Physician Non-Compete Agreements
What is a Physician Non-Compete Agreement?
Of all the things in a contract besides compensation, this is probably the area I discuss the most with the physicians I’m reviewing their contracts. It can have enormous ramifications on a professional’s career depending upon several factors we’ll discuss. Let’s do some basics as far as non-competes go.
In most physician contracts, there’ll be restrictive covenants. Restrictive covenants are things that the physician can’t do when the employment contract ends. Standard restrictive covenants would be a non-disparagement clause.
You can’t badmouth the employer in some way. In the non-solicitation clause, you would be prohibited from actively soliciting patients, employees, other physicians, independent contractors, and business vendors from the employer. And then there would also be a non-compete.
What Does Non-compete Prohibit Health Care Providers From?
The non-compete essentially prohibits the physician from working within a specialty for a period in a certain geographic area. Let’s get into the details of that.
First, in every contract, in the non-compete, there will be a section that details what the physician can’t do, meaning, let’s say, it’s an internal medicine physician working as a hospitalist.
The non-compete would state that the physician can’t work as a hospitalist within the specific area for some time. One thing to consider here is if you are in a specialty where you can do different things.
Let’s take the internal medicine physician as an example. They could do primary care; they could do urgent care; they could do ED and could be a hospitalist.
If the non-compete says you can’t practice medicine within that area, that can pose problems if the physician needs to be in that area. So, you want to ensure that it explicitly states your specialty for the employer. If you’re a hospitalist, it just needs to say, the physician can’t work as a hospitalist within that area, within that time, not the practice of medicine.
For many physicians who can do multiple things, an easy way around the non-compete, although not a perfect scenario, could, for a year, do something else. And then, after that year, they return and work within their desired specialty. That’s the first thing. What does it entail? Is it the complete practice of medicine, or is it just in your specialty? It should be just in your specialty.
How Long Is the Non-compete?
Next, how long is the non-compete?
Well, most non-competes are in a year. Many employers will stretch it out to two years. I don’t think anything above two years would be enforceable anywhere. You want a non-compete for up to one year if you are a physician. It’s just a fair amount of time.
No, this is state-specific, right?
I’m giving you a broad outline of this. I can’t go through all the states in this article, but most courts have held that one year is the limit that they would consider a reasonable non-compete length. If you have a non-compete, you want to limit it to at least one year, nothing beyond that. For more specific advice on local laws, you might consider checking out resources like FindLaw or Nolo.
Geographic Restrictions of a Non-Compete
And then the geographic restriction.
The geographic restriction is the most important one. Once again, generally, anywhere between 5 to 15 miles would be considered a reasonable non-compete. Now, in some states, they’ll push it for whatever reason. The Midwest states put more than that. So, 20 miles is common.
It would be best if you also thought about where your location is. Twenty miles in a rural location that completely knocks you out of a city is certainly a lot different than 20 miles in a big metropolitan area which can knock out many potential opportunities.
Maybe you’re a cardiologist in a small town in a smaller state, and it says 20 miles from your office. Well, there may not be another office you could even enter within those 20 miles, so that doesn’t matter. Let’s say you’re in Phoenix, where I am, and 20 miles here could potentially knock out hundreds, thousands of jobs.
So, you would like to limit it to a small geographic restriction. I’ve seen so many variations. It could be by county. In the South, they use counties more than just mileage; typically, it’s as the crow flies. If it says you can’t practice within your specialty for one year within 10 miles of the office, it’s not a Google map road of 10 miles. It is as the crow flies. So, stick a pin in it, 10 miles around that. That’s how it’s calculated.
Non-Compete Matters to Most Health Care Providers
A non-compete might be the most important thing in a contract for many people.
On some others, it might not matter.
For physicians who are in a city that they don’t have any ties to, they’re just there for the job. They don’t care if they’re there after the fact, then we would spend more capital on changing different things in the agreement.
It may be the compensation or providing tail insurance or something like that. But if you are a physician moving to an area near a family, or maybe you have a family yourself, you don’t want to pull your kids out of school and move them across the country. The non-compete could be the absolute most crucial thing.
How Negotiable Are Non-competes?
If you’re with a private physician practice, I find much more leeway in negotiating the non-compete.
Many larger hospitals and healthcare networks may say, take it or leave it. We’re not going to negotiate. Some of those big hospitals change their non-competes frequently.
We have a vast healthcare network where I live, and I think every year, it fluctuates between different mileage and whether you can join a private practice, and that’s exempted goes back and forth. You certainly have leverage in getting that changed in some instances, but honestly, I wish I had a better answer for you, but in some cases, it’s going to be a take-it-or-leave-it offer.
So, you need to think about, alright, what’s the most important to me? Then you always have to get to the point where once again, if you have to stay in a community, you won’t have any options to practice there under the terms of the non-compete; then you have to figure out a way to move on. Some jobs are not worth it.
And if you accept a job, you’re accepting the non-compete. They are enforceable, and there are nearly a few states where it’s not enforceable. When you sign that agreement, you need to understand that that non-compete will likely be enforced if necessary, and whatever terms you agree to are the terms that will hold.
Non-Compete Negotiation Tips
Lastly, if you are negotiating a non-compete, you may offer some concessions in other areas. For instance, the non-solicit may say you cannot attempt to solicit patients, employees, or whatever. Well, I agree not to hire, not just solicit. I will not hire any employees or any other physicians or independent contractors.
That way, you’re less of a threat. You will open a new office if you’re like a primary care specialty. The biggest concern of any employer is they bring a physician in, leave, then take all patients and employees, and that old employer is stuck. Giving somewhere else might be worth the employer agreeing to amend the non-compete somehow. So, those are the basics of a physician’s non-compete.
What to Know Before Signing Your First Physician Contract | Contracts
What should you know before you sign your first physician employment contract?
This question is a broad topic, but we will hit the main areas and things to consider before signing your first employment agreement.
Ways to Determine if Compensations Offered Are of Fair Market Value
First, determine whether the compensation you’re being offered is fair market value. There are a couple of good ways of trying to find that. The MGMA, the medical group management association, collects annual salary data nationwide. If you can access that, they have much good information about total compensation, average net collections, and average RVUs generated by specialty. It’s hard to get that info sometimes.
If you Google around, you might be able to find some of the compensation data that’s a couple of years old. Or you can talk to someone who has access to the data, like for our firm, we have access to the data. So, we can tell the physician exactly what the numbers say.
Now, that’s certainly not the be-all-end-all. There are other services out there that offer something similar. But I also think it’s limited because some specialties have a tiny sample size. In addition, just total compensation should not be the determining factor when looking for a job. Alright, so that’s compensation.
Another way of thinking about it would be if you have classmates in your training program, you need to ask them what they’re receiving. It’s going to vary based on geography and then setting. Are they going into a hospital network, the federal facility, or to private practice in some way? It is good to speak to people you train with to see what they’re being offered. And then mentors are another excellent place.
How To Terminate Contracts
If someone is already out and maybe they’ve been a teacher for you or a mentor, ask them if they’re willing to talk about the compensation they’re receiving. Next would be how to terminate the agreement. Something you need to consider. There are four ways to terminate a contract if the initial term ends.
Let’s say you have a two-year contract, and no language states it automatically renews. It just ends, and the contract terminates. You can complete a contract by mutual agreement. Then you can also close a contract with cause. So if one of the parties breaches the contract, either party can terminate the contract if the other party doesn’t fix the breach. It’s called cure. And then lastly, and this is what I want to hit on, is without-cause termination.
Every contract you sign must have without-cause termination in it. There are minimal circumstances where no without-cause termination would be okay. If you’re a J-1, that would probably benefit you not to have that in there. But without cause termination means you can terminate the contract at any point, for any reason, with a certain amount of notice to the other party.
Contracts that don’t have without-cause termination, meaning you must work out whatever the initial term is. There’s no way of terminating the contract for any reason. They would have to breach it if you wanted to get out of it.
Why Do I Need No Cause Termination on My Contract?
The reason why you need that is, let’s say you start with the job, you’re paid on productivity, and the volume is not there. It’s not your fault, or maybe the employer brought you in, telling you it would be one way, and the call is just excessive. Or perhaps it’s just a terrible personality fit; whatever reason you’re not happy in that job, you need the ability to get out of it. So, it would be best to have without-cause termination in the contract. Somewhere between 60 to 90 days is standard for physicians.
If and when a physician decides to leave their practice, they might need to notify their patients. This sample letter can be a helpful guide for such situations.
Legal Mistakes Physicians Make are not going through Non-Compete
Alright, next, the non-compete. A non-compete says the physician can’t work after the contract terminates for a period within a specific area. For example, most non-competes are one year, sometimes up to two.
And then, a reasonable mileage would be 10 to 15 miles from your primary practice location. Often, the employer will try to tag multiple locations. If you worked in three outpatient clinics in a hospital, they try to attach it to all four, or perhaps the employer has many facilities in the area.
You’ve only worked at one of them, and they might try to attach it to all the facilities they own. That’s not fair, either. You want to get it to one year, 10 to 15 miles from, maybe at most, two locations. Anything beyond that would be considered unreasonable. There are a few states where it’s entirely unenforceable to have a non-compete. But for the most part, most states allow non-competes for physicians.
Health Care Malpractice Insurance, Do Not Practice-Without It
Lastly, the employer should almost always pay for your underlying annual premium with malpractice insurance. How much must they pay each year to insure you? Depending upon the policy, whether it’s a claims-made or an occurrence-based approach, it will determine if you must pay what’s called tail insurance.
If it’s a claims-made policy, tail insurance is necessary. A good rule of thumb is that tail insurance costs about twice your annual premium. In some specialties, it can be costly. OB-GYN, some of the higher-level surgical things could have tails that are fifty to a hundred thousand dollars. You want to avoid having to pay for that.
So, make sure that there’s either a fair split between the employee and employer or having the employer pay the total cost of the tail insurance, or there’s also insurance called occurrence-based coverage. And in that scenario, tail insurance is not needed at all. It’s about a third more expensive than claims-made, but you won’t have to pay for tail insurance in that scenario.
Now, you need to think about dozens of other things. Those are foremost important. But you have benefits, bonus structure, contract length, other restrictive covenants with the non-solicitation agreement, non-disparagement, confidentiality, your hours worked, and the call. It would be best if you thought about a ton of things.
So, I suggest you reach out to someone with experience reviewing contracts. When you’re signing a contract worth a million dollars, I think it would be foolish not to get it looked at by someone who knows what they’re doing.
Family Medicine Contract Negotiation Tips | Negotiate Physician Contracts
Here are the negotiation tips for family medicine physicians with a new employment contract:
There are two scenarios. If you’re coming out of training, the second would be if you’re an established physician in an area and you are either moving into a new practice or potentially getting bought out by a larger practice or hospital network. The negotiation tips may differ, but the general strategy is probably the same.
Contract Negotiation: Look at the Compensation
For anyone in family medicine who’s been offered an employment agreement, the first thing you need to consider is the compensation. Suppose you’re entering a new area with no ties. In that case, you need to ensure a guarantee for the first two years, which means that many organizations now require productivity components through RVUs or net collections.
So, suppose you immediately start a job and are productive from the beginning. In that case, you will make a significant amount less than you would if you were given an income guarantee just because it takes time to build a practice—usually, somewhere between 12 to 18 months for practice to reach maturity.
If you’re just paid, let’s say, on net collections. If the average accounts receivable cycle for a claim is 30 to 90 days, you could be working for a month before you see a dime of that. You need to ensure an income guarantee for the first two years. Then if it does shift into maybe just RVU based, or as I said before, just net collections-based, you’ll be able to gauge your compensation.
And they’ll usually use the second-year data to indicate what you’ll make in years three and beyond. You must identify the compensation structure and ensure you’re guaranteed for the first two years.
Finding out what is the going rate in the area is beneficial. MGMA data is what I generally use. It’s not the be-all and end-all, meaning the numbers are helpful to know what’s the median salary for a family medicine physician in the South or the East or the West or hospital-owned versus private practice, but it can still vary greatly.
Contract Negotiation Tactics Beyond Compensation
The benefits matter. Malpractice insurance and restrictive covenants like the non-compete are all those factors that can determine whether a job is good or not. And so, just basing it off one number is shortsighted. I find it very helpful to talk to your classmates, especially if you’re coming out of training, seeing what they’re making or being offered from their jobs.
If you’re established, it’s kind of, I wouldn’t say, unprofessional, but most people aren’t willing to talk about how much they make after you’ve been out for a long time. So, that probably won’t be as effective, but you also know your value.
If you’ve been out for a while and you know how much you make, I generate this many RVUs per year. These are my net collections. That kind of data is beneficial. Don’t be afraid to ask for more. Now, it has to be a reasonable amount. If you’re being offered 200 and you ask for 400, and it’s a family medicine physician, they will laugh you off. Small jumps are kind of, I think, almost expected on the employer’s side.
And then you also must think about bonuses like signing bonuses and relocation assistance. These are also things that should be in the contract as well. The signing bonuses vary wildly based on geography. If you’re going into a city or an area that’s hard to recruit to, it’s more rural. It’s not as desirable for the general population; you will make more money and get a higher bonus.
Moving into a Big City vs. Rural Areas
If you’re moving into a big city or there’s a lot of competition because people want to live there, the salaries will be depressed. I know it’s counterintuitive when you’re like if I’m moving into a more expensive area, the salary will reflect the cost of living. It’s not. It doesn’t because, for instance, I live in Scottsdale.
People want to live here, and when you have 50 candidates applying for one position versus a rural town in South Dakota where there are two, there’s less leverage for the physician to negotiate a higher salary. So, don’t be surprised if you’re looking into a bigger city where the pay is just not going to reflect the cost of living compared to other places.
Negotiation Skills: Talk to Your Classmates
But once again, set up a meeting, talk to your classmates, and see what they offer you. Some programs can also provide student loan assistance if you’re moving into a hospital network. You’re not going to get that from private practice. They won’t offer you student loan assistance if they’re in private practice. So, if it’s important to you, you need to look in more rural and with networks, and they may have that opportunity. Some states also offer that. If you work in certain healthcare shortage areas, that might also be something you investigate.
Negotiating the Type of Malpractice Insurance
The next thing to look at is what type of malpractice insurance they offer. Is it occurrence-based or claims made? Or I guess if you’re with a hospital network, they could be self-insured. If you have a claims-made policy, which is more for private practice, you need to look at who must pay for tail insurance.
Tail insurance is generally about twice what your annual premium is. For family practice, it’s usually somewhere between 6,000 to 8,000 annual premiums. So, your tail cost would be somewhere between 12,000 to 16,000. That’s a one-time payment, but you don’t want to look at that one thing. You can certainly negotiate for the employer to pay for tail insurance. Or, if it’s an occurrence-based policy, you don’t need tail insurance.
An Important Thing to Know: Non-compete Clause
Another thing you want to think about and attempt to negotiate is non-compete. These vary wildly as well. Normally, one year is the maximum length we’d want for a non-compete. And then, really, depending on the area, it could be anywhere from 5 to 30 miles. You want to think about two things as far as that and trying to negotiate: one, you want the specialty as specific as possible. What I mean by that is that some family medicine physicians can do multiple things. They could do urgent care or primary practice. Some could be a hospitalist.
If you have a job, you want it narrowly tailored to that job. Let’s say you have a non-compete where you can’t be in family medicine and private practice for a year within 15 miles of your location. Well, if it’s just like, you cannot move under any circumstances, and you must stay in that area, well, you want the specific specialty that you’re in for that employer to say that it’s just family practice in private practice in that area. And therefore, you could do urgent care, be a hospitalist for the year, and then move back into private practice if you want.
You also want to limit the number of locations. Is it just your primary location, or if you’re working in multiple locations, is it the non-compete attached to each location, or is it a bigger corporation or health network? They have facilities throughout the city. Is it 10 miles from everything that they own? You want to narrow that to just your primary practice location, or maybe if you’re splitting your time, but you’d want to avoid non-competes that apply to everything the employer owns.
Do You Have to Repay Anything?
And then the last thing to think about is, do you have to repay anything if you terminate the agreement? If you’re given a signing bonus, relocation assistance, or student loan assistance if you don’t stay for a certain period and were to terminate the contract without cause, you would have to pay back some of those things.
Some things to negotiate would be, for instance, let’s say you had a $30,000 signing bonus and a three-year initial term, you want to make sure it’s forgiven either; I mean, monthly would be the best. So, 1/36 forgiveness, meaning, for every month you’re there, 1/36 of the signing bonus is forgiven. And so, if you stay for three years, you don’t have to pay anything back.
Now, some places will try to do it yearly. And in that scenario, let’s say you’re in year three and terminate the contract in the middle of the year. Well, if it’s yearly forgiveness, you just gave up six or seven months of forgiveness, and then you must pay back $10,000 instead of maybe four or five. Honestly, there are a million things you can negotiate in a contract. I was trying to hit the highlights and the things that are usually most important to family medicine physicians.
What Should Be in a Telehealth Contract?
What should be in a telehealth contract? Telehealth is also known as telemedicine. The pandemic accelerated telemedicine and telehealth across all specialties. It is now possible to conduct practice in any specialty via telemedicine. Most of the state licensing boards significantly increased the ability of physicians to utilize telemedicine.
Whereas, in some ways, it was prohibited in the past. More and more people are contacting me to review telehealth employment contracts or telehealth independent contractor agreements. And some things need to be thought about before the physician enters them. There’s no huge difference between a telehealth contract and a normal one.
The Big Difference in Telehealth Contract
If you join a hospital network or a private physician-owned group, the agreements will be relatively the same, with one big exception. And this is the reason why I wanted to talk about this today.
The following sentence goes for any physician contract. In the typical agreement, you’re going to have: the term, how long it last, how to terminate the contract, what the compensation is going to be, whether there are any benefits, and what the employer is going to pay for, so licensing, DEA, society, associations, continuing medical education, time off potentially. However, it’s a little different for most telehealth agreements. And then, the big one is the non-compete.
Now, I wish I had a bright-line answer: Okay, this is how it works with telehealth agreements, but I don’t.
First, non-competes or non-compete law is one of the only things that change from state to state. If you were to review a physician contract, nothing would be state-specific for the most part. It’s all the same.
However, each state views non-competes differently. There are very few states, but some prohibit non-competes for physician employment contracts entirely.
So, California, New Mexico, Massachusetts, and then there are varying degrees of what’s considered a reasonable enforceable non-compete based upon the state. The tricky part with telemedicine or telehealth is determining where the non-compete applies.
If you think of a normal non-compete, it’s going to say:
- For this period
- After the contract terminates
- Usually, one year, sometimes up to two
- The physician can’t compete
- Can’t either work within their specialty
- In a specific geographic area
- Somewhere between 5 to 15 miles from their primary practice location
And that’s simple, you stick a pin in a map, put 15 miles around it, and then that’s where the physician cannot work during the period of the non-compete.
Why is the Non-Compete Clause Complicated in Telehealth?
Well, that doesn’t work in telehealth. Most physicians who are working in telehealth are usually licensed in multiple states. And so, let’s say they live in Florida, they’re licensed in Florida, but they’re also licensed in Georgia and South Carolina.
The telehealth company services cover all those states. And so, the physician has no say in where the patient is located. And then they’re just seeing the patients that are in a queue.
Different telehealth companies do it differently. Some physicians will log in when they’re available or want to, and there’s a queue of patients.
And then they tee up whoever is available and do the consult or whatever they do. Others will have, like, telepsych. They’ll have a set patient base for which they continuously see and write scripts—the difference between a normal non-compete, where it’s just a region.
And most of the telehealth agreements will say, you cannot compete with current patients or provide care to existing patients in this state that you’re providing care for us. Or you can’t work for another telehealth company that competes in the state where we’re currently located.
They’re much broader and, in my opinion, much more unenforceable than a standard one-year, 10 to 15 miles. Now, these are just working their way through the court systems in various states. And in some states, it’s completely open as far as whether these are enforceable or if there’s a way of making the non-compete enforceable by limiting the area.
Some Examples Why It’s Complicated
But let’s give a couple of scenarios. Let’s say a physician is doing radiology while living in Georgia but then doing reads from multiple states nearby. And then, the radiology company offers a non-compete. It states that the physician can’t work for any other competing radiology company where you’re doing reads in different states.
Or you can’t provide radiology services for any of the facilities that that company has been doing reads for over the last year, or some scenario like that.
You can see how complicated it can get. If someone leaves the first job, they move to a second job.
They have no control over which facilities they’re providing care for the patients they’re seeing. And then maybe there’s some change in a business relationship. And so there may be no problems in the first six months of the non-compete. Then, in the second half, maybe your new company will start servicing the old organizations that your first radiology job is servicing.
What do you have to do? Do you have to stop providing care for those places? Was there any caveat in the original non-compete that the physician would be free to care for those facilities if the contracts ended?
Another one would be if it were just a patient base. Let’s say it’s Telepsych. The Telepsych company would say the physician can’t provide care to any patient that received services from the Telepsych company within the last year.
Physicians Do Not Have Control Over the Patients They See in Telehealth
And not even specific to the physician, just any services from their company. Well, once again, let’s say the physician leaves. They have no control over the patients that they see. They have yet to learn who the previous companies were that the patients used.
So, how do you determine or track whether they’re breaking the non-compete or not? And then another factor is how to track everything.
Like how would an employer who made a physician sign a non-compete? How would they know if that physician serviced patients in a new position? It would be challenging.
So, I wish I had an answer: yes, it’s enforceable, or no, it’s not.
The courts have to go through these areas and then decide on, alright, this is what would be considered enforceable.
And this is what would be considered not. Now, it makes sense for the physician to bring up these issues to their company before signing the non-compete and get into those scenarios and say, well, how am I supposed to if our company provided care to someone? Then I switched to a different company, and it was a patient I never had I had no relationship with, but they utilized another physician in the organization. There are so many different complications when it comes to this.
Have a Lawyer Look at the Contract Before Signing
It makes sense to get it looked at before signing the non-compete. But there will be limitations to what more prominent telehealth companies are making physicians sign.
Putting a blanket, you can’t work for another telehealth company in the entire state. I don’t think that’s going to hold up at all. It will have to be limited, most likely by geography in some way, which in these scenarios may be impossible to do.
So, that’s a brief breakdown of what should be a telehealth contract with a significant focus on the non-compete because that’s the essential part.
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.