The Dentist's Network #30


	Effective Covenants Best Marketing Practices

Thomas L. Snyder, DMD, MBA
Managing Partner
The Snyder Group, LLC
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Structuring Effective Covenants

Structuring an enforceable covenant-not–to-compete is necessary for protecting both an established and growing practices when an associate is about to be hired.

For states in which such covenants are legal, the “plain vanilla” covenant-not-to-compete will typically work for the younger associate who has been with the practice for a short period of time or has undergone recent extensive training by the employer. But as an associate matures, and begins to develop a loyal following, enforcement of the covenant becomes more problematic.

Why Covenants Fail
As the associate gains experience and builds goodwill in a practice, the legal power of covenant weakens. This dilution over time, of the power of the covenant, flows from the fact that covenants are, by definition, anti-competitive. Courts typically only enforce a covenant in circumstances where: (a) the employer has a protectable, legitimate business interest; (b) the covenant is no broader than is necessary to protect that interest; and (c) enforcing the covenant would not create an undue hardship for the departing dentist.

Enforcement of the covenant against an experienced associate may flounder under the first prong of these criteria — whether the employer has a legitimate business interest to protect. As the professional responsible for patient care, an experienced associate can make the convincing argument that the patients who will be leaving with the associate are not the employer’s patients any longer. Patients, one can argue, are free to choose their own dentist. This line of reasoning is not compelling when the associate is fresh out of dental school; however, the argument takes on considerable force when an associate has developed a reputation in the community after being fully trained by an owner dentist.

Over the last ten years, legal scholars have been attacking the validity of covenants-not-to-compete in the health care professions. Their primary assertion suggests that blocking the continuation of a patient-physician relationship between the departing associate and patients, served by that associate, may be injurious to patient welfare. While the trend is not uniform, courts are increasingly receptive to these arguments. In fact, the ADA’s own Principle of Ethics and Code of Professional Conduct emphasizes that patient welfare comes first.

The ultimate consequence of these trends is that a covenant-not-to-compete may not provide security for an employer. The associate dentist may leave the employer’s practice and, within the covenant area, set up his or her own practice or, in rarer instances, join an already-existing dental practice with a large book of business.

The senior member, employer may mistakenly rely on a covenant that fails to offer the protection that is needed. Unfortunately, an owner who pursues legal action with a poorly structured covenant may be left with little, if any, compensation or legal recourse.

The Covenant Buyout: A Viable Option
One solution to this dilemma is the so-called “covenant buyout.” The covenant buyout offers an experienced associate the option of purchasing out of a covenant-not-to-compete. If the associate elects to not buy out of the covenant, the covenant is by its terms enforceable; if the associate does elect to buy out of the covenant, the covenant is waived and is no longer enforceable. Ideally, the associate will pay a higher price for the buyout when leaving a practice voluntarily, and a lower price if asked to leave for reasons other than “for cause.” Note that the covenant buy-out does not create a covenant in the Associate’s favor: patients can remain with the Employer or go with the Associate, at their choice.

Of course, merely stating that a buyout is possible does not ensure success. A buyout price which is fair, reasonable and adequate to protect the interests of an employer must be established. Setting a price too low will hardly discourage an associate from leaving, and does little to mitigate against potentially devastating consequences if departure occurs. Setting the price too high risks the possibility that the courts will view the price as prohibitive to buyout and that the buyout right is illusory.

To set a fair price, one must first measure the loss to the employer if an experienced associate were to leave with a significant number of patients. If an associate who has been employed for a period of time, leaves with a significant number of patients and establishes a practice within a covenant area, the economic loss to the employer will be severe.

Summary:
This column excerpted from an excessive manuscript on this topic, co- authored with H. Thomas Hunt, Esquire, and an attorney with over twenty years of experience in advising Dental Professionals.

It is important that you confer with an attorney with healthcare experience when preparing an employment agreement that contains a covenant not to compete, and terms for an effective covenant buyout.

The Snyder Group provides comprehensive employment agreement contract templates. Please visit our website for details.

Interested in having Dr. Snyder speak to your dental society or study club? Click Here

Joel Harris, President
ADA Intelligent Dental
Marketing, Inc.
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Three Best Practices

I just arrived home from the ADA Annual show in San Francisco. I was able to speak on two different days and participate in an expert panel on dental marketing. At the beginning of the panel I was asked to summarize my three best practices with regard to effectively marketing a dental practice. At first I thought it would be difficult to keep my list of best practices to only three items. However, after some quiet time on the airplane I was able to condense my thoughts into three basic concepts that will make a huge difference in the success of any dental practice.

Best Practice #1 - Remember that image is everything
When building a dental practice—and struggling with patients, cash-flow and employees, focusing on artsy matters might seem like a huge distraction. But as any celebrity publicist will tell you, image is everything, baby! That doesn’t mean you need to be developing detailed brand marketing campaigns when what you really need in the short run are a few more patients. But it does mean you need to pay attention to things like your company name, logo and basic marketing materials, such as your Internet site. It also means that you’ll have to focus on the image of your facility, your equipment and even your own teeth.

To begin the process of creating the perfect image for your practice, think about your patients’ priorities. Do they most value speed, quality or price? If the potential patients in your demographic area appreciate quality above the other two attributes, your marketing plan and image should reflect this—right down to selecting a name. If, on the other hand, you believe your ideal patient values cheerful service above speed and price, everything about your image should embody those priorities. Their core values should be reflected in your customer-service policy, your logo, Internet site, signage, and every “touch-point” your patient has with your practice.

Best Practice #2 - Differentiate your practice by being remarkable
At the end of the day no amount of great marketing will cover up an otherwise poor patient experience. In fact, if a dental practice focused their energy on truly creating a remarkable patient experience, the marketing problem would take care of itself and I’d be out of a job.

Best Practice #3 - See marketing as an investment, not an expense
This concept is best illustrated using a short parable. It perfectly explains my philosophy of seeing marketing as an important investment that must be made continually, not just when the schedule is empty.

There once were two friends who were fisherman. For many years they had fished in the same part of the sea and had fed themselves and their families from the fish they caught and sold at market. Once, during a terrible storm, the two fisherman were separated and washed out to sea many miles away from shore, each in his own small boat. Neither fisherman had any extra food and very little water. However, each man had a few dead minnows that they used to bait their fishing lines. As each fisherman became more and more hungry they realized that catching fish to eat was the only way to survive the long journey back to the safety of land.

Both men tried without success to catch fish using their small ration of bait minnows. The first fisherman being very wise, realized that he must continue doing his best to catch a fish, so he carefully conserved his bait minnows until finally he was able to catch a fish on his last try with his last minnow. After eating his fill, this wise fisherman used part of the fish he caught for new bait and eventually caught several more fish. He was able to make it back to shore because of the energy he received from the fish he caught. He lived a long and prosperous life and learned not to go out to sea without being prepared for a storm.

The second fisherman was not a wise man and kept trying to catch fish with no success. When he saw that his bait minnows were dwindling he decided that the only choice he had was to eat the bait minnows he had left. He did not have the faith and wisdom of the wise fisherman and he eventually died of starvation while attempting to row his fishing boat back to land. His family never found his boat and they found it very difficult to provide for themselves for many years.

I wrote this little parable to help explain in simple terms how important it is to invest your “bait” or money into marketing your dental practice. If executed properly, it will bring you a much greater return for years to come. Don’t ignore this wisdom. Don’t wait until it is too late and don’t be tempted to eat your bait.

Interested in knowing more about how to market your practice? Click Here
To reach Joel Harris Email him at Joel@thedentistsnetwork.net

Interested in having Joel speak to your dental society or study club? Click Here