Can a physician pull out a signed contract? This is a big one. Many of my consults are about this issue. We’ll break down what it means when you sign a contract and what your options are after the fact. Yes, you can pull out of a signed contract. However, there may be some repercussions involved with that. Maybe they’ll have you sign an offer letter when you’re going through the job search process. Maybe they won’t.
But at some point, if you’re going to get an employment agreement, then smartly should get it reviewed by an attorney. And then after you’ve worked out the details of what you want in there and you signed the agreement, there’s an expectation that you will start the job whenever the start date is. However, there are circumstances where a job opportunity and a signed agreement at one point made a ton of sense, and then maybe six months later, it doesn’t make any sense at all.
Things to Consider Before Breaking a Contract
There are different things to think about when you want to break a contract. First, there may be language in the agreement that goes through exactly what happens if a physician doesn’t start in time. For instance, if the employer paid a residency or fellowship stipend, there will be language in there about how that needs to be repaid if the physician doesn’t start in time. And then other contracts may have penalties associated with signing the agreement and then pulling out and not actually starting the job. I mean, I’ll be honest, it’s rare to see language like that. Most places do not put that language in the contract; however, some do.
And then there will be a monetary amount set. When someone is in training, let’s just say, they’re PGY-3, they signed a contract at the beginning of the year. Then they’re going to start in July, August, somewhere around there. Three months later, there’s a family emergency, not going to be able to start the job. And then the contract states, if you do not actually start providing care for us on the start date listed in the agreement, you owe us $10,000 or $20,000.
In that case, you agreed to the contract and it’s clear the repercussions of them not starting, so you would owe them that amount. Now, unless this employer is a heartless bastard, if you have an actual family emergency or medical illness for yourself or a family member and it just absolutely can’t happen with you starting the job, I wouldn’t be surprised if the employer would actually go through with enforcing that penalty.
Why Are Penalties Part of a Contract?
If you’re just breaking that contract because you have a better offer, they’re paying more, a higher bonus, or whatever. That’s why the provision is in there. And it’s in there for a couple of reasons. If a physician employer hires a recruiter, they must pay for that. Once they have a physician’s signed contract, they’ll probably start the credentialing process because that can take a decently long time in some states. They’ve filled out those applications and paid the application fee for the credentialing. Maybe they have also started the privileging process if you’re having to get privileges at a hospital nearby.
And then, more importantly, they’ve stopped recruiting for the position. If they absolutely need somebody in August, they have a position locked down. Well, they’re not going to keep looking for another physician. And so, if someone pulls out two months before the job is supposed to start that practice, that healthcare network, that hospital can be in a difficult position if they have a volume need or maybe they’re replacing a physician who is leaving and then that person who’s signed the contract just says, I’m not going to start, I’m moving on somewhere else.
How Much Is the Usual Penalty for Breaking a Contract?
The employer could theoretically come after you for the recruitment fees, the credentialing fees, maybe some kind of damages for lost revenue. Maybe if you pull out the day before you’re supposed to start and they’re relying upon the collections that they would receive from your practice. Now, it would be very unlikely for a practice or an employer to come after the physician for those types of damages.
Honestly, it would be like one in 10,000 or probably just those people who broke the contract. It would not happen very often, but it could, so you need to know the repercussions.
Can a Physician Pull Out of a Signed Contract?
Can a physician break a signed contract? Absolutely they can, but there may be negative outcomes associated with that. I find that the best strategy in dealing with this is just being completely upfront with the employer and just saying, look, circumstances have changed, and these are the reasons why they’ve changed. And I really appreciate the interest that you showed me. I appreciate you providing me with a great contract. I understand that I signed it, but look if I start this job, I’m just going to give notice as soon as possible, or maybe I’ll even give notice before the contract even commences, and then there’s nothing you can do about that.
Every contract is going to have without-cause termination. That’s kind of the leverage point there. Nobody wants to bring in a physician who doesn’t want to be there. It’s a pain in the ass for everyone. As I said, every contract will usually be 60 to 90 days for without cost termination. And so, maybe if the employer is like, no, you absolutely must start. Then you just give notice on the first day, finish out your 60 to 90 days, and then leave. Nobody wants to go through the hassle of that. Most places will be willing to certainly let the physician move on. However, as I said, a penalty may be associated with that.
Other Blogs of Interest
- Everything You Need to Know About Medical Employment Contracts
- Breach of Employment Contract Examples
- Breaching Contracts: Consequences of Breaking an Employment Contract
What to Know Before Signing Your First Physician Contract | Contracts
What should you know before you sign your first physician employment contract? This question is a broad topic, but we’re going to hit the main areas, things to think about before signing your first employment agreement.
Ways to Determine if Compensations Offered Are of Fair Market Value
First, determine whether the compensation you’re being offered is fair market value. There are a couple of, I guess, good ways of going about trying to find that. The MGMA, the medical group management association, collects annual salary data from across the country. If you can access that, they have a lot of good information about total compensation, average net-collections, and average RVUs generated by specialty. It’s hard to get that info sometimes.
I mean, if you Google around, you might be able to find some of the compensation data that’s a couple of years old. Or you can talk to someone who has access to the data, like for our firm, we have access to the data. So, we can tell the physician exactly what the numbers say. Now, that’s certainly not the be-all-end-all. There are other services out there that offer something similar. But I also think it’s limited because some specialties have a tiny sample size. In addition, just total compensation should not be the determining factor when looking for a job. Alright, so that’s compensation.
Another way of thinking about it would be, if you have classmates in your training program, you need to ask them what they’re receiving. It’s going to vary based upon geography and then setting. Are they going into a hospital network? Are they going into the federal facility? Or are they going into private practice in some way? It is good to speak to people you train with to see what they’re being offered. And then mentors are another excellent place.
How To Terminate Physician Employment Agreements
If someone is already out and maybe they’ve been a teacher for you or a mentor, ask them if they’re willing to talk about the type of compensation they’re receiving. Next would be how to terminate the agreement. Something you need to consider. There are four ways to terminate a contract if the initial term ends. Let’s say you have a two-year contract, and no language states it automatically renews. It just ends, and the contract terminates. You can complete a contract by mutual agreement. Then you can also terminate a contract with-cause. So if one of the parties breaches the contract, either party can terminate the contract if the other party doesn’t fix the breach. It’s called a cure. And then lastly, and this is what I want to hit on, is without-cause termination.
Every contract you sign must have without-cause termination in it. There are minimal circumstances where no without-cause termination would be okay. If you’re a J-1, that one would probably benefit you not to have that in there. But without-cause termination means you can terminate the contract at any point, for any reason, with a certain amount of notice to the other party. Contracts that don’t have without-cause termination, meaning you must work out whatever the initial term is. There’s no way of terminating the contract for any reason. They would have to breach it if you wanted to get out of it.
Why Do I Need No Cause Termination on My Contract?
The reason why you need that is, let’s say you start with the job, you’re paid on productivity, and the volume is not there. It’s not your fault, or maybe the employer brought you in telling you it was going to be one way, and the call is just excessive. Or perhaps it’s just a terrible personality fit; whatever reason you’re not happy in that job, you need the ability to get out of it if you want. So, it would be best if you had without-cause termination in the contract. Somewhere between 60 to 90 days is standard for physicians.
Legal Mistakes Physicians Make are not going through Non-Compete.
Alright, next, the non-compete. A non-compete says the physician can’t work after the contract terminates for a period within a specific area. For example, most non-competes are one year, sometimes up to two.
And then, a reasonable mileage would be 10 to 15 miles from your primary practice location. Often, the employer will try to tag multiple locations. So, maybe if you worked in three outpatient clinics in a hospital or something. They try to attach it to all four of those, or perhaps the employer has many facilities in the area. You’ve only worked at one of them, and they might try to attach it to all the facilities they own. That’s not fair either. You want to try to get it to one year, 10 to 15 miles from maybe at most two locations. Anything beyond that would be considered unreasonable. There are a few states where it’s entirely unenforceable to have a non-compete. But for the most part, most states allow non-competes for physicians.
Health Care Malpractice Insurance, Do Not Practice-Without It
Lastly, the employer should almost always pay for your underlying annual premium with malpractice insurance. How much they must pay each year to insure you? Depending upon the policy, whether it’s a claims-made or an occurrence-based approach, it will determine if you must pay what’s called tail insurance.
If it’s a claims-made policy, tail insurance is necessary. A good rule of thumb is that tail insurance costs about twice your annual premium. In some specialties, it can be costly. OB-GYN, some of the higher-level surgical things could have tails that are fifty to a hundred thousand dollars. You want to avoid having to pay for that. So, make sure that there’s either a fair split between the employee and employer or having the employer pay the total cost of the tail insurance, or there’s also insurance called occurrence-based coverage. And in that scenario, tail insurance is not needed at all. It’s about a third more expensive than claims-made, but you won’t have to pay for tail insurance in that scenario.
Now, you probably need to think about dozens of other things. I would say, in my mind, those are probably the foremost important. But you have benefits, bonus structure, contract length, other restrictive covenants with the non-solicitation agreement, non-disparagement, confidentiality, your hours worked, and the call. I mean, you need to think about a ton of things. So, I would suggest reaching out to someone with experience reviewing contracts. I mean, when you’re signing a contract that could be worth a million dollars, at least in my opinion, it would be foolish not to get it looked at by someone who knows what they’re doing.
Physician Negotiating Tips | Hospitalist Contract Negotiation
Do you want to know how to negotiate hospitalist contracts? I have some good and some bad news. The good news is that there are certain areas within the employment contract that a hospitalist can negotiate. The bad news is that one of the main areas where it’s difficult to negotiate is the base salary or hourly rate. There are two ways a hospital can be staffed. Either the hospital employs them, or there’s a staffing company/physician group that contracts with that hospital to staff the hospital with hospitalists. I find that most companies want to keep the rates standard, especially if there’s an hourly rate involved. I mean, the variables for any hospitalist job are the base salary. And the shift expectations per year, month, or hourly rate, usually with the shift differential.
Main Areas of Hospitalist Employment Contract That You Can Negotiate
When the hospitalist negotiates, the company will typically push back and say, “Look, we want to keep the rate standardized.” The physician is going to talk. There will most likely be friction if one person makes $20 more than another. So, suppose it’s an hourly rate position. In that case, getting the organization to move off that is challenging. Contract negotiation can be complex in this case. Some movements and contract agreements are reachable if it’s just a base salary. However, there will be a narrow range of what the action could be on a base salary.
And then, as long as the shifts are required, they can move them. In some places, the longer the physician has been with that company or hospital, the more their expectations may change over time. And that’s a place that we can sometimes negotiate.
The areas of the employment contract that you do have some movement on would be:
- The signing bonus,
- Relocation assistance,
- Non-compete scope,
- Nose coverage,
- Whether they pay for your tail when you’re leaving.
What Is a Fair Signing Bonus for a Hospitalist?
I’d say those are the main areas where there is some movement. Now, how does a physician determine what’s a fair signing bonus for a hospitalist? Well, it depends on who you are in the country. Suppose you’re looking into a facility that’s in a difficult location to staff. More rural communities without large cities around them are always harder to staff.
That’s just the reality. And so, the hospitalist has more leverage in asking for a higher signing bonus. Some communities will not only provide a signing bonus. But they can also offer student loan assistance where they’ll pay a particular portion to the company that has the student loans. Usually, that can be substantial, somewhere between fifty to a hundred thousand. But as far as the signing bonus goes for a hospitalist, I’d say anywhere between 10,000 and 50,000 could be a normal range. And then you certainly want to ensure that the organization is also paying for your move.
Can The Bonuses Be Negotiated?
One thing to remember, especially for hospitalists coming out of training, is that the timing of those bonuses can also be negotiable. You’re in residency, and you don’t make a ton of money. Some people don’t have $15,000 to put down for action because, most of the time, they’ll state that they will reimburse you. One of our negotiating points is having them pay the cost directly to the moving company. And have them provide the signing bonus upon executing the document and signing it, and not just when the hospitalist starts the job. A non-compete can be necessary as well.
Now, if you’re in a one-hospital town, a non-compete has almost no effect on you because it needs to be reasonable. Something reasonable is usually somewhere between 5 to 15 miles and one year. But if you’re in a large metropolitan area, and you want to stay in that city, decreasing the radius of the geographic restriction certainly is something that we would look to do as well. And then, as I mentioned before, with malpractice insurance, sometimes you can work on if the organization provides tail insurance or not.
A good rule of thumb in tail insurance is that it’s usually about twice your annual premium. For hospitalists, it’s probably somewhere between 7,000 to 10,000. So, your tail insurance cost would be 14,000 to 20,000, something like that. So, is it possible to negotiate points in a hospitalist contract? Obviously, yes. Getting any movement, base salary, or maybe a little action is strict. Still, the signing bonus, and non-compete, which pays for tail insurance, are the areas that I think you should focus on.
What Can You Negotiate in a Physician Contract? | Doctors Contract Negotiations
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 depending 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.
Physician Contract Questions?
Contract Review, Termination Issues and more!