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Understanding Your Physician Employment Contract [Definitive Guide]

Understanding Your Physician Employment Contract [Definitive Guide]

3 Types Of Physician Employment Contracts

 

Everyone knows that all physician employers are not the same. However, when it comes to understanding the nuances of the contracts offered by different employers, it’s tempting to see them all as basically the same.

 

Don’t make the mistake of assuming that a hospital, academic setting, or group are all going to offer the same contract terms. You may be practicing the same medicine in these settings, but your contact details can be very different.

 

In this post, we’ll take a look at three prospective employment situations, why it’s important to have a contract review, and some things to look for. When you are aware of the nuances of each setting, you are better prepared to understand how you will be affected by the contract for each one.

 

3 Types Of Medical Employers

 

These are not the only situations where you will be practicing medicine, of course.

However, they are three common scenarios. You will likely be working at one of these places at some point in your medical career.

 

  1. Group setting.

 

For example, you may be part of an anesthesia group where they have a great thing going. You may not need to negotiate or modify anything. Maybe the several dozen people in the group have all signed the same thing.

 

  1. Academic group.

 

Your contract here maybe something like a letter — just a few pages that are more informal than perhaps a group setting. It may contain links to policies or other documents and information. You will want to make sure to read these through.

 

  1. Hospital environment.

 

You may find that here it’s more of a high base salary. They need you more than you need them, and they will be very open to negotiating. Some things to negotiate might include the bonus, base salary, relocation amount, student loans, retention bonuses, CME amounts, schedule flexibility, non-compete clauses, and other details.

 

What should you look for in your contract?

You will want to pay special attention to several potential items in your contract. For example, maybe it references bonuses, but you don’t know how or when they will be paid, or what the metrics are. Maybe your contract references future compensation, but you don’t know what the specifics are. If the contract talks about a partnership, we have a Q&A that lists several great questions you could ask around related to partnerships.

 

Perhaps it’s not about negotiation, but clarification.

Even if a contract is not negotiable, you need to follow through on due diligence and ensure that it’s the right opportunity for you. Again, you cannot underestimate the peace of mind that comes with a professional review of your contract.

Wherever you find yourself — whether an academic setting, group, hospital, or something else — it is vital that you understand the specifics and nuances of that scenario. It is also important to do the legwork and ensure that professionals are helping you navigate the potentially confusing world of contracts

 

How To Evaluate Your Compensation Structure

Compensation structures can be as unique as the contracts themselves.

If you were to look at 100 physician contracts, you’d find 90 – 95 different compensation

structures.

Continue reading to get some background on the general elements of contracts so you can make informed decisions about yours.

 

Collections

Your individual collections will vary depending on a few different factors such as payor mix, collection times, collection ratios, and annual billings. It is important to know what your payor mix will be.

 

Reimbursement for Medicaid patients could differ from reimbursement for commercially insured patients. Another thing to consider is collection time.

 

Just because you see a patient today doesn’t mean you’ll collect on those patient charges tomorrow. It could be months!

 

Also, be aware of your expected collection ratio.

You might bill a $200 charge, but collect $130 from the payor.

If your contract discusses billings, know the difference from collections.

 

If you receive a percent of your collections above a certain threshold, you’ll need to know what you should expect to produce and if that threshold is even attainable.

 

wRVU’s

Like contracts based on collections, wRVU (often called RVU) contracts can be structured in numerous ways as well. You might be paid a dollar amount for each wRVU, or the amount could be “tiered,” meaning the“ conversion factor” changes as your wRVUs increase.

 

The contract could also have numerous hybrid models.

 

There are many benefits to wRVUs, but they also include many unknowns. When reviewing wRVU contracts, consider the following questions:

 

How many should you produce at your specific practice?

 

If you are required to “cover” your base salary through wRVUs, will you be able to?

 

What is the average production in the group?

 

Many contracts have guaranteed salaries for the first year or two then are structured into a wRVU schedule. It can be difficult to produce enough wRVUs to maintain the earlier guaranteed salary in many circumstances.

 

Compensation variables

 

As you’ve seen, compensation structures can contain numerous variables. They give many numbers, but it’s usually not readily apparent whether or not the numbers stated in the contract are attainable. When reviewing your contract, it is important to not only understand the legal aspects of your contract but the “non-legal” portions such as the compensation clause as well.

 

Benefits in Your Contract

 

Many physicians want to see specific details about benefits and contracts. Some employers are able to put that in the contract. Many employers just have a little paragraph that says, “You’ll be offered our benefits.” They may provide a separate packet or maybe even a verbal kind of discussion around their benefits, and obviously it depends on if you’re signing with a smaller practice or a big corporate entity that has a nice fancy colored PDF brochure and everything.

Benefits typically are non-negotiable, right? They apply the same to most physicians. So if that’s the case, we want to know, what it was last time they were changed?

Are there any plans on changing them in the future?

 

Benefits probably will change, right?

If malpractice is classified as a benefit, we want to make sure that that malpractice is not one of those things that can change. If it does, then it definitely has to have a notice period.

The malpractice can only change after the physician is notified 90 days or 120 days in advance. Something that gives you enough time to either plan to leave if you don’t like how they’re changing, or to plan for negotiating something else into their contract regarding the malpractice.

The majority of the time, malpractice is not considered a benefit, so that doesn’t apply. But for the rest of the benefits, we want to know, for one, when do they start? If you start on July 1st, does your benefit start then or at a later date?

 

What about the 30-day waiting period?

Maybe because of the way the week flows from a weekend to a weekday, your employment starts on July 4th or July 6th.

A lot of policies have a waiting period of 30 days. If you start employment on July 6, it sounds so simple, but for your benefits, you have a 30-day waiting period, so you’re looking at August 6. First of the month is September 1st, so you may not have any of your insurances during all of July and all of September.

If you finish your training in June, that might be a big consideration.

 

COBRA could cost you $500 to $2,000 a month. And the current Affordable Care Act states that people are required to have insurance.

 

What if I have delayed my “start” date?

If you have a delayed start date, maybe people want to take some time off and study for boards or even do their boards, or just take some time away before starting full-time work. When you have medical insurance, that’s an often-overlooked aspect of the benefits.

It is important that your know what you need for disability and life insurance based on your situation. Is it enough or do you need to buy more from a third-party vendor?

There’s lots of good quality people out there in a seemingly crowded marketplace that can provide that. It’s the same with the retirement. Is there a match to any of your contributions? If so, does it invest over time, or is it right away?

If there’s PTO as part of a benefit, you should know if the PTO rolls over if you don’t use it. If you’re terminated and still have some left over, do you get paid the remainder?

Check Your Malpractice & Tail Insurance

 

A physician was moving from a metro region on the East coast down to Florida. She had finished her residency two years ago and was an OB/GYN physician in an expensive metropolitan area and she was earning around $230,000 or $250,000. It was a very expensive area with no chance to save a whole lot of money. She had a policy. She didn’t have her initial contract out of training reviewed, so she didn’t really know what she needed. 

 

Not Carrying Malpractice Insurance?

 

With help from a contract review service, she found out that the employer actually did not carry malpractice insurance at this place in Florida because it was a highly litigious area. What’s more, the employer felt that having insurance created more of a target than a protection. So the practice owners’ decision was to not carry a per occurrence. 

That meant they wouldn’t let her continue in the plan that she was on. Once Contract Diagnostics reviewed her contract in her current job that she was going to leave, they told the physician that she needed to purchase her insurance for tail coverage, which was a surprise to her.

She did not know that she had to buy tail coverage. She didn’t know how much it was going to cost. Further, she couldn’t just continue to maintain the policy to cover any prior acts because the current employer didn’t want them to have a policy. So she had to tail out of that plan. It was a two-year OB/GYN plan and the cost was $180,000. 

With malpractice insurance, it’s different than if you would take out a loan to buy a car. If you don’t make your car payments, they take your car or might take your home if you don’t pay for your home. It was a tail policy. There’s nothing to take, right? There’s no hammer in the deal. So she had to pay for the insurance, a cost which can not be financed, typically.

She was two years out, without much money saved and suddenly she needed to spend $180,000 to buy tail insurance. It can create a very, very bad situation for somebody who just did not understand the expectations. 

When it comes to understanding the contract, it’s a good story, number one, because it says, look, no matter who does it, make sure that everybody has their contract reviewed and fully understand what it says. Because a few bucks up front could be a very good investment in the long term. 

Knowing what you know now, you can make the appropriate career moves based on that. Not knowing can be very costly. Having a policy that can be unilaterally changed by the employer without your knowledge or your consent can be another game changer. Protect yourself by understanding the contract.

Why Detailing Employment Location is Vital

 

More and more, we here at Contract Diagnostics are seeing the importance of including specific details about the location of employment in physician employment agreements. In the age of consolidations, expansions, and acquisitions, the physical location of a doctor’s workplace can change unexpectedly. Location must be a part of the contract.

 

Know Your Location Of Employment

 

A lot of employers that have one location might not have a specified location in the contract. Some employers may want to expand in the future. Some may have a general hub and numerous outreach clinics. We are recommending having a defined location. It’s something that we feel is of utmost importance. We have taken phone calls from physicians who have been in jobs where they did not have it specified, and they were asked or told to go to a different location, and perhaps that hospital is not set up the way they want it to be, or maybe it’s inconvenient for their personal life. There are a variety of different things that can come up. We think it’s very important to specify and have very good expectations around the location. 

 

This issue of clarity regarding location can also bleed into the noncompete and how extensive and large that noncompete is. There may be a noncompete that says this noncompete is a certain number of miles’ radius from each office. If they have five offices, that may greatly vary the restrictions post-termination. Something as specific as having a defined location can be very impactful to a position’s contract.

 

We like to know the location of a physician’s practice. If it’s multiple, if it’s just one, if it can change unilaterally by the direction of the employer, or if it must be agreed to by the physician. These are items that, if ironed out with specific details in the employment agreement, will make for a smoother partnership between the physician and the employer.

 

Defining Your Clinical Duties

 

“What are we going to pay you?” And “What must you do for the pay?”

Contracts is all about managing expectations between the physician and the employer. The questions the contracts ask are

  • “What are we going to pay you?”
  • “What must you do for the pay?”

That’s why we discussed compensation, how we want very granular specifics around the amounts and the whens and everything else. The flip side of that is the expectation of the physician.

We definitely want specifics on the location and if it can it change. If it can change, what kind of notice would the physician receive, and does the physician have any say as to the location?

We’ve seen physicians look at two different opportunities in a certain area with an employer. One with a closed ICU, one with an open ICU, and they say, “I’m interested in this one”. Then they sign, they get down there and realize they have been assigned to the wrong one or the one that they thought that they did not want.

If your location is not defined, they can send you to outreaches, they can have you drive, and that may impact your production level. Those things have downstream effects, and the same thing goes for hours. Most physicians don’t go into medicine to punch in at a certain time and punch out at a certain time. We still want specifics.

 

What’s expected of your as the physician?

  • What’s expected of you as the physician?
  • Is it a five-day work week, is that Monday through Friday?
  • If there’s call involved, how is it structured, and is it capped?
  • Do you get paid for call and if so, how do they determine who takes what call?
  • If you’re a hospitalist, something as simple as is it days or is it nights needs to be distilled in the contract. What are the times of your shifts?

When it comes to the location and the schedule there are so many details that typically aren’t in contracts. And we realize that it’s not the employers’ intent to leave it vague. When you get there, they upset you by giving you a terrible schedule and sending you all over the country. Like I said, we could tell lots of horror stories.

 

What if my employer is acquired by another business?

  • If you sign with a private practice and they sell out, are you part of that deal?
  • If so, what’s the assignability of your contract?
  • Do you have the same terms and clauses?
  • Could the acquiring entity change those or remove you from that package deal?

It is important to have the right questions to ask the employer at the right time without sounding like you’re digging into something that’s not there. When the employer gives you their answers, make sure that you have someone to check over those, so you know if they line up the way they should or if they bring up more red flags.

 

Restrictive covenants, the non-compete clause

 

What are the terms of termination?

 

The non compete clause is a critical element of your contract. If you get a job and it doesn’t work out, what are the terms of termination? Where can you work, and what is the acceptable radius within which you can practice? Does it mean you have to move two states away in order to continue what you are doing?

 

There is some variability within noncompete clauses. Also, as with all things, there are general principles that will apply to most situations.

 

What type of practice is it?

 

It depends so much on the type of practice. If you take a very highly successful private practice in a setting where they own the market, having a non-compete is probably not as big of a deal because there is little chance you could compete with them.

But rather than having a radius within which you cannot practice, they may say, “We have exclusive contracts to provide anesthesia services at these certain hospitals, and you cannot take those contracts”, which makes sense from their perspective.

 

In a situation like that, it doesn’t mean you cannot open up your own practice. But would you want to do that, knowing they are the ones in town providing that service?

 

It’s important to understand the nuances of a non-compete clause, but sometimes it’s a non-issue. Why? Because if your job does not work out, you almost have to move because there is nowhere else you could work in that area. Of course, it all depends on the specific type of medicine you practice. 

 

What if it is a “pain” practice?

 

For example, if it’s a pain practice, maybe you have a defined amount of time, say one year, and a clause that says you have to stay ten miles from the practice locations. Sometimes it is from one location, and sometimes it’s from every location. It’s important that the physician knows how that is structured. If it is from every location and they’ve got five locations, it might be more catastrophic than if it is just from the one location that the physician is working. 

 

As the employer adds accounts or adds locations, your restrictions could grow. Of course, that is outside the physician’s control. Maybe you sign a contract and they have one location ten miles from you, then over the next five years, they expand to ten more offices. If you did not know how the non compete clause was structured when you started, you could be in trouble if they stated you had to stay a certain distance away from ever office. 

 

The nuances of non-competes

In our contract reviews, we see many different nuances. In a rural setting, the non-compete may dictate a radius of fifty miles for one year. In that situation you will most likely move away.

Other times we will see something like, “You can work wherever you want to. You just can’t compete with the accounts that we have contracts with,” which makes sense. They are exclusive contracts, so if and when those contracts come up, you can’t file a proposal with the hospital. You have to steer clear. 

 

Sometimes we will see stipulations about damages if the physicians break the non-compete element of their contract. 

 

We will also sometimes see a noninterference clause, which doesn’t prevent you from working—only from interfering with their practice. This could mean taking their accounts, which could happen unintentionally since there are no other places to practice your medicine in that area.

 

Can I negotiate a non-compete?

 

Sometimes a noncompete clause is a point you can negotiate, and other times it is not. Larger groups sometimes do not budget on non-competes. Or maybe they don’t budge on the radius, but they would budge on how breaching the radius would be forgiven or giving you leeway on the primary location verses every location, or other nuances. 

 

Other times, the non compete clause is going to be there, period. However, don’t let that stop you from attempting to negotiate or clarify that element of your contract. It can mean the difference between being totally hamstrung by a contract or giving yourself more freedom if and when the relationship does not work out long term.

 

Considerations for Negotiating Noncompetes

 

Newer physicians don’t often consider the potential impacts of a noncompete clause. They’re excited about their new position and have no intention of leaving.

 

But if circumstances change and the physician wants or needs to change positions, noncompetes can cause a lot of complications.

 

Some States Don’t Allow Non-compete

 

We see non-compete clauses in the vast majority of contracts. There are some areas that don’t regularly include them and some states that don’t allow them. The prevalence in a given area changes often, but most contracts include some type of noncompete.

 

Some are reasonable and market appropriate: No competing position within one year and seven miles, and you can’t work from your main hospital or your main location.

 

Others are completely inappropriate.

 

A contract might not specify your work location.  In that situation, an inappropriate noncompete will say that the noncompete is from any location that you work. In this kind of contract, you don’t have control over your location.

It’s up to your employer’s discretion. If the employer has you do a procedure at the hospital and have a clinic in a different building and then have an outreach across the way, all three of those locations would be obligated to the noncompete. You want to avoid that kind of location overreach when you negotiate the non-compete.

 

Location in noncompetes impacts your family life, too.

 

Maybe your spouse works in the area and getting the non-compete right is really important to you so that you have the freedom to stay in the area if you leave a position. This is why we make sure to evaluate your unique situation when we advise you. The contract should reflect your expectations and realities, including in the non-compete.

If your spouse has a job and you have a job, there might be a time when they’re happy in their position and you might not be happy in yours. In that case, the specifics of the contract will affect your outcomes. Either you’re going to be miserable while you continue to work at that location due to a non-compete, or you’ll have more flexibility to change positions because you negotiated well about the noncompete.

 

Non-compete could dissolves in the right situations.

 

We like for non-competes to go away at a minimum if the contract ends for any reason outside of the physician’s control. For instance, there might be a case of no-cause termination. Maybe something changes on the employer’s end: Funding dries up, they just don’t like the person, they’re not a good motivational fit, they hired too many people, or fill in the blank. If the employer has a no-cause termination in the agreement, that means they can terminate the physician for no reason at any time. The physician should not be damaged by having a non-compete because the employer made a bad decision. 

 

There are certain other instances where non-competes should go away, and you have to ask about the particulars in order to find where those are. Has the employer enforce non-competes in the past? Does everybody have the same noncompete? Those are some of the questions that we advise you to ask during the contract negotiation process with the employer. 

 

Noncompetes can have a big impact on your long-term flexibility and happiness as a physician.

 

Termination Clauses

 

People look at contracts twice: once when they sign, and again when they want to leave or when they’re fired.

If you can’t practice because you’re disabled, or you don’t have a license, you’re in jail, or you can’t bill payer, then you can’t make any money, and the contract ends.

If a party breaches the contract, usually the other party will get a chance to fix it. If they can’t, then the contract can be terminated by the nonbreaching party.

Most often, we see no-cause terminations and that basically says, “If you don’t want to work here, raise your hand and say, ‘Guys, I want to quit.’” Or if they don’t want you, they can raise their hand and say, “You know, Doc, it’s been a pleasure, but we’re going to ask you to leave.” 

 

The terms in the clauses vary between 10 days and 6 months

Terms of termination can be 30 days, 10 days, 6 months, or they can be probationary periods. That can be a very important part of the contract. The gold standard is 90 days. We prefer 120 days. The reason for that is to give you enough time to prepare. 

We always tell the physicians, “Ask yourself what needs to happen if you get a notice from your employer that they don’t want you to work for them anymore. You have to finish your practice, of course, if they want you to keep working.

You have to update your CV and find jobs and interview for it. Perhaps you visit the site, and then you’ve got to get a contract and negotiate and sign it and get credentialed and maybe obtain a new state license. Perhaps you need to sell real estate, buy a new home, and move your hospital credentialing.

There’s a lot that can happen, and most of the time it just can’t happen in 60 days or 30 days. Sometimes not even 90 days is enough time. So make sure you get the appropriate notice to prevent significant financial losses or a gap in income.

Some physicians want lower numbers, some physicians want higher at certain specialties, like emergency medicine tend to have lower clauses, or independent contractors sometimes have lower clauses. Academic jobs and even rural jobs that are more difficult to fill sometimes have longer notification periods.

Termination clauses obviously can be one of those extremely important things that if they’re not looked at in the correct way and you don’t fully understand how to get out or how they can ask you to leave, that can cause major problems. Be sure you understand what you’re signing and the potential ramifications of the termination clause.

The importance of a contract review

 

No matter what your employment setting, you still need to have the contract reviewed by someone. It’s not necessarily a case of “Here’s what you need to negotiate.” We don’t want you to automatically be suspicious of a contract, as if the prospective employer is trying to pull a fast one on you. It may be more like, “Here’s what is not said.

 

Here’s what you should clarify. Here are the policies that I would want to read. Here are some questions that we have because if you want to leave, maybe there is no provision for termination.”

 

So the contract review is not necessarily a reason to think that all kinds of things need to be negotiated or changed in your contract. The peace of mind that comes from having a professional review is worth a great deal all by itself.