Your guide for a successful physician contract negotiation
Your guide for a successful physician contract negotiation

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How to confidently negotiate your physician contract

Table of Contents

Dr. Meghan Morris

Hospitals and employer groups retain lawyers who have spent years drafting and reviewing employee contracts. So when you receive an employment contract of your own, it’s time to think about calling an attorney for help.

Why an attorney should look over your medical contract

Behind the scenes, an attorney can apprise you of the ins and outs of the contract and better explain what the document’s consequences may mean long term.

Taking this step will help you be confident in your new opportunity, and ensure both that you know what your employer expects, and that the role is in line with your own work and life expectations.

Meghan Morris, M.D., a family medicine physician at Cogent Healthcare in Great Falls, Montana, stresses the importance of hiring an attorney: “If you don’t have a lawyer on your side, it’s like showing up to play Rafael Nadal without a tennis racquet,” she says.

Morris says that even though doctors may attend a few seminars on the delicate art of contract negotiation during their education, rarely are new physicians trained for how to handle specific situations.

Physician contract negotiation

Internist Ronald Krablin, M.D., of Gettysburg, Pennsylvania, has been practicing medicine for 38 years. However, he says his entrance into contract negotiation happened later in his career, when he began dealing with an employer instead of a partner.

That’s when Krablin hired Dennis Hursh, a Middletown, Pennsylvania, attorney who specializes in health care legal services at Hursh & Hursh and who authored The Final Hurdle–A Physician’s Guide to Negotiating a Fair Employment Agreement in 2012.

Hursh says most new physicians skip the contract negotiation step. He estimates that fewer than 10 percent of first contracts are negotiated. He says that that number grows to approximately 60 percent for subsequent contracts.

One reason new physicians are reluctant to negotiate is that they don’t want to risk getting off on the wrong foot with their new colleagues. But that shouldn’t hold you back from explaining that you need to seek counsel with your advisors.

Another reason for such low first-time negotiating numbers may rest in patterns physicians developed during medical training. Doctors are taught to make swift decisions.

“If I’m in the ER with a serious injury, I don’t want my doc taking too long to decide on my treatment,” explains Hursh, who points out that physicians’ ability for quick thinking serves them well in the practice of medicine but can be a serious downfall in contract negotiations. “You may think it impresses your new employer when you demonstrate an ability for a snap decision on a contract. However, it rarely works to your advantage.”

Carl Price, M.D., a plastic surgeon with The Center for Plastic Surgery in Springfield, Missouri, adds his take on Hursh’s comment: “There may be some kernels of truth to that; I think that physicians in general tend to be a bit naïve and not very business savvy,” he says. “Some young physicians can get themselves into bad situations.”

Gary D. Wimsett, Jr., of Gainesville, Florida, who wrote the forward for Maria K. Todd’s book The Physician Employment Contract Handbook: A Guide to Structuring Equitable Arrangements, tells readers, “The practice of medicine and the business of practice are two distinct disciplines. Mastery of the former and neglect of the latter nearly guarantee an unhappy and unfulfilling professional life in medicine.”

Getting your contract right the first time

Negotiating

In a list of the most important financial decisions you will ever have to make, agreeing to an employment contract, especially your first one, ranks near the top. The contract foundation upon which you practice can be strong and equitable—or one-sided, weak and create problems down the road.

As New York Internist Marina Gafanovich, M.D., says, “A doctor’s license is a very vulnerable asset when it comes to improper contracting.”

The practice of medicine can quickly turn sour when working under an unfavorable contract, and your many years of medical training may seem financially wasteful if a bad contract pushes you away from the field of medicine.

To prevent that from happening, author Maria K. Todd advises physicians to understand that the balance in the offer is typically angled to one side. In her book, she states, “the agreement’s ‘default’ provisions will almost certainly favor the employer, and the general tenor of the agreement will be tilted in the employer’s favor in almost every instance.”

Gafanovich, who has been in practice for the past 15 years, says virtually all doctors coming into their practice have negotiated their contracts.

On the other hand, William Scott Huie, M.D., an anesthesiologist with North Houston Anesthesiologists, P.A., and chief of staff at Conroe Regional Medical Center, says that he has had only one or two out of 20-plus doctors ever try to negotiate. “That is mostly due to the fact that we have a very stable pay scale for the first two years. Once we explain the structure, they drop it.”

However, Huie goes on to say he wouldn’t be offended if a potential hire did try to negotiate. “I have had doctors request more vacation or extra pay for having a fellowship, but I was never offended. And they were not offended when I told them ‘no.’”

Huie says that he would not be interested in negotiating a contract with anyone’s attorney. But he does feel an attorney review of the document is wise. “For the protection of the new employee, I think it is very reasonable to have an attorney look over the contract. Our group is happy to discuss anything in the contract, and if something is not pertinent, we can omit and initial.”

As a new physician fresh out of residency, Morris says she interviewed with a group practice in another state. Initially she negotiated the contract herself, but when it hit an impasse, she called upon her attorney to take over. In the end, the attorney advised that she walk, because it was a poorly written contract.

“The negotiations basically brought out some of the underlying problems with the contract,” Morris says. “If it hadn’t been for the contract review, I think things would have gone poorly for me at that particular job.”

Rarely in any physician contract negotiation will one get everything desired from an employer, but that’s why it’s called a negotiation.

Slowing down long enough to explore the possibilities that could lead to a more balanced and desirable contract is just good business.

Author/attorney Hursh says negotiation is preferable to what he has seen many physicians do when faced with growing student loan debt—quickly grasp for the first life preserver offered without giving the contract full review and consideration.

What to negotiate

All leverage disappears the moment an employment agreement is executed, so give each major contract item on the table careful consideration. Those pieces likely include the following:

Compensation and benefits

To properly evaluate or negotiate an employment contract, you must first know what you are worth in any given market and for your specific specialty. You have several avenues by which you can obtain a good sense of that value. Some of those sources include:

  • Talking to other physicians in the same specialty
  • Consulting with a recruiter who works with other physicians in that specialty
  • Talking to new hires
  • Consulting websites of medical associations like the Medical Group Management Association (MGMA), which reports on physician compensation

Once you have a feel for the market, which can vary by city (and even by neighborhoods within the same city), you must then weigh other factors involving compensation that may matter even more than salary. Says Huie: “$350,000 in one place may be better than $400,000 in another.”

Once you have ascertained an approximate value for your training, specialty, location and other factors, you can then move toward even more important questions that determine the fairness in an employment contract:

  • How much time off is allocated?
  • How much call per month is required?
  • How long are the days?
  • How equitable is the case distribution system?
  • Is this contract good for your family?

Depending upon the employer, salary negotiation may not be possible. Compensation is often constricted by fair market value, especially when dealing with a hospital.

“When you have a group…that has 600+ doctors, [the compensation] is similar to others and they typically do not negotiate,” explains Krablin.

Restrictive covenants

Much like non-compete clauses that pharmacy sales representatives work under, physicians also have their own version: the “restrictive covenant.” The restrictive covenant is a binding agreement that protects the employer from financial loss when you leave.

The employer will state not only the time period of that restriction, but also include a geographical area included in the restriction.

If not evaluated and fairly negotiated, restrictive covenants can place undue hardship upon your family and seriously alter the course of your career. Don’t assume that non-competes or restrictive covenants are unenforceable in a court of law.

As Hursh says, “It isn’t whether or not the employer will win; it’s about whether you will ultimately be hirable by another employer.” Even if the signed document is not enforceable, your potential employer will view you as a legal risk and likely choose a less risky candidate without all the legal baggage.

In that regard, an attorney can be a valuable asset. An attorney can ensure you know if the geographic area and timeframe restrictions are reasonable, and point out any non-compete pitfalls. They can also advise you on how to negotiate reductions in timeframe or geographical area for the restrictive covenant, or propose a potential “buyout.”

Call coverage

Through the years, physician attitudes have changed about call coverage and how it impacts quality of life. More and more, new doctors are negotiating this specific aspect of the contract.

Author Todd says she has seen a change in the articulation used by newer physicians to describe medical careers. “In my parents’ day, doctors often said, ‘I’m a physician.’ Today, you’ll hear doctors frequently say, ‘I work as a physician.’”

Although a subtle difference, this choice of wording does reflect a prevailing thought about quality of life and what is being sought after in contract negotiations.

Differing views on lifestyle expectations between the generations is something to be cognizant of during contract negotiations. Author Hursh warns that problems often crop up when an older physician in solo practice decides to bring on a younger physician to help with call coverage.

“I’ve seen expectations of 24/7 call coverage in a contract, just because that’s how the solo practitioner built his practice and now expects new doctors to work just as hard.” It’s wise to have an attorney evaluate your lifestyle expectations against the outline of the contract.

Performance requirements

As with all professions, there must be money coming in to justify a salary. Your employer won’t expect you to develop your own practice by the end of the first day, but there will be an expectation that after a few years, you are paying for yourself and adding to the overall cash flow.

To determine productivity that ultimately justifies a physician’s salary, several formulas are used. All have their advantages and disadvantages. Working with an attorney to ensure that you understand what is expected in the first year and beyond can go a long way in guaranteeing that you are happy with your new employment contract and that you thoroughly understand your employer’s expectations.

Malpractice insurance

When an employer or group practice offers “claims-made” malpractice insurance instead of “occurrence-based,” that benefit is being offered by a third-party company and is almost always non-negotiable.

However, one aspect of this section of the contract that doctors will want to seriously examine is the type of malpractice insurance and whether “tail” insurance—the additional insurance policy that would be required to cover you after leaving the practice —is included. Does the employer pay, or does that financial burden of premiums remain yours?

Tail coverage premiums can set an uninformed doctor back financially as much as one-third of a year’s salary, according to Hursh. First, you need to ascertain whether or not you need tail coverage, then negotiate responsibility for payment of tail coverage premiums.

Even if you are offered a package with occurrence malpractice insurance, what if it’s dropped in favor of a claims-made policy later on? A knowledgeable employment law attorney can help you explore scenarios that might cause problems down the line.

Ownership/partnership

Guarantees of ownership are rarely, if ever, set forth in an employment contract. Instead, you’ll see a provision about “X” number of years until you may be considered for ownership interest.

The nice thing about private practice is that you get to choose your work colleagues. Clinical abilities, while important, only provide one leg of the three-legged stool of partnership decision. The other legs are personality (being a “good fit”) and strong financial performance.

Ownership interest can be calculated in several different ways: fixed dollar amount, fair market value or book value. Variations can occur within all of these calculations. As indicated in The Final Hurdle, there are “nearly endless variations on how practices bring in new partners.”

According to the book, an attorney can ensure that your contract and any potential for ownership are legally sound and may include the following:

  • A provision in the agreement that discusses your potential ownership in the practice
  • A provision that sets forth a method for the valuation of the buy-in
  • A provision that ensures the buy-in valuation method matches the buy-out valuation method

The potential for ownership can leave many unanswered questions. Guard against vague partnership paths that you won’t ever attain. “Make sure the group doesn’t have a history of bringing people in and then letting them go,” Price says.

Return on investment for hiring an employment law attorney

Puzzle Contract

The cost range for an attorney consult and handling of a physician contract negotiation varies tremendously, from a few hundred to a few thousand dollars.

“Those numbers can change a bit depending on several factors, including whether it is a first-time contract, if only contract review is needed, or if review and negotiation are needed together,” Hursh says.

No matter what you pay, make sure you have the right attorney for the job. Author Maria K. Todd says, “It’s one thing to find a health care attorney that knows managed care, but finding one that knows employment law—that’s a very rare breed.”

Your attorney will need to know all the labor guidelines and nuances of regulatory compliance like the Stark law, the Anti-Kickback statute, the False Claims Act (FCA), the Exclusion Authorities, and the Civil Monetary Penalties Law (CMPL). “Those are all criminal and not civil matters,” explains Todd. “It’s this really narrow tight rope they must walk, and physicians need good guidance for that.”

Hursh says it’s difficult to put an approximate ROI on legal advice in this stage of a physician’s career. “Sometimes it’s huge in the area of time. Often an attorney can offer legal advice that leads to a better lifestyle, and if you look at the covenant/non-compete…well, thousands could be at stake there.”

Do “standard” contracts need professional review?

Many consider physician contracts with hospital systems or large employers to be “standard.” Physicians often redefine these as “non-negotiable” contracts and may think there’s no point in having them professionally reviewed.

Though this may seem reasonable on the surface, not having these documents looked at by a trained eye can be a big (and potentially costly) mistake.

Protect your investment

You’ve spent a large amount of money on your training and have the potential to earn millions of dollars over the course of your career. Your $250,000 training investment and your earning power alone should provide enough motivation to have your contract reviewed. There is just too much on the financial table not to spend a few hundred dollars.

What’s left out?

It is often not what a contract says, but instead what it doesn’t say that is the problem. What is left out? Is your location specifically defined? Is your schedule in detail? Do you have any control? When and how is your incentive compensation paid? What are the details of the benefit plans (including malpractice insurance)?

These are often times not in the contract, and may not be negotiable, but with the right education around the contract, you will know what questions to ask the employer so your expectations are clear.

Do you know all the clauses?

It is important to know exactly what you are signing. How can you quit? What do all the non-clinical terms mean? What type of notice do you have in various circumstances? Understanding what happens in defined situations can prevent a surprise or disagreement later on with the employer.

All physician contracts need to be reviewed. Many do not need an hourly attorney to review them at a cost of thousands of dollars, but do spend a few hundred dollars to understand the document and protect one of the best investments you’ll ever make.

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