractive at first glance. Additionally, even classic academic positions may be offering more than pre-ownership track deals and may come with a more attractive work-to-compensation expectation.

You need to understand the trade-off. By joining a well-run physician-owned independent practice, you might give up $1 million or more in earnings during your first few years. Your bonus structure may be nonexistent or extremely weak in those early years, especially outside of call pay. That’s a real downside and a common source of frustration.

But you shouldn’t make a decision solely on starting pay. The upside in the long run can be significant and career-defining.

2. How Long Until You Can Buy In?

Learn how long the employment period lasts before you’re eligible for ownership. Some practices offer ownership after one year, while others require up to four years of employment. This timeline may or may not be negotiable. In many established practices, the track length is based on how they’ve handled prior hires. We’ve been able to shorten tracks for some clients, but many practices resist change here.

Consider how this timing affects your board certification process. Orthopedic surgeons may need two years to collect cases for board certification. If your ownership track is shorter than that, you might feel pressure to ramp up production before you’re ready, which could create odd pressure points as you’re building your practice.

On the flip side, longer tracks can create frustration if you’re generating significant revenue for the practice but still earning employee-level pay. Being stuck at $350,000 to $500,000 in total earnings when a shorter track could see you earning $1M or more might be a challenging issue.

3. What Are the Odds You’ll Be Offered Ownership?

This is crucial. Ask about the practice’s track record. How many people have been hired into this track over the last 10 years? How many became owners?

If five people entered the track and all five became owners, that’s a good sign. If some were terminated, walked away, or turned down the ownership offer, that might be a red flag, and you may want to investigate. Were those outcomes due to performance issues, poor cultural fit, poor ownership remuneration, lack of clinical volume, or changes in ownership structure?

You want clarity and honesty on this point before committing to a lower-paying job for several years.

You may be thinking whether you can negotiate for an ownership guarantee? No. It almost never is. Most practices require a vote of current owners, often unanimous or at least 75%, to approve new partners. You’re unlikely to negotiate a guaranteed offer of ownership. Instead, evaluate the history. How have past hires fared? If everyone becomes an owner, great. If not, be careful.

4. What Will You Own?

Let’s say you complete the track and get invited to buy in… what exactly are you buying into?

Ideally, your ownership includes an equal portion of:

• The practice entity
• The real estate assets that house the practice.
• The ambulatory surgery center (ASC)
• Ancillary revenue streams (like imaging, PT, or durable medical equipment)

These assets can be extremely lucrative. Some practices may limit new owners to just the practice entity. They may keep the real estate, ASC, or ancillaries owned by the original partners only. That kind of partial ownership may leave a lot of upside on the table and should be discussed during interviews or early negotiations.

When possible, favor deals that offer ownership in the entire economic enterprise. You want to grow along with the business, not just help fund someone else’s growth.

We often see more risk in joining groups that don’t own their ASC. With changes in payer models favoring facility fees, practices that don’t control their ASCs may face more pressure to sell to PE or join a hospital. 

5. What Will You Pay to Become an Owner?

Once you’re eligible for ownership, how much does it cost to buy in? There are three common valuation methods:

1. Par Value
   • An arbitrary and low buy-in (e.g., $20,000 for 10% ownership)
   • Rare, but simple and affordable
2. Book Value
   • Based on accounting figures: assets minus liabilities
   • Often ignores revenue streams and goodwill
3. Fair Market Value (FMV)
   • Based on practice revenues, profitability, and cash flow
   • Most common in orthopedic surgery practices
   • Often results in buy-ins ranging from several hundred thousand to a couple million dollars

We don’t necessarily oppose high buy-ins, but they should match the opportunity. For instance, if the practice wants $1.5 million to buy in, but current owners only make $700k–$900k/year, that’s probably not a good investment. You may want to consider a hospital-employed position that offers a total remuneration opportunity consistent with that value, but without the early career sacrifice that often comes with pre-ownership opportunities. But if owners are making $1M–$2M/year, that buy-in might be an excellent deal.

Let’s look at how valuations apply to different components:

• Practice and Ancillaries: It just depends. Often, you’ll see an FMV that considers past and future corporate dividends.
• Real Estate: If the group owns a building worth $4M with a $3M mortgage, the equity is $1M. If you’re buying 10%, that costs $100k. That can be a strong investment, especially when you’re the tenant. Paying down a mortgage and having a stake in an attractive commercial real estate asset can be a nice advantage long-term.
• Ambulatory Surgery Centers (ASC): The ASC is usually valued based on FMV. Look at expected dividendsto assess value. Example: If the ASC generates $1M in profit per year, and you buy 10% for $200k, that might earn you $100k per year in dividends. That’s a strong return, and you’ll likely cover your investment in only two years. There are differing valuations, and understanding what is expected is important.

Having a say in how the ASC runs also helps protect your future income and autonomy. Even if the valuation seems aggressive, ownership may still be worth it in the right context. All investments come with risks, and you need to be prepared to lose your investment in unfortunate scenarios, but these are often very attractive.

6. What Are Owners Earning?

Some practices will give you a clear picture of the total owner remuneration from the entire enterprise. Others may make you feel like you’re asking to sniff their underwear… either way, it’s a critical point to understand.

If they tell you that most owners earn an average total remuneration of $1M to $1.5M, that’s important information and should shape your confidence in the opportunity.

It’s also important to understand how the compensation structure works for owners. There are two main models:

Socialized Model

• All revenue is pooled
• Overhead is shared
• Profits are split evenly
• Rare in orthopedic surgery

Capitalized Model

• Some overhead (rent, front desk, billing) is shared
• You cover your own direct costs (PAs, malpractice insurance, equipment, anything else that only you use and benefit from)
• You keep your own revenue

Some owner compensation models fall somewhere in the middle of these two ends of the spectrum.

In a capitalized model, if you collect more than your partners, you’ll likely earn more. It creates a high level of autonomy and efficiency, which many physicians prefer over more bureaucratic models like hospitals or academia. Capitalized models typically mean you get more control over decisions that affect the success of your practice, like hiring support staff, investing in new equipment, or expanding your patient volume.

7. What Happens If the Practice Sells?

One of the biggest risks in a pre-ownership track is the practice selling to private equity (PE) before you become an owner.

When this happens, PE usually buys a portion of:

• The practice profits
• The ASC
• The real estate
• And often, locks in a long-term employment deal for physicians

The current owners cash out, and the opportunity you were waiting for might become much less attractive overnight.

We don’t recommend physicians categorically avoid PE deals, but you should consider negotiating protection and calculating the associated risk of a PE buyout if you’re sacrificing earnings in exchange for a promised ownership track.

In an ideal world, your contract should include either:

• A right to participate in any sale that happens during your employment, or
• A right to walk away without penalty if the practice sells before you become an owner

An ideal deal is rare. Practices often resist these terms, so it is best to bring in legal support to help tactfully negotiate these protections.

Remember: If you accept a deal paying $400k/year instead of a hospital offer at around $700k/year, you’re giving up $900k over three years. That’s a huge bet. Consider how protected your early career sacrifice may be.

8. What Happens If Things Go South? Exit Strategy.

If you or the employer decides the relationship is not working and/or ownership is not offered, you need to understand your exit strategy. The vast majority of attractive pre-ownership track deals in orthopedic surgery include rough exit strategy clauses, including but not limited to the following:

• Noncompete clauses that often require the physician to leave town, even if the practice unilaterally terminates the relationship or decides not to offer ownership at the end of the expected timeline.
• Tail coverage requirements often require the physician to come out of pocket to pay for a malpractice tail insurance policy. This could be a high 5-figure number, and often applies regardless of the reason for termination or the length of employment. 
• Nonsolicitation clauses that may severely restrict your ability to take your patients, co-workers, referral sources, and even hospital privileges to your next opportunity. Watch out for this sleepy ninja, and it can sometimes be as problematic as the noncompete. Perhaps the biggest ongoing legal battle around physician contracts in Wisconsin is primarily about this clause!
• Compensation clawbacks and waiver issues relating to potentially paying back signing bonuses, waiving productivity bonuses, and occasionally even base salary clawbacks.

If you’re terminated unexpectedly, especially in a setting where you’re highly unlikely to have a moonlighting side gig, it can leave you without an income and facing hefty penalties.

Clarity Through Negotiation

What parts of this are negotiable?!? While many first contract physicians are looking to put up points on the scoreboard with a high number of changes to the contract, we don’t believe that should be your primary goal. The first goal is clarity on the pros and cons of the opportunity and understanding holistically where the value lies. There are areas where you can negotiate these deals, but often the primary value is making sure you have as much clarity as possible on these points!

Here are some areas we have negotiated:

1. On pre-ownership compensation, there may be room to negotiate compensation, including base salary, signing bonuses, call pay, and more, but don’t expect massive jumps in this practice setting. While it’s always nice to make more as soon as possible, small changes in early career employment may not make much of a difference when 7-figure ownership is on the table.
2. On pre-ownership employment length, we like to see a discussion about future ownership potential and timeline inserted into the contract. We can occasionally convince a practice to include a shorter pre-ownership track expectation. This will never be guaranteed, but people often don’t feel good about breaking promises, and considering requests here may make sense for you. 
3. On ownership offer probability, there isn’t always a contract language change that can protect you, but it can be super valuable to understand what is expected from employees before an ownership offer is realistic. For example, many practices will provide a general idea of how much in total revenues your practice will need to be generating before an offer of ownership would be appropriate. We have, on occasion, been able to get some of this written into the contract, but that’s rare. (P.S., employers, if you have set parameters for an ownership offer, my tip here is to discuss those thoughtfully with the resident or fellow. We believe transparency and a clear target will make your practice more attractive.)
4. On the scope of ownership opportunities, this is more of a clarity point. Again, you might be able to get soft language in, regarding future expectations, but clarifying whether full-enterprise ownership is expected can be very valuable to make sure you understand the future potential.
5. On buy-in methodology, some practices will include contract language regarding how the buy-in will be calculated, but understanding general expectations here is key. Will you need to go get a bank loan, or can you fund your buy-in internally through reduced compensation during the first few years of ownership?
6. On expected owner remuneration, you won’t get anything in the contract on this point, but getting clarity on how the owners are currently doing is key in your evaluation. Again, negotiation is not a scoreboard; it’s seeking clarity.
7. On ownership changes during employment, this is often an area we consider negotiating, but it can be a sensitive topic. Owners will almost never outright prevent themselves from a change in ownership (PE, Hospital) in an employment agreement, but some are willing to build in protections for you if this occurs. This could be an ownership acceleration clause or a soft landing approach.
8. On exit strategy, here are the “6 Big Rocks of Exit Strategy” where we often consider pushing.
   • Noncompete
     • Can we get it down to one year? These are rarely more than two years, and rarely less than one year. A one-year locum plan or temporary long commute can be manageable if you’re tied to a certain community. Two years is rough!
     • Can we reduce the geographic area such that you don’t need to leave town?
     • Can we make it unenforceable if the employer doesn’t deliver (i.e. no enforcement if they terminate without cause, don’t offer ownership, or no longer have an independent physician owned practice).
     • Can we include a noncompete buyout that’s reasonable? (This is rarely low enough to make sense, but we’ve been surprised in some instances.)
     • Can we get an academics carveout?
     • P.S. Don’t expect to win a noncompete legal battle, but we highly recommend you get a consult on your options before you agree to comply. Best practice is to assume it is enforceable as written and plan accordingly.
   • Nonsolicit
     • Does it restrict relationships with patients, referral sources, co-workers, and hospital privileges?
     • Can we soften any of this? (Hint: this may not matter as much if the noncompete is terrible.)
     • Can we get it down to one year?
     • Can we also carve it out for employer-doesn’t-deliver?
   • Term and Termination
     • Watch out for 1-4 year “No Out” clauses!! We recommend you make sure you have the legal right to leave with 90-180 days of notice at any time. 
     • Watch out for employer termination rights that allow the employer to quickly end things without cause. You’ll need time to obtain a new opportunity, and a financially protected offramp is super valuable with the unexpected occurs. 
     • Termination for cause clauses can be arbitrary, but your employer probably deserves the right to immediately end things if you lose your medical license, DEA license, show up drunk, stop showing up, or commit a bunch of malpractice. 
   • Malpractice Tail
     • Can we flip it around in full and ask them to pay for it?
     • Can we make it unenforceable if the employer doesn’t deliver?
   • Moonlighting
     • You should probably not moonlight clinically, but understanding non-clinical industry relationships and intellectual property clauses can be quite fruitful, depending on your plans.
   • Compensation Clawbacks and Waivers
     • How much will you lose in all the one-off sweeteners?
     • Can we also carve it out for employer-doesn’t-deliver?
     • Can we prorate any repayment of the one-off sweeteners based on length of service? (i.e., you owe 20/36ths of the amount back to the employer if you stay for 16 months, or do you owe 100% back, plus interest?)

All in, consider negotiating your exit strategy down. Regardless, you need to know how much it will cost you if things don’t work out! This can easily be a 6-figure problem, and we highly recommend you make personal financial plans with your contract exit strategy in mind.

Final Thoughts: Play the Long Game

Take a holistic view. It may be quite costly to chase the highest starting salary without thinking long-term. Private practice ownership might require:

• Giving up $500k–$1M early
• Paying $1M–$2M to buy in

By year three, you could be $1M–$2M behind financially.

But if ownership pays a lot more than the hospital-employed opportunity, you can catch up and then pull far ahead over your career. Additionally, when it’s time to retire from a practice you own, you may be able to realize a 7-figure benefit from selling your ownership interest. Leaving the hospital employment career won’t include any financial benefits.

That said, geographic commitment matters. These deals often require you to settle in one area long-term. If you’re not sure you want to stay, a hospital job may be the better call. But if you’re committed to the location and ready to play the long game, a strong pre-ownership track could be the best investment you ever make.

Want Guidance on Your Deal?

Every orthopedic surgeon is different. Every contract is different. We’re here to help you understand the risks and opportunities and negotiate a deal that fits your goals. We don’t recommend you get a ‘quick and cheap contract review’ because there is too much nuance here. We enjoy the opportunity to help physicians evaluate opportunities from the interview stages, through offer letter and contract negotiations, and when they want to pivot. Feel free to connect with us here.