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September 28, 2020

Decoding your employment contract

"In assessing a position, consider the opportunity it affords for building a successful career to achieve your goals," says Alicia Arnold, M.D. That includes both professional and personal goals. - Photo by Christy Janeczko

Before you sign any agreement, you want to be confident that you’ve identified a practice opportunity that meets your professional and financial goals while satisfying your personal style and needs. Truth is, there are any number of factors to consider, especially if you’re weighing multiple options.

But you want to make sure that you make the right choice - even if an offer sounds like a lucrative gem. "You shouldn’t be seduced into accepting a job that may be be financially better than another job, but in the big picture is not going to get you where you want to be," says Franco Fazzalari, M.D., cardiothoracic surgeon at Beaumont Hospital in Royal Oak, Michigan. "It may be a good solution for two years, but in the long run it’s not going to work out and you’ll have to find another job and move on. You really want to avoid that."

Whether you’re destined for a staff job in a major health system or a partnership track in a private independent practice, it’s critical that you uncover as many particulars as possible not only about the compensation package, but also any other terms that might affect your tenure. And since decoding is all about getting into the business weeds, let’s begin with those financial and other basics that are paramount to understanding offers - and making choices.

Evaluating the financials

"A contract is only as good as the people behind it," says Jose Avitia, M.D. - Photo by Sweet William Photos & Films

As a new hire, your initial employment contract likely will include a flat or straight base salary tied to your specialty with a possible bonus topper tied to your productivity. Since various payment structures can drive an offer, you need to focus not only on the dollar amounts, but also how they’re derived, especially if they’re anchored in your performance.

If, for instance, there’s an annual bonus, you want to know more than just what you’ll earn and when you’ll see it. How is the amount set and might those metrics change? Your new employer is likely to use one of two production formulations: Relative value units (RVUs), the Medicare measure of value for individual physician services, or net revenue, the profits calculated from actual dollars coming into the practice. But what expectations are tied to the numbers? How many patients must you see per day? What level of RVUs will you need to generate? And what might be asked of you beyond clinical care? You may not get all of the details in your contract or an addendum, even though having everything in writing is certainly preferable. At a minimum, you want to hear a clear explanation as to what might unfold.

Although practices generally make incentives achievable, it’s up to you to find out if they’re really doable. For instance, if the organization has built in a potential bonus based on the success of the department or larger entity, how often do physicians actually receive one? Likewise, if it’s based on your own productivity, how difficult is that to achieve? (And is there any punitive action for failing to meet goals?) If there’s a 15 percent quality bonus, for instance, is the average capture rate 14.5 percent - or 3 percent?

Keep in mind that the shape of your compensation package may very well depend on where you land. For instance, if you’re soon-to-be employed as a staff physician of a major group or medical system, you’ll likely enjoy an initial benefits package that a small independent private practice usually can’t match. What you probably won’t enjoy is the long-term profit-sharing advantages of being a future partner in that independent group. If you’re looking at options in both camps, you clearly want to study the risks versus rewards, particularly of taking a financial step back initially for a potential ownership stake later. "It may or may not be worth it," says Jon Appino, principal of Contract Diagnostics. "You need to consider all of those things when you’re doing your due diligence."

When decoding any opportunity, you want to make sure that you target those aspects of the offer that might affect your ability to build your patient base and make or save money as well as pay off debt. How will the practice market your position? Can you work extra to earn extra income? And will you still be able to develop other interests, not to mention a healthy work-life balance?

Alicia Arnold, M.D., and her husband, both radiologists, considered various practice types and parts of the country before making Eau Claire, Wisconsin, home because of the excellent practice environment and reasonable cost of living. The two settled on Medical X-Ray Consultants, a small radiology private practice where her husband is now a partner and she’s been both a full-time and per diem provider. Besides meeting their professional requirements to provide personalized, high quality care, the choice gave her flexibility not only to care for a growing family, but also to convert her interest in public speaking and community health education into a part-time role as a local medical correspondent. Arnold’s advice to others: "Most of us were called to medicine as a lifelong career, not merely a job. In assessing a position, consider the opportunity it affords for building a successful career to achieve your goals."

Weighing benefits and future plans

When it comes to benefits, you’ll likely see a standard mix including health insurance, vacation time, personal days, a retirement plan, annual raises with cost-of-living adjustments and possibly even parental leave. Even though the package may be cut and dried, make sure that you review the provisions. For instance, depending on how professional liability coverage is structured, you may or may not like the ramifications should you leave the place. So if it’s the one item holding you back from taking the job, see if it’s grist for discussion. "Be prepared to negotiate for what you think is fair and appropriate for your long-term career success," Arnold says, noting that it may be difficult to renegotiate in the future. "You’re not being a bad team player by asking for a more advantageous contract."

Continuing Medical Education

Do they value continuing medical education enough that they encourage such pursuits and even include the specifics in your contract? Do they pay for and give you separate time off to pursue it? And what about other efforts that could put a cherry atop your competence - for instance, are there regular patient case conferences? "If there isn’t that kind of teaming and learning going on," says Brigitta Glick, founder and CEO of San Antonio-based Provenir HealthCare, "then it’s going to be a far less attractive model than others if that’s important to you."

Restrictive Covenants

Whether you’re employed by a health system or independent practice, your position isn’t guaranteed forever. Besides sporting a typical shelf life of two to five years, initial employment contracts have a standard out clause that says usually within 30, 60 or 90 days either side can call it quits. (In some cases, 180 days, if you’re terminating the relationship.) Your focus, however, should be on the restrictive covenant or non-compete clause. You’ll want to drill down on any parameters - time, distance or other conditions - that might cramp your ability to practice and live should you decide or have to move on. Assume that the practice intends to impose it, especially if administrators don’t want to lose a high-producer to a local entity. "So many folks think, ’There’s no way they can keep me from practicing in the area,’" says Patrick D. Souter, JD, of Gray Reed Attorneys & Counselors. "Well yes, there is. The employer can be protected just as much as the employee."

In addition to understanding the clause, you want your own attorney to take a look. He or she may be able to restructure it so that you can practice in the area, perhaps in another direction. "It’s a big consideration if you’re looking at a practice and the restrictive covenant says 50 miles and five years," says Wanda Parker, physician recruiter at The HealthField Alliance. "That basically means that you’ll be out of business."

After completing his interventional pain management fellowship in 2017, Travis Bailey, D.O., had two goals in mind. First, unlike many colleagues in his specialty who gravitate toward hospital settings, he wanted to be in private practice. Second, it had to be in or near his hometown of Valdosta, Georgia. When his solo practice merged with another group to form VOA: Spine and Musculoskeletal Institute, Bailey insisted on removing the non-compete clause from an agreement that was otherwise very fair in its salary, bonus potential and benefits that would help him stay ahead of the professional curve.

Today, he’s not only on a path to partnership, but he’s carved out a career that fits him to a "T," combining clinic hours and pain procedures with general anesthesia stints at two hospital locations. His advice to other physicians? Be assertive. "There are always going to be some changes," Bailey says. "That’s to be expected. But you shouldn’t be nervous or even scared about asking for them."

The next phase

Even before signing your employment contracts, you want to make sure that the transition from this package to the next phase is clear. For instance, if you’re getting a base salary with a productivity bonus, does it automatically renew, or will you transition into a different structure? And what does that look like? You need assurances in writing that at a given point, you and your bosses will have a heart-to-heart as to how your compensation and working relationship will change.

As to partnership, although there are far fewer opportunities than in years past, ownerships still exist. If that’s in your future, it merits the same kind of due diligence you’d undertake in buying into any business. Granted, your future employer may not let you review the books or pick apart the financials this early in the game. "That’s a very touchy discussion," says Parker. Nor will you likely see what Appino calls "granular specifics" - "on this day for this dollar you will be a partner" - in your employment contract. But you have a right to ask for information that will help you (and your accountant or attorney) learn if the practice is financially solid and both capable and serious about offering you a stake.

Also, make sure that they’re willing to commit in writing what you’ve both agreed to verbally. At the very least, you should have a framework as to the formula and track - what will the process look like and what will the buy-in actually entail? Will your participation involve a direct payment, sweat equity, or a lower paycheck over time? Moreover, will you have access to all, some or none of the practice’s long-term investments?

In any case, you don’t want to be blindsided down the road by the price or how it might work. As Fred Horton, president of AMGA Consulting, notes: "Somebody should be able to sit down with you, and say, ’Here’s an example of how it’s worked in the past.’"

When Jose W. Avitia, M.D., joined Albuquerque-based New Mexico Cancer Center in 2012, he liked what he saw in his initial employment contract. It not only included a reasonable base salary and bonus potential for a beginning oncologist/hematologist, but also a very specific two-year track to partnership. Besides meeting a minimum productivity standard, he’d have to demonstrate that he was a good citizen of the group, treating patients well and fostering strong relationships with referring physicians and the staff. As to the numbers, the buy-in wasn’t a lump sum dollar payment upfront. Instead, his share would be built with time and "sweat equity."

More importantly, Avitia had a good sense that if he’d meet the benchmarks, senior physicians would follow through on their promises. The group had a structured evaluation process to let him know well in advance that he was on track and, if not, what he needed to do to get there. He also had a sense, from potential colleagues, how the process and ownership track actually worked. "They weren’t going to find some obscure thing that would keep me from being a partner," he says. "They were very transparent and that was very helpful."

Assessing your chance of success

Before you accept any offer, you want a sign that the owners or administrators actually have backup to show that you’re a necessary cog in their wheel, whatever your specialty, and that you have a reasonable chance for success. For starters, what’s the basis for the position? Has the organization included it in the business plan or done a recent proforma to calculate the needs and financial benefits of adding someone with your skills?

You have a vested interest in learning if the community is saturated with too many stellar providers or ripe with a real opportunity for you to make a dent by marketing your services and developing referral relationships. Jesse Hackell, M.D., vice president and chief operating officer of Pomona (NY) Pediatrics, notes: "You should be asking, ’Is there enough business here to support me?’"

Practice support

Indeed, besides learning if the environment is conducive to your brand of medicine, you want a sense that it will be a good incubator for your business. Whether you want a long lifespan or see this as a steppingstone, it’s critical to find out if this is a dynamic workplace or a revolving door. Pay close attention if you’re filling a vacancy created by an exit that’s seemingly part of a trend. You not only want to know how your future colleagues have done in meeting expectations, but that the numbers are attainable for you. "You want to make sure that you’re not stepping into a practice where they recruited five physicians," says Horton, "and they’re all gone because they didn’t build a practice in time."

Avitia was confident that he was dealing with a solidly established practice that not only included potential mentors who had been there for 10 or 20 years, but also younger physicians who were experiencing what he hoped to experience. As a partner since 2014, he’s been more than satisfied with his choice. "A contract is only as good as the people behind it," Avitia says. "If they treat their patients with respect and dignity, then they’re going to treat their employees, partnerships and other relationships in the same manner."

Final thoughts

In decoding any offer, make sure to keep a perspective. Just because you’re looking at a lot of money doesn’t mean it’s a good job any more than it’s a bad job just because it’s not a lot of money. Likewise, a perfectly written contract with little risk to you still might mask what could be a nightmare working situation. You may have to walk away even after negotiating everything you wanted.

Conversely, if the first draft of the agreement puts all of the risk in your court, that doesn’t mean the employer is unwilling to work out the kinks. Maybe an otherwise great practice just hasn’t been in the business of hiring recently and needs a friendly reminder as to what’s fair.

Whatever the case, when in doubt, tap your common sense. For most physicians, it’s a pretty solid GPS. Whether your antenna is telling you that this a great place with honest physicians just like you or you’re feeling an entirely different vibe, listen to your heart and act with your head. "Physicians have good gut instincts," Appino says. "They should trust them."

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