5 Critical Tips for Negotiating Physician Employment Contracts

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5 Critical Tips for Negotiating Physician Employment Contracts

Employment and compensation in medicine have become more complicated in recent years. Insurance and Medicare reimbursements have decreased, leading hospitals and private practices to seek new ways to increase physician productivity and lower costs. Typically, this means that risk is shifted from the employer to you, the physician. For private practices, that can mean tying compensation to collected receivables or wRVUs (work relative value unit), requiring that you engage in practice development, or making employed physicians responsible for expensive malpractice insurance post-employment.

Physician employment agreements are drafted by the employer, whether an academic center, a hospital group, or a private practice. As a result, most employment agreements primarily protect the employer. Promises to the doctor are often ambiguous or simply left to the sole determination of the employer. Employers are also nearly always given wide discretion to alter the terms of employment, especially those that pertain to scheduling, call coverage, clinical and administrative support, and even compensation.

Since medical employers are in a position of control, physicians must conduct extensive due diligence when seeking employment. Prior to negotiating your terms of employment, you should have a thorough understanding of what you are looking for in a practice. At a minimum, you should know your ideal practice size and type (i.e., academic, hospital employment, or independent private practice), ideal location, and ideal schedule and call coverage (it can help to write these things down).

Next, every physician should research prospective employers. First and foremost, try to speak with other employed physicians in the group to gain insight into its day-to-day operations. But if that isn’t feasible, even a simple Google search can provide ample information. Additionally, rating sites like Glassdoor often have a negative bias, but can be revealing if read through a critical lens. Also, checking other sites such as WebMD or even Yelp can provide a clearer picture of employee and patient experiences.

Once you perform your due diligence, interview, and secure an offer, read the agreement carefully—don’t just skim it! (This might sound basic, but in my experience, a careful review is often an afterthought, or simply ignored altogether.) Then focus on the following 5 tips for negotiation:

  • Term and Termination of Agreement

The “term of employment” and “options for termination” are important provisions that are often overlooked. Most physician employers offer one-year terms with broad discretion to terminate employment for “cause” or without “cause.” Instead, try to prolong your “term of employment” by negotiating a multiple-year agreement.

Physicians should review the bases for termination closely. Notice periods for termination of the agreement without “cause” should be equivalent for both sides, and should be limited to notice prior to renewal, unless you foresee a need for early termination or are looking for greater flexibility.

Definitions of “cause” should always include violations of law or the standard of patient care, but vague definitions such as “failure to satisfactorily perform duties” should be removed.

  • Duties and Schedule

Physician employment agreements almost never provide specifics about the duties or resources being committed and almost always give the employer-wide discretion to alter or assign new duties to the physician. Getting as specific as possible about expectations puts some guardrails around a physician’s schedule and responsibilities, and also can ensure that otherwise oral promises about clinical or administrative support are met.

Don’t be surprised if you get pushback on these requests. Employers like to keep duties vague so that they can maintain flexibility.

  • Compensation

Many physician employers have implemented complex compensation plans. Private employers want to ensure that overhead costs are covered, and often include numerous deductions from productivity numbers, many of which go without explanation. Hospital employers commonly use artificially low wRVU rates. Locking in a guaranteed salary, at least for the first two years of employment, to allow for building a practice, gives a physician a lot more protection.

At a minimum, you should closely examine the compensation structure being offered and be certain that you understand the ways in which the employer has the discretion to alter that structure.

  • Restrictive Covenants

For most of us, it can be difficult to imagine the end of a relationship if it’s just starting—it almost appears indefinite at first. In employment, more than any other relationship, that is less and less a reality. Knowing that your new job more than likely will not be your last is important when reviewing the restrictions your employer is setting on your future employment. Non-compete, non-solicitation, and confidentiality provisions can all greatly restrict future employment opportunities if you plan to remain in the same geographic area as the offered employment.

Negotiate to keep the obligations limited. Despite rumors to the contrary, many restrictions on future employment for a physician are enforceable. There are always exceptions, but it is better to sign an agreement you are comfortable with executing than to bet on evading obligations down the line. Map out radius restrictions so that you truly understand what is being required of a restriction and which future employment opportunities will be prohibited.

  • Malpractice Insurance

The costs of malpractice insurance are tied to the physician’s specialty, sub-specialty, and geographic location. Most academic hospitals and some private hospitals are self-insured or provide “occurrence” insurance policies. These types of policies cover all claims related to acts that occurred during the physician’s period of employment, even if a claim was filed after you left your place of employment. Thus, they do not require “tail coverage” which is an extension of insurance coverage for a set amount of time post-employment.

On the other hand, “claims-made” policies cover only claims that were filed during one’s term of employment. This means that if a claim is filed after you end employment, even if it relates to an act that occurred during your employment, you will not be covered. In this case, you would want “tail coverage” to protect you. “Claims-made” policies are often less expensive for a private employer to obtain and allow the employer to pass along some post-employment costs to the physician.

When an employer can only offer “claims-made” coverage, a physician should try to minimize the burden of a tail. If tail coverage is not specifically addressed in the agreement, the physician should work to clarify who has the obligation to pay for the extended coverage.

Ideally, every employment relationship is long and prosperous. But contracts are in place to assist the parties when they are not, especially when you need to address a worst-case scenario. Starting employment negotiations with a focus on these five points will give you peace of mind knowing you have protection, predictability, and job security.

Physician employment contracts and negotiations present unique challenges. As always, it is best to speak with an attorney familiar with physician employment if you have questions or need guidance during negotiations. Our team is here to help.