Physician Contract Negotiation

The short answer is everything. It ultimately depends upon the willingness of the employer as to whether they’re willing to negotiate terms or not. Extensive hospital networks are less likely to change an employment contract agreement significantly. Unlike if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for significant changes. 

What are the things that are important to the physician, and then what are the things that they can get changed?

In my mind, when I’m talking to a physician, the things that stick out as the most important would be:

  • The signing bonus, 
  • Relocation assistance, 
  • How to terminate the contract agreement, 
  • Make sure there’s without-cause termination that’s a reasonable length, 
  • Compensation, 
  • Productivity bonuses, 
  • Non-compete, 
  • Tail insurance and,
  • Who pays for tail insurance if it’s a claims-made policy?


Physician Contract Negotiations

Let’s go through each of those and come up with some tips on negotiating. First, as far as compensation goes, the physician needs to know their and their specialty’s value. Getting the MGMA data is helpful. It is beneficial to talk to colleagues about the offers they’re receiving or what they’re currently making in different organizations. The physician compensation models also provide essential insights.

Sometimes, the associations for each specialty can provide information on your specialty’s average salary. That’s one way to look at it. As far as productivity goes, this is more difficult. It’s going to be entirely based on the arrangement. Is it a hybrid between a base salary and RVU production? A base salary and net collections? Is it all RVU? Is it all net collections?

This one is dependent upon the type of structure. You’re getting a base plus a certain amount of its net collections or a hybrid model. Let’s say. For instance, the expectation was 20,000. Anything collected is over 20,000 by the practice, and the physician will get 15 to 25% of that. 

That would be a standard percentage. If the physician is purely on net collections, around 40 to 45% is average.

As far as RVUs go, there are two things you can negotiate: the threshold, meaning how many RVUs you must generate to get a certain amount, and the compensation factor, which is the monetary value associated with the RVUs. The American Medical Association provides more information about RVUs.

That has some leeway as well. Regarding signing bonuses and relocation assistance, the actual number and repayment schedule are the main things.

Almost every contract is going to have a forgiveness period. Let’s say the physician gets a $20,000 signing bonus, and the initial term of the contract agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire $20,000 forgiven, so they don’t have to pay anything back. The same goes for relocation assistance.

Between $10,000 and $15,000 should be the cost of relocation assistance. The signing bonus can vary widely from 10 to 75. That one is specialty-dependent.

As far as non-compete goes, this does vary state by state on what it considers reasonable. There are a few states where it’s wholly unenforceable; California and Mexico, for instance. Usually, the non-compete shouldn’t be any longer than a year. The geographic restrictions should be 5 to 15 miles from your primary practice location. Where to negotiate with this?

Terms That Matter for Physician Contracts

You want to keep the length at one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete applies to every facility we own in the city. Instead of having one office within 10 miles, you could have 30. So, that’s very important. And then specialty as well. Some specialties can do multiple things.

Let’s say you are in internal medicine. You can be a hospitalist, and you can go into family practice. You can do urgent care. If the non-compete states that you can’t practice medicine within that geographic restriction, you’re out of luck. Whereas if you keep it to the specialty of what you’re providing to that employer. Specifically, in this case, let’s say you are a hospitalist. 

You could go to family practice or urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to consider. 

Also, malpractice insurance is always a considerable discussion with the physicians’ coworkers. First, you must identify whether it is a claims-based or occurrence-based policy.

If it’s a big hospital, they might be self-insured. And after you determine what type it is, if it is a claims-made policy, tail insurance will need to be purchased after the contract terminates. And then who pays for that? Most of the time, if you’re in a small private physician-owned practice, the physician must pay for tail insurance when they leave. You rarely have to pay for tail insurance with an extensive hospital network. Now, tail insurance usually costs about twice what your annual premium is.


Physician Employment Contracts Negotiation Tips

Let’s say you’re in family practice. Your family practice’s annual malpractice premium is somewhere between $6,000 to $8,000. If you had to pay for tail insurance, it’s somewhere between 12,000 and 16,000. One thing you can negotiate is who pays for tail insurance coverage. Sometimes an employer will say if you’ve been with us for one year, we’ll pay for a quarter, then two years, half, and then three years, 75%. Some ways of getting out of having to pay the entire amount depending on the situation.

Now, I first talked about whether the employer was willing to negotiate. Some employers will say this is a take-it or leave-it deal. I don’t think those employers will be great for getting together. If an employer is unwilling to budge on anything, it will likely be challenging to team up.

It means they’re not going to accommodate the physician somehow. So, I caution any physician who has received a job offer. We ask for some clarification or certain concessions, and they say no, this is it. That’s usually a red flag. And I tell the physician that you may want to continue looking for a job because this might not be a good fit for you.

Anything in the contract is negotiable. You need to figure out what’s most important to you. Sometimes, a non-compete is absolutely the number one thing. For others, it’s compensation. For others, they do not have to pay tail insurance. It depends upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.

What Can You Negotiate in a Physician Contract?

How to Negotiate a Fair Salary Contract for Physicians

How to negotiate a physician’s salary?

As an initial matter, I don’t believe that the salary should be the driving factor in a decision for a physician. Now, if there’s an enormous gap, a hundred thousand dollars, maybe 50, but if it’s $10,000 just going with the job that offers the most when perhaps the benefits are different, the work environment is different, the ability to learn, have a good mentor, a good teacher.

Those things are more important than the absolute base salary amount, but it is essential. And so, when someone asks me, all right, well, what do I do?

How do I get a better salary?

There are a couple of ways of doing it. One, you need to know your worth. How does a physician find out what’s a reasonable salary? Well, there’s data. The MGMA (Medical Group Management Association) is, I would say, probably the industry standard as far as compensation numbers go, but it is not the be-all and end-all of whether something is fair or not. They break it down into regions: West, East, Midwest, Southwest, and those kinds of quadrants have different salary numbers associated with them.

But the base salary could be excellent or not be significant depending upon if there’s productivity compensation in the agreement or potential for partnership. So, there are many scenarios where a physician is out of training, and they’ve given a two-year, three-year contract. That’s probably below what’s a reasonable or average amount for someone just coming out of training, with the carrot on the stick of, well, if you take below market for these two or three years, then you’ll get away above-market.

Once you become a partner, be careful of the situation. Do you need to find out how many people are partners? How many people have they not offered partnership to? And then what will you make once you’ve become a partner? That’s certainly important.

Now, as far as the MGMA numbers go, they are hard to find. You can search for data from a year or two old. People rely on 2020 numbers; they’re completely screwed up due to COVID.

Some of the RVU compensation factor numbers are way out of whack. Some of the comps are just way out of whack. I would not use 2020 data. 2019 is the safest and most reliable number we have right now. 2021 hasn’t been released, at least while this article is being posted.

So, Google around. You can try and find some numbers, but I’d say the best way to do this is to go out there and find multiple job offers and see what they offer initially. And then also, anyone in training has other people in their specialty that are also looking for jobs.

Talk to your colleagues and the people you’re training with. What offers have you received? Where have you been offered this? One tricky thing is that some people automatically think that they’re in a high-cost city and that they’ll make more.

Why Consider the Cost of Living in a Particular Area

And that’s not the case. It’s almost the opposite. If you’re looking for a job in a city that’s a desirable location, usually the salaries, or at least sometimes the salaries, will be depressed. I live in Scottsdale, Arizona, which is a great place to live. And when I speak to physicians moving into the area, they’re surprised sometimes because the salaries may not be adjusted to the cost of living in the area.

California as well. If you’re in San Diego or LA or even in San Francisco, the cost of living is very high, and the housing is very high, but the salaries are not commensurate. You need to be aware that just because you’re in a bigger city with a higher cost of living doesn’t mean you’ll be making more; it’s the opposite.

If you’re in a rural location that’s hard to recruit, you will almost always make more money in those scenarios. So, if money is the bottom line you’re looking for, you need to look in the smaller cities that are difficult to recruit. On average, you will make more money going to a small rural community. That’s a fact. Once you have a number in mind, what do you do with the employer? You ask them for more.

If you’re being offered 300 and want 325, you don’t ask for 325; you ask for more. So, if they provide 300 and you want 325, then ask for 350, just kind of easy arithmetic, try to meet in the middle. Now there is a point where you will look either greedy or potentially just kind of dumb if you’re asking, if you’re offered 300, and you’re asked for 450, they’re going to say, well, that’s ridiculous for, it may even yank the offer.

Leveraged Negotiation Contracts

You need to know your value, and then specialty is also a big part of what kind of leverage you have. Any negotiation of contracts is based on leverage. Do you have it, or do you not? You have more influence if you’re in a specialty that’s hard to recruit or is in high demand. If you’re in a specialty that is plentiful or saturated in the market that you’re looking in, your leverage is less.

So, you need to take that into account as well. If you’re switching jobs in the community and bringing your patients with you, then you’re worth more than someone coming into the community, like peds or primary care, that must build up a patient base that takes time. Those are tips on getting a better salary and where to start. Contacting an attorney and getting a feel for the area might be helpful.

It’s pretty specialized in people that focus on physician contracts. You may not find somebody in the area you’re looking at, so maybe do a broader search for that. But anyway, the last point, some employers will not negotiate. They’ll say it’s a take-it-or-leave-it offer, and you’ll have to be willing to walk if you’re unhappy with the salary. But some people say, no, we’re not negotiating. We’re offering this, and I wouldn’t be offended by that. That’s just kind of the tech that they’re taking as far as employing somebody.

So, don’t be surprised if you have an employer that says no, but if you’re unhappy with an offer, you need to be willing to walk. Accepting a deal that you think is well below your value is never a good feeling. Don’t just accept that because you need a job.

Find the right job.

What Can You Negotiate in a Physician Contract?

What Is Without Cause Termination in a Physician Contract?

Essentially, it allows either party to terminate the contract agreement at any time. For any reason, with a certain amount of notice to the other party. Without-cause termination is essential because if a physician enters a job, everyone expects a position to be great, right? You don’t take a job hoping you want to leave immediately, but things change, or it certainly can be different once you start. 

Let’s say a physician takes a job. After a few months, it’s clear that it’s not a good cultural fit, or maybe they’re on productivity compensation. Whatever the reason, they’ve decided. I do not want to stay here. And so, without-cause termination will allow that physician to give notice, work out a period, and then move on

Average Length of Without Cause Termination Notice

The average length, or at least the standard for most without-cause termination notice periods, is somewhere between 60 to 90 days. Anything higher than 90 days causes a couple of problems. Anytime somebody gives notice, the dynamics will change between the physician and the other physicians or the organization itself.

You’re no longer in the long-term plans. Sometimes, there can be insufficient blood as well. And so a shorter period to have to work out whatever is advantageous. It’s just better. If you had a 180-day notice, you’re there for six months dealing with a potentially awkward environment.

Another thing to consider is the longer the lead time, the harder it is to find a new job. If you’re coming out of training, everyone comes out at the same time. So, all employers understand this. And there’s a rhythm to when they offer jobs and start onboarding and all that type. If you’re out, you’ve been out for a while.

And then you decide to switch. It can be anytime, but most people don’t post for jobs six months in advance. They will say, we have a need now. If you have a six-month notice requirement for your job, you may lose out on job opportunities because they need someone much faster than six months.

And so, they’re going to find somebody and leave you in the dust. 



How Much Lead Time Do You Need to Terminate an Agreement?

Two main reasons: don’t put yourself in a toxic environment for an extended period, and two, help shorten it down so that you can find a new job more efficiently. In the physician contract, it’s going to state how much notice you must give. 

Let’s say it’s 60 days. It must also be in writing. You can find it in the physician contract under the termination section, which will say without-cause terminationfor no good reason, or something like that. And then it’ll just state that either party can terminate the contract agreement with a certain amount of notice to the other, as I said before, in 60 days.

There’s another section in your physician contract called notice. It will state exactly how you can notify the employer and whether it needs to be certified mail or hand-delivered. Most physician contracts don’t have email. Indeed, there’s no verbal acknowledgment, no fax. 

If you were to tell your boss, “Hey, I’m leaving in 90 days,” do not give them a written letter stating you’re going. As a result, they could force you to work for another 60 days until you give them adequate notice. 

So, those two sections. Look into the without-cause termination section to see how long or how much notice you must give. Then the notices section. Ensure that you can provide adequate notice. 

What Happens if a Physician Does Not Give Effective Notice

I’ve had a couple of times where physicians have called me after the fact and said, “I emailed my boss. It was 60 days’ notice. I waited 45 days and then came back and told me I didn’t provide them effective notice. And now, they’re saying I must give them another 60 days.”

Well, it’s vindictive on the part of the employer. They were mad and did that just to kind of screw with the physician. 

But if you don’t give adequate notice, it doesn’t count. Ensure you’re both offering the right message and following the notice section. 

Now, what happens if you decide to leave a job and don’t give the proper amount of notice? Well, many physician contracts will have penalties associated with that. For instance, a common way of doing it would be to penalize the physician. They didn’t give enough notice of whatever their average daily rate was for every day. If it was 60 days and they only gave 30 days, they’d owe 30 days of their average pay to the employer. Average pay could be a significant amount of money.

You want to ensure that you give as much notice as required in that without-cause section. Therefore, you can’t be penalized. Employers could come after you for recruitment costs, locums to cover your shifts, or if you’re an outpatient or something like that. It’d be rare for them to do that. However, you are opening yourself up to liability if you fail to give them the specified amount of notice in your physician contract.


About Us:

We are a dedicated team of legal professionals specializing in physician contracts at Physician Contract Attorney. With years of experience in the healthcare industry, we deeply understand the challenges faced by physicians when navigating complex employment contracts. Our mission is to ensure that our clients are protected and well-represented. We focus on providing sound legal advice tailored to your unique needs, empowering you to negotiate your contract with confidence. For more information or to schedule a consultation, please reach out to us today.

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