Understanding Physician Contracts

Understanding Physician Contracts

One broad question is what should be included in understanding physician contracts. Well, a lot, but let’s hit the highlights of what should be included in every physician contract. Keeping in mind that each physician has their needs and wants in their specialty dependent, we’ll just hit the main points that should be in any contract.

One, what are the terms of the agreement? How long does it last, how is it renewed, and then how is it terminated? The ‘how is it terminated’ part is essential. You can terminate the contract by mutual agreement, or the term could end, and it’s not renewed. It could be terminated for cause.

It means that someone violates the agreement, or lastly, an essential part is a without-cause termination. Any physician contract should have some without-cause termination that allows either party to terminate the agreement with a certain amount of notice, usually 60 or 90 days. If you’re on an employment contract and you’re not a J-1 waiver employee.

If Your Employment Contract Does Not Have…

Do not sign the agreement if your employment contract does not have without-cause termination. You do not want to be locked into a job you 100%  hate working at or going to every day. And you’re stuck for a term, one year, two years, three years. So, you need the ability to terminate the contract if things are not going well. Unfortunately, every job may look impressive from the outside. Still, things can change once you get into it and work there daily. 

If that’s the case, then you need to be able to get out. Anyway, that’s about it regarding the termination of what needs to be there. The compensation needs to be included:

  • If it’s productivity, 
  • Computation, 
  • How is it calculated either RVUs or net collections, 
  • How is payment handled after the contract is terminated at the restrictive covenants, 
  • The non-compete, 
  • The non-solicitation agreement, 
  • Non-disparagement. 
  • All of the terms need to be included as well.

A Couple of Things about Non-Compete

A couple of things about the non-compete that sometimes is missing are, one, it needs to identify the specialty. Some physicians are either double-boarded or maybe IM but working as a hospitalist. The specific thing that you do for the employer should be included. How long it lasts, usually a year, sometimes two, or one year is considered reasonable.

What’s the geographic limitation? Is it five miles, 10 miles, or 15 miles? And then, more importantly, to what is it attached? Is it just your primary office location? a hospital, or multiple hospitals? Or every facility that the health network or hospital owns? These are complete details that must be prioritized in any physician contract. They need to be included. 

Physician Contract Benefits

A couple of other necessary things are sometimes beneficial. Some employers will have a benefits summary, like a PDF that lists all their benefits: Health, vision, dental, life, disability, and retirement. Do they pay for your dues and fees? How much do they pay for your CME? All of that. The specific details like the health plan don’t need to be included in the employment contract. But signing bonus, relocation assistance, and how much time off you get should most likely be included in the employment agreement.

The bonuses need to be included, or maybe an offer letter. Then finally, what kind of miscellaneous provisions state law applies, how do you give notice, and can you assign the contract? At the end of a contract, there’ll be a section of 15 to 20 small paragraphs that go through different things. And it would help if you looked at all of them. Many won’t make sense to a non-attorney, but they’re important to be there. I’m not going through all of those right now, though. 

Summary

So, those are the broad strokes of what should be included in a physician contract. I think it’s a great idea to have an attorney review your agreement. You can assign a contract worth, in some cases, over a million dollars depending upon salary. It just makes sense to have a professional look over. Make sure you’re covering all your bases.

Other Blogs of Interest

What Can You Negotiate in a Physician Contract? | Doctors Contract Negotiations

What can a physician negotiate in an employment contract? The short answer is everything. It ultimately depends upon the willingness of the employer of whether they’re willing to negotiate terms or not. I find big hospital networks are less likely to make major changes in an employment agreement. Whereas if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for major changes. What are the things that are important to the physician, and then what are the things they can get changed? When I’m talking to a physician, I think the things that stick out as most important would be:

  • Signing bonus
  • Relocation assistance
  • How to terminate the agreement
  • Making certain there’s without-cause termination that’s a reasonable length.
  • Compensation
  • Productivity bonuses
  • The non-compete
  • Tail insurance
  • 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 the value and their specialty’s value. Getting the MGMA data is helpful. It is helpful to talk to colleagues about what they’re being offered or what they’re currently making in different organizations.

Sometimes, the associations for each specialty can provide information as far as what’s a normal salary in your specialty. That’s one way to look at it. As far as productivity goes, this is a little more difficult. It’s going to be completely based upon, I guess, the arrangement. Is it kind of a hybrid of a base salary and RVU production? Is it a base salary and net collections? Or is it all RVU? Is it all net collections?

This one is dependent upon what’s the type of structure. If it’s net collections, if it’s a hybrid model, meaning you’re getting a base plus a certain amount. Let’s say, for instance, the expectation was 20,000. Anything collected over 20,000 by the practice, the physician will then get 15 to 25% of that. That would be a normal percentage. If the physician is purely on net collections, around 40 to 45% is standard.

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. Then the compensation factor is the monetary value associated with the RVUs. That has some leeway as well. Regarding signing bonuses and relocation assistance, the main things are the actual number and the repayment schedule. 

Forgiveness Period

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 agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire 20,000 amount forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Relocation assistance should be somewhere between 10,000 to 15,000. The signing bonus can vary widely from 10 up to 75. That one is specialty-dependent.

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

Terms That Matter for Physician Contracts

The length, you want to keep it one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete attaches to every facility we own in the entire 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. You can go to family practice. Or 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 just keep it to the specialty of what you’re providing to that employer, specifically, in this case, let’s say your hospitalist, then you could go in family practice or do urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to think about.

And then malpractice insurance is always a big discussion with the physicians I’m working with. First, you need to identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And then, after you determine what type it is, if it is a claims-made policy, then 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 a big hospital network. Now, tail insurance usually costs about twice what your annual premium is.

Physician Employment Contracts Negotiation Tips

Let’s just say you’re in family practice. Your 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 to 16,000. That’s one thing you can negotiate, who pays for tail insurance coverage? Sometimes an employer will put if you’ve been with us for one year, we’ll pay for a quarter and then two years, half, and then three years, 75%.

There are some ways of getting out of having to pay the entire amount, just depending on the situation. Now, the first thing that I talked about was, is the employer willing to negotiate or not. There will be some employers that simply say, this is a take-it or leave-it deal. I don’t think those employers will be great to work with. If an employer is unwilling to budge on anything, they will likely be difficult to work with.

Meaning that they’re not going to accommodate the physician in some way. So, I caution any physician who has been given a job offer, we ask for some clarification or certain concessions, and they simply 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, the non-compete is absolutely the number one thing. For others, it’s compensation. For others, it’s not having to pay tail insurance. It really is dependent upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.

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’re going to hit the main areas, and things to think about 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, I guess, good ways of going about trying to find that. Well, the MGMA, the medical group management association, collects annual salary data from across the country. If you can access that, they have a lot of good information about total compensation, average net collections, and average RVUs generated by specialty. It’s hard to get that info sometimes.

I mean, 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 a tiny sample size. In addition, just total compensation should not be the determining factor when looking for a job. Alright, so that’s a compromise because some specialties have 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 upon geography and then setting. Are they going into a hospital network? Are they going into the federal facility? Or are they going into 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 type of 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 terminate 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 one 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 was going to 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 if you want. So, it would be best if you had without-cause termination in the contract. Somewhere between 60 to 90 days is standard for physicians.

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. So, maybe if you worked in three outpatient clinics in a hospital or something. They try to attach it to all four of those, 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 try 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, with malpractice insurance, the employer should almost always pay for your underlying annual premium. How much they must 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 probably need to think about dozens of other things. I would say, in my mind, those are probably the 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. I mean, you need to think about a ton of things.

So, I would suggest reaching out to someone with experience reviewing contracts. I mean, when you’re signing a contract that could be worth a million dollars, at least in my opinion, it would be foolish not to get it looked at by someone who knows what they’re doing.

Physician Contracts Negotiating Tips | Hospitalist Contract Negotiation

Do you want to know how to negotiate hospitalist contracts? I have some good and some bad news. The good news is that there are certain areas within the employment contract that a hospitalist can negotiate. The bad news is that one of the main areas where it’s difficult to negotiate is the base salary or hourly rate. There are two ways a hospital can be staffed.

Either the hospital employs them, or there’s a staffing company/physician group that contracts with that hospital to staff the hospital with hospitalists. I find that most companies want to keep the rates standard, especially if there’s an hourly rate involved. I mean, the variables for any hospitalist job are the base salary. And the shift expectations per year, month, or hourly rate, usually with the shift differential.

Main Areas of Hospitalist Employment Contract That You Can Negotiate

When the hospitalist negotiates, the company will typically push back and say, “Look, we want to keep the rate standardized.” The physician is going to talk. There will most likely be friction if one person makes $20 more than another. So, suppose it’s an hourly rate position. In that case, getting the organization to move off that is challenging. Contract negotiation can be complex in this case. Some movements and contract agreements are reachable if it’s just a base salary. However, there will be a narrow range of what the action could be on a base salary. 

And then, as long as the shifts are required, they can move them. In some places, the longer the physician has been with that company or hospital, the more their expectations may change over time. And that’s a place that we can sometimes negotiate. 

The areas of the employment contract that you do have some movement on would be:

  • The signing bonus, 
  • Relocation assistance, 
  • Non-compete scope, 
  • Nose coverage, 
  • Whether they pay for your tail when you’re leaving.

What Is a Fair Signing Bonus for a Hospitalist?

I’d say those are the main areas where there is some movement. Now, how does a physician determine what’s a fair signing bonus for a hospitalist? Well, it depends on who you are in the country. Suppose you’re looking into a facility that’s in a difficult location to staff. More rural communities without large cities around them are always harder to staff.

That’s just the reality. And so, the hospitalist has more leverage in asking for a higher signing bonus. Some communities will not only provide a signing bonus. But they can also offer student loan assistance where they’ll pay a particular portion to the company that has the student loans. Usually, that can be substantial, somewhere between fifty to a hundred thousand. But as far as the signing bonus goes for a hospitalist, I’d say anywhere between 10,000 and 50,000 could be a normal range. And then you certainly want to ensure that the organization is also paying for your move.

Can The Bonuses Be Negotiated?

One thing to keep in mind, especially for hospitalists coming out of training, is that the timing of those bonuses can be negotiable as well. You’re in residency, and you don’t make a ton of money. Some people don’t have $15,000 to put down for action because, most of the time, they’ll state that they will reimburse you. One of our negotiating points is having them pay the cost directly to the moving company. And have them provide the signing bonus upon executing the document and signing it, and not just when the hospitalist starts the job.

A non-compete can be necessary as well. Now, if you’re in a one-hospital town, a non-compete has almost no effect on you because it needs to be reasonable. Something reasonable is usually somewhere between 5 to 15 miles and one year. 

But if you’re in a large metropolitan area, and you want to stay in that city, decreasing the radius of the geographic restriction certainly is something that we would look to do as well. And then, as I mentioned before, with malpractice insurance, sometimes you can work on if the organization provides tail insurance or not. A good rule of thumb in tail insurance is that it’s usually about twice your annual premium. For hospitalists, it’s probably somewhere between 7,000 to 10,000.

So, your tail insurance cost would be 14,000 to 20,000, something like that. So, is it possible to negotiate points in a hospitalist contract? Obviously, yes. Getting any movement, base salary, or maybe a little action is strict. Still, the signing bonus, and non-compete, which pays for tail insurance, are the areas that I think you should focus on.

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