What is Backing out of a physician contract? Let’s discuss the differences between signing a contract and not starting versus terminating a contract once the physician has already started providing care.
How to Terminate an Employment Contract?
Let’s take the second one first. When a physician signs a contract, begins employment and starts providing care for the employer, there will be a section in the employment agreement that states how to terminate a contract. It’s several ways. If it’s a fixed term, meaning it’s just a two-year contract, and then it ends, then it’s not renewed. That’s the contract to complete that way. The agreement could be terminated for-cause, meaning one side breached the contract and then decided to terminate the contract immediately once the breach wasn’t fixed.
There’s always going to be a without-cause termination in an agreement. It means either party can provide a certain amount of notice, usually 60 to 90 days, to the other party. If the physician is the one terminating the contract, they would have to work out those 60 to 90 days. Then they can move on after that. And then lastly, you could have a mutual agreement where both parties say, you know what, this isn’t working out. You don’t need to give notice. You can pack up and move on to something better. That’s not backing out of the contract. That’s terminating the contract.
What is Backing Out of a Physician Contract?
When I talk to physicians, I would consider backing out if they have signed the contract but haven’t been at the job yet. And so, that’s a little trickier. There are two ways. One could go if the employer made the physician sign an offer letter. Still, the employment agreement hasn’t been signed yet by the physician. Then it’s easy to back out. The physician says I’m not interested in signing the employment agreement. And even though they sign the offer letter, it’s non-binding unless the language there says it is binding, which is exceedingly rare. In that scenario, if you sign the offer letter but didn’t sign the employment contract, easy, you say, some things have changed.
I’m moving on. Now, let’s say you’re PGY-2 and have this great job. They offer you a position early in the process, you sign the agreement, and then something changes. Either there’s a family problem so you can’t move to the city you thought you would, maybe you get married, have children, or have an illness. I mean, there are a ton of things that can happen in a year or two. And so, in that scenario, the physician must decide. Now, they cannot be forced to work. It’s not like if you sign an employment agreement, the employer can say that you must provide care for us no matter what.
What Are the Consequences That Need to Be Considered?
However, there are consequences for the physician potentially if they back out of an agreement. Some agreements will have direct language that states that if the physician signs the agreement but doesn’t start with the employer, there may be penalties. Maybe they would have to pay back the recruitment fees or any dollars spent on credentialing or privileging. Perhaps they paid for their license and DEA registration. Maybe they forwarded a signing bonus or a resident stipend.
If the physician backs out in those scenarios, they will likely have to pay those things back. And then the other scenario is if the practice suffers damages, which means that they were relying upon this physician to start. They had a physician ready. They invested capital and maybe built out more rooms. And they could tell the physician, we did all these things, expecting you to start. You signed a contract that said you would begin to, and you didn’t. So, the employer could sue the physician and come after them for those damages. Now, that’s not something that generally happens.
The Best Approach to Take
In my opinion, the best approach to take is if you’re a physician and things have changed. You don’t like the job anymore, and you need to approach whoever the recruiter is. Maybe the practice’s owner, the medical director, and someone in a position of authority. Then say these are the problems; I cannot take this job right now. I appreciate the opportunity, but I’d like to end this amicably and move on. And if there are one of those extenuating circumstances, I find almost all employers will understand.
They’ll likely be disappointed, but they’ll not feel any anger towards the physician. Suppose it’s a scenario where the physician just got a better offer, and they’re leaving for purely monetary reasons. In that case, the employers may not be as forgiving. I’m just saying to an employer I got a higher-paying job. So, I’m leaving. That will open them up potentially to more liability than not. Now, I wouldn’t suggest that anyone start a job if they’re not interested in being there. That’s a recipe for failure.
The physician first needs to talk to whoever the recruiter is. Second, send a letter stating they’re not planning to start. And if they’re good personal reasons, you might want to list them in the letter, although that’s not necessary. And then say, hey, I want to resolve this amicably. Then suppose you owe them back money from the stipend, relocation, and signing bonus. In that case, you must pay that back. That’s how to back out of a physician’s contract. And differences between terminating the contract and backing out of the contract.
Other Blogs of Interest
- How a Physician Assistant Should Negotiate a Contract | Negotiating PA Contracts
- Can a Physician Assistant Break Their Contract? | Breaking PA Contracts
- Red Flags in a Physician Assistant Employment Contract? | Medical Employment Contract Red Flags
What Can You Negotiate in a Physician Contract?
What can a physician negotiate in an employment contract? The short answer is everything. It ultimately depends upon the willingness of the employer as to whether they’re willing to negotiate terms or not. Extensive hospital networks are less likely to change an employment contract agreement significantly. Unlike if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for significant changes. What are the things that are important to the physician, and then what are the things that they can get changed?
In my mind, when I’m talking to a physician, the things that stick out as the most important would be:
- The signing bonus,
- Relocation assistance,
- How to terminate the contract agreement,
- Making certain there’s without-cause termination that’s a reasonable length,
- Productivity bonuses,
- Tail insurance and,
- Who pays for tail insurance if it’s a claims-made policy.
First 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 their and their specialty’s value. Getting the MGMA data is helpful. It is beneficial 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 on your specialty’s average salary. 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 between a base salary and RVU production? A base salary and net-collections? Is it all RVU? Is it all net-collections? This one is dependent upon the type of structure. You’re getting a base plus a certain amount if it’s net-collections or a hybrid model. Let’s say. For instance, the expectation was 20,000. Anything collected is over 20,000 by the practice, and the physician will get 15 to 25% of that. That would be a standard percentage.
If the physician is purely on net-collections, around 40 to 45% is average. 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, and the compensation factor, which 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, obviously, but more importantly, what’s the repayment schedule?
Forgiveness Period in Physician’s Contract
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 contract agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire $20,000 forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Between $10,000 and $15,000 should be the cost of relocation assistance. The signing bonus can vary widely from 10 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 wholly unenforceable; California and Mexico, for instance. Usually, the non-compete shouldn’t be any longer than a year. The geographic restrictions should be 5 to 15 miles from your primary practice location. Where to negotiate with this?
Terms That You Should Know About Physician Contracts
You want to keep the length at one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete applies to every facility we own in the 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, and you can go into family practice.
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 keep it to the specialty of what you’re providing to that employer. Specifically, in this case, let’s say you are a hospitalist. You could go to family practice or urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to consider. And then malpractice insurance is always a considerable discussion with the physicians’ coworkers.
First, you must identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And after you determine what type it is, if it is a claims-made policy, 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 an extensive hospital network. Now, tail insurance usually costs about twice what your annual premium is.
Physician Employment Contracts & Learn the Negotiation Tips
Your family practice’s 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 to 16,000. One thing you can negotiate is who pays for tail insurance coverage. Sometimes an employer will say if you’ve been with us for one year, we’ll pay for a quarter, then two years, half, and then three years, 75%. Some ways of getting out of having to pay the entire amount depend on the situation. Now, the first thing I talked about was whether the employer was willing to negotiate or not. Some employers will say this is a take-it or leave-it deal. I don’t think those employers will be great for getting together. If an employer is unwilling to budge on anything, it will likely be challenging to team up.
It means they’re not going to accommodate the physician somehow. So, I caution any physician who has been given a job offer. We ask for some clarification or certain concessions, and they 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, a non-compete is absolutely the number one thing. For others, it’s the compensation. For others, they do not have to pay tail insurance. It depends upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.
Can Physicians Terminate a Contract Without Notice?
Can a physician terminate an agreement without notice? In my mind, that just simply means can they leave a job without any amount of notice and then move on without repercussions? The answer is that you can go without notice. Still, there will be legal implications, and you are opening yourself up to liability for a few reasons.
The first reason is that there will be a termination without-cause clause in almost any physician employment agreement. Sometimes it’s called for no good reason. And in that scenario, the physician contract will state that either party can terminate the agreement with a certain amount of notice to the other party. So, terminated physician contracts don’t need a reason, no one has breached the physician contract, or maybe nothing is wrong.
It’s just the physician who wants to move on. Or maybe the employer is laying off the physician due to lack of volume or something like that. The physician contract will state either party can terminate the physician contract for any reason. However, they must provide a certain amount of notice, as stated in the physician employment physician contracts. Most of the time, it’s either 60 or 90 days. That’s the standard. In that scenario, let’s say the physician wants to leave.
They would, in writing, provide notice to the practice that says, under the physician contract, I’m giving you 60 days’ notice. My last day of providing care will be X date. And then you move on with your employment. Now, just because the physician contract was terminated without-cause doesn’t mean there aren’t some problems for you or at least issues that you need to deal with when it’s over with
Things to Consider in a Physician Employment Contract Termination
Some things that will follow when you terminate a physician’s contract without-cause, or at least usually follow, there will be a restrictive covenant. And that is either a non-compete or non-solicit in the physician’s agreement. In terminating an employment agreement without-cause, they will still apply. And so, you need to think about, alright, what are the restrictions on my practice after I leave the employer? Many employers will have repayment obligations for bonuses they’ve paid out.
If you start employment, then you leave within a year or two. The employer will prorate that bonus based on how long you’ve been there since you started. Let’s say you were given a $30,000 signing bonus and your initial term was three years. Then the employer may say that one-third of that $30,000 is forgiven yearly. So, if you were to leave between years two and three, you’d owe them back $10,000 at the end of the physician contract. And same goes for relocation assistance. They gave you some money upfront. Usually, it’s forgiven over time. Then you’d have to pay back whatever the outstanding amount is.
What if Your Physician Employment Contract Includes a Productivity Bonus?
Another thing to think about if you terminate a physician contract without-cause is if you have a productivity bonus in the physician contract, either net-collections or RVU. Many of them will state that if you’re not employed when the compensation is given out, you’re not going to get it. Or maybe if it’s like an annual bonus, they won’t prorate it either. The timing of when you give that notice is essential so you’re not losing out on whatever productivity bonus you earned.
What Will Happen if Your Medical Contract Contains a Claims-Made Policy?
And then kind of the last thing that can usually follow is if you have a claims-made policy, who’s going to pay for tail insurance. If the physician is responsible for tail insurance, they must pay that amount before the contract ends. And that can usually be somewhere between ten and a hundred thousand for OB-GYN or maybe a high-level surgeon.
Is It a Good Idea to Terminate a Physician Contract Without Notice to the Employer?
What happens if you don’t provide notice to the employer? In the physician contract, as I said before, there will be a clause that says you can terminate the physician contract without-cause with this amount of notice. So, what happens if you don’t give any notice? You walk in on a Monday and say this job sucks. I’m out of here. You walk out, and that’s it. Well, you’re in breach of the physician’s contract. What are some things that can happen when you breach physician employment contracts? Well, the employer could assert damages.
Meaning lost revenue for the patients that you would’ve seen that they don’t have coverage for recruitment fees for replacing the physician. Also, expenses are incurred when there’s no physician to be there with staffing or vendors. And so, how that would work is that the employer would sue the physician for breach of physician contract. Then they would claim those damages, then fight it out in court, or if there’s an arbitration clause, they will arbitrate. It’s a terrible idea to walk out on an employer if there’s a without-cause termination clause.
Physicians, Remember Continuity of Care for Patients
Another consideration is continuity of medical care for your patients. If you were to leave a job without providing any notice, what’s going to happen to your patients? Although employed, they may be your patients. They are the employer’s patients. So, the physician couldn’t just up and take all the patients to a new practice for a couple of reasons. There’s probably a non-compete and non-solicit that would prohibit that in some legal way.
Now, patients can choose who their provider is, and I’m not going to get into that right now. But the continuity of care aspect is something that needs to be considered. Are there bridge scripts written if they’re maybe psych patients absolutely in need of medication? Has there been any opportunity to refer the patients out to someone else? Is there someone in-house who can take over the patients? Not only could you get sued for damages, but if you just up and leave all the patients in the lurch, you’re also asking for a board complaint, and nobody wants to deal with their state board.
I promise you I’ve represented hundreds of professionals before the licensing boards, and it’s not a fun process for a provider. So, can you terminate a physician’s employment contract without any notice? Yes, but it’s a terrible idea that could open the physician to many problems.
Physician Contract Questions?
Contract Review, Termination Issues and more!