How Does Tail Insurance Work?

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How does tail insurance work? If you are a high-level healthcare professional like physicians, NPs, PAs, and dentists, you will need medical malpractice insurance while you’re practicing. And then depending upon what type of coverage you have; you may need tail insurance. I’m just going to break down the common types of malpractice insurance, and then when tail insurance is necessary and the details of when it needs to be paid, how long it needs to be paid, how much it costs, that type of thing. The two most common malpractice insurance types in private practice are either an occurrence-based policy or a claims-made policy.

When Do You Need Tail Insurance?

An occurrence-based policy simply means a policy must be in effect when the malpractice incident occurs. And in that scenario, tail insurance is not necessary. 

Under a claims-made policy, a policy must be in effect when the claim is made. It’s possible if a provider leaves an employer, there’s going to be a gap between their last day at work and then the last day somebody can sue them, and it’s called the statute of limitations. For most states, it’s two years. There are some exceptions, but in general, two years is a good rule of thumb in this situation. Let’s just say for this case, it’s two years. So, if you leave the employer, then there’s going to be a two-year gap where someone can still sue you for the things you did for that employer. And so, in that scenario, you need a policy that covers that gap, and that’s known as tail insurance in the industry.

If you have a claims-made policy, you need tail insurance, if you have an occurrence-based policy you don’t.

Who Should Purchase Tail Coverage?

If you do have a claims-made policy, the employment contract is going to dictate, one, who pays the underlying premium. Ninety-nine out of a hundred times, that’s going to be the employer, if you’re an actual employee and not an independent contractor. And then the employment agreement is also going to cover who pays for tail insurance. Now, this can vary greatly from contract to contract. If you are working for a private physician-owned practice, I would say, more likely than not that the provider is going to be responsible to pay for tail insurance. It’s rare that a physician-owned practice would pay for tail insurance. I’d say maybe 75% versus 25%. So, 75% must pay for their own tail. In the contract, it’s going to state, alright, the physician is responsible to pay tail insurance. Let’s kind of break down the details of that.

The tail policy will need to be in place prior to the end of the employment relationship. So, let’s just say the physician gave notice, and there’s a 60-day without cause termination. They’re going to have to get that policy secured before the end of that 60-day period when they leave.

Average Tail Coverage Cost

Tail insurance generally costs about twice what your annual premium is. This varies based upon specialty. So, if maybe your primary care, it could be around 5,000 to 6,000. Whereas if you’re an OB-GYN, it could be 40,000 or 50,000 a year. A good rule of thumb is twice what the annual premium is, is what you’re going to have to pay for tail insurance. It’s a one-time cost.

You’re not going to have to pay it every year, but you will have to pay all the money upfront to purchase the tail prior to the end of the employment relationship.

How Long is the Duration of a Tail Insurance?

Now, how long does tail insurance last? Well, it depends on what type of policy you bought. You can buy a one-year tail, a two-year tail, a five-year tail, and an unlimited tail.

In my opinion, it seems shortsighted to purchase a short tail. Why would people do that? Well, it’s just a cost. Now, I said two times is kind of the average, but it can usually range anywhere from 1.5 times all the way up to 3 times what the annual premium is based upon how long the tail is. And then also, how long you’ve been with the employer and that type of thing.

Determining how long you should get should be easy. It should be an unlimited tail; it should go on forever. You don’t want to have a scenario where you are not covered at the time that a claim is made. And that could be financially crippling for a physician or any kind of healthcare provider if they’re ultimately found guilty or they must reach a settlement. 

Add Tail Coverage to Negotiations With Your New Employer

Now, you can negotiate who pays for tail insurance coverage in the employment agreement. If you go to the employer and say, hey, I’d like you to purchase my tail, they may say, no.

One strategy we’ve been successful with is asking the employer to then forgive a portion of the tail cost based upon how long the provider has been with the employer. For instance, let’s say the physician has a three-year initial term, and they complete the three years negotiating with the employer is one way of getting out of having to pay for tail insurance.

Another would be if your new employer pays for your old tail, that’s called nose insurance. Or this isn’t going to work if you’re employed in the hospital network, but if you are with a private-owned practice, and then you leave for another private-owned practice within that state, and then they use the same insurance carrier, generally, the insurance carrier will just roll over your old policy into your new one, and then you won’t have to purchase tail insurance.

Now, there’s no way you’re going to know, okay, in my next job when I leave this one, whether they have the same insurance or not, but that’s another way of getting out of having to pay for tail insurance coverage.

So, that’s how tail insurance works. It just covers the gap between when you leave an employer, and then the last day somebody can sue you, it’s around twice what the annual premium is, and then you can negotiate who ultimately is responsible for covering the expenses associated with it.

How Important is Tail Coverage?

What is Claims-Made Malpractice Insurance?

How Long Does Tail Coverage Last?

What are the Types of Medical Malpractice Insurance?

What are the different types of medical malpractice insurance coverage?  This is a frequent topic that comes up when I’m reviewing a contract. I would say, during med school or training, most physicians are not given a breakdown of the different types of malpractice insurance coverage. So, it’s always a good idea when I’m talking to a physician who is relatively new and doesn’t understand the different professional liability insurance. Just to kind of give a brief breakdown of each one and maybe the pros and cons of each insurance policy. There are three main types of professional liability insurance policies for physicians. You have self-insurance programs from big hospital networks, and then most private practices will utilize one of two, either occurrence-based coverage or claims-made insurance coverage.

Let’s just kind of talk about three of them. First is self-insurance. Large hospital networks will usually have their own policy in the simplest way: they’ll set aside a pot of money, and pay claims out of that. In that circumstance, generally, the physician doesn’t have to worry about purchasing tail insurance coverage. That’ll be covered by the employer’s self-insurance program. This is great. I mean, it’s great insurance when a physician never has to worry about tail coverage and doesn’t have to worry about paying for the underlying premium, that is kind of a nice, secure feeling. That’s what most large hospital networks utilize. The next type is occurrence-based coverage. And what that means is an insurance policy has to be in effect when the event actually occurs.

Any kind of malpractice event is going to occur while you’re employed with the employer. So, you are covered in perpetuity if an occurrence-based policy is in place and then something happens. The benefit of occurrence-based insurance is that you don’t need to purchase tail insurance. The downside is it costs more than a claims-made policy. A good rule of thumb is that occurrence is about a third more expensive than claims-made policies annual your premium. So just to give an example, let’s say you have a claims-made policy and it’s 6,000, then your occurrence-based coverage would be around 8,000 per year.

There is a math equation that needs to be considered to determine what is the best policy for a physician. And I’ll get into that at the end. But honestly, most of the time, physicians don’t have a choice between an occurrence-based policy or a claims-made policy. It’s whatever the employer of a small business chooses to provide. That’s what the physician must go for.

The last one is the claims-made insurance policy. What that means is a policy must be in effect when the claim is made. When someone terminates a contract and they no longer work for the employer, there is still a gap in between their last day of practice with that employer and the last day somebody can sue. That’s called the statute of limitations for malpractice claims. In most states, it’s two years. If there is no insurance policy in effect if a claim is made, then the physician is at risk of trouble. Nearly every employer will require one of the parties to purchase tail insurance coverage. The need for tail insurance coverage is to simply cover that gap between the last day that a physician works for the employer and then the last day somebody can sue them.

Now, it’s two years from when the patient either knows or should have known of a malpractice incident. It’s possible that it can go past the two years period if there was no way for the patient to know until a few years down the line. I’d say most of the time if a physician is working for private practice, a small physician-owned business, group, or something like that, they’re going to have to be the one that purchases the tail policy. There are employers that will pay for tail coverage, but I’d say more times than not, the physician is responsible for their own tail coverage. Tail coverage costs about two times what the annual for claims made coverage. So, if a physician has a $10,000 annual premium for claims made coverage, you just multiply that times two, and then that’s about how much they’ll have to pay for tail insurance coverage.

It’s a one-time cost, so you don’t have to pay it every single year until the statute of limitations runs. It’s just a one-time cost. As soon as you finish the employer and then you’re covered for that amount. Now, there can be different lengths as far as the tail coverage policy goes, but most of the time the tail coverage policy will simply cover a reasonable amount of time until the statute of limitations is over. Somewhere between two to five years period. As I mentioned before, as far as the math equation, if a physician does have their choice of insurance products, either occurrence or claims made, then you need to think about the time period you’re willing to be with the employer to lessen the risk of paying more for the professional liability coverage.

If you’re paying a third more for occurrence coverage per year, but you don’t have to pay tail, then it might make sense to utilize that if you’re going to be there on maybe a short-term basis. Let’s say you’re there for a period of two years, you’re going to pay a third more for that two years period, but then you don’t have this big one-time cost at the end. If you’re in a claims-made policy and you’re going to be somewhere long-term, then it might make sense to use claims made. Therefore, your annual premium with the insurance company is cheaper, but then you’ll still have that hit on the end with the tail coverage. Which one is better? It honestly just depends upon the situation. And then certainly, it depends upon specialty.

The annual premium can vary wildly. Like primary care, peds, or something that could be 6,000 a year whereas OB-GYN, one of the higher-level surgeons, cardiac surgeon, or something like that, could be between 20,000 to 50,000 a year, and then just do the math on that tail cost. It could be forty to a hundred thousand for their tail coverage. It’s specialty-dependent as well. This certainly is something that we negotiate as it can take great resources of a physician. When we’re looking at a physician contract, you always must consider, okay, what’s most important to the physician. And then what are the areas that we can work on more comp, more time off period, better bonuses, whatever. But who pays for the tail insurance product certainly is an important piece for most physicians, especially the ones in those higher-end specialties.

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Physician Loans: Physician Recruitment Forgivable Loan Explained

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Physician recruitment agreement forgivable loans explained. For the most part, these are used for people just coming out of training. So, how a recruitment agreement works between a hospital is the physician would have an employment agreement with a private practice within an area. And then the hospital or hospital network within that area would supplement the first-year compensation of the physician if the physician stays within the area for a period of time.

I know it might be a little complicated, so let’s break it down. The employment agreement with the employer is going to dictate the employment relationship between the two parties.

What are “Physician Recruitment Agreements?”

There are some practices that maybe couldn’t afford at the very beginning to completely compensate a physician. And so, the hospital may have a need for that specialty in the area, but they don’t want to employ that physician themselves. So, what they’ll do is they’ll tell the practice, alright, if you bring in this physician in this specialty, we will cover their first-year expenses in addition to some bonuses. And in the recruitment agreement, it may state, alright, we’re going to give you the physician a signing bonus, we’re going to help with relocation assistance, and then we’re going to cover a certain amount of their compensation for the entire first year. Let’s just say, you’ve got a primary care physician and they’re making 200,000 a year. The hospital would essentially say, alright, we’re going to supplement 200,000 for that first year.

And then they’ll offset that by whatever the physician brings in. They’ll also cover the practice’s expenses as well. And then at the end of that year period, there’s going to be an outstanding amount of money.

Forgivable Loan, more than just Compensation

And that amount is going to be kind of thought of like a forgivable loan. And as long as the physician stays within that geographic area of the hospital, there should be zip codes attached to the physician recruiting agreement that just says, as long as the physician stays within these zip codes, we will continue to forgive the loan. For compensation, there’ll usually be a one-year income guarantee period, and then there’ll be a forgiveness period after the fact. Usually, it’s three to four years.

How they normally would do it is they’ll take that amount. Let’s just say in this scenario, the total amount with signing bonuses, relocation assistance, base salary, and practice expenses is 300,000, and it’s a three-year forgiveness period. They’ll say, alright, for every month that you’re here, 1/36 of that 300,000 is forgiven. If you stay in the area practicing for three years, at the end of the three years, that amount is completely forgiven. You do not owe us anything and then you’re free to move on and do what you want.

Why Would a Physician Sign a Physician Recruitment Agreement?

Now, why would doctors sign physician recruitment agreements? Well, during recruitment, I would avoid it if possible, but there are some jobs where the only way that that job would exist is if they were supplemented in some way by the hospital network. And so, you need to say, alright is the practice just doing this to not have to pay me?

And I’m not going to tell the practice that they’re doing something dumb. They’re not, they’re being smart about the business. Why wouldn’t they accept supplements? Why would they say no, we’ll just pay everything, when they could have a hospital cover many of the fees. 

The Downside to Physicians in Signing Physician Loan Agreements?

The downside to the physician is several things. One, they are going to ultimately, and very likely be responsible for whatever that outstanding amount is at the end of the initial income guarantee period. And let’s just have a scenario where they have a non-compete in their contract with the employer, but in the recruitment agreement, it states they must stay within a certain geographic region in order to forgive the outstanding amount. They could be completely limited in their options if they have a bad non-compete in the employment agreement.

Ideally, the hospital would require that the employer remove any kind of non-compete language. And I would suggest making certain that happens and you need to press the hospital network to press the employer to remove that language. If you just go to the employer and say, I’d like that removed, they may say, no, we’re not doing that. If the hospital insists that the employer remove that type of language, you need to tell the hospital, therefore this needs to happen. It will be much more likely that it will be removed because if the practice has a need for a physician, but they don’t want to pay the entire amount of compensation and bonuses and all that good stuff at the beginning, it likely will be worth it for them to just remove the non-compete to get supplemented with all of those things that I just talked about.

That’s kind of one thing you absolutely need to think about if you have physician recruitment forgivable loan is that you kind of get the non-compete removed from the physician’s employment contract because if you’re in a rural environment and there just aren’t that many opportunities in your specialty, and you did have a non-compete and maybe they there’s no opportunities for you, and it would be impossible for you to work out that three year forgiveness period, you’re stuck with a significant amount of money. There is interest on that amount as well, and they’ll likely want you to pay it back immediately and fully as soon as you are no longer practicing within that region. So, that’s something a physician must be very careful about. And then another one is, every job looks great at the beginning, right? Everyone is nice, the huge growth opportunity, but when you get there, it may not be as nice.

Other Issues to Think About

There may be problems that there’s just no way of knowing about in the interview process. And there are times when physicians may come into a job and then immediately, they think, oh man, this is not going to work for me. If you’re under a recruitment agreement, it could cause big problems for you. One, getting out of that job or two, having to pay back significant amounts of money. I would be very careful about signing a recruitment agreement with a hospital network without really thinking about it, is this the absolute place that I want to be? And then, do I have any other opportunities elsewhere that won’t require me to sign a physician recruitment agreement? It’s kind of a tough process. When I’m going over physician’s contract agreements with someone who just had training, they generally don’t have any knowledge about these things.

When you add in a physician recruitment agreement on top of an employment agreement, it’s like information overload for physicians. And sometimes, it’s difficult to convey the dangers of signing something like that. It’s probably infrequent, meaning, the percentage of physician’s contract agreements that I review that contains a recruitment agreement or have a recruitment agreement attached to it is probably less than 10%. Now, I’m not saying this is a terrible opportunity. As I said before, some jobs may simply not exist if they aren’t supplemented by the hospital for the first year, and they can turn into tremendous opportunities. But you always must look at, alright what’s the worst-case scenario in this situation? The worst-case scenario is someone signs physician contract agreements, starts a job, hates it, gets out of it, and owes 200,000, which I can tell you if you’re just out of training, you’re not going to have at least not immediately. So, that’s kind of a breakdown of physician forgivable loans. I would suggest talking to somebody, meaning, an attorney about each document before you sign anything, especially Physician Loan Agreements or a Physician Recruiting Agreement. Honestly, be careful if you’re going to do both and find somebody that has expertise in doing this, just to get a set of eyes on it and kind of walk you through the dangers of it.

What to Know Before Signing Your First Physician Contract

What Can You Negotiate in a Physician Contract?

Backing Out of a Physician Contract

What are Restrictive Covenants in a Physician Contract?

What are restrictive covenants in physician contract agreements?  Restrictive covenants are essential things you can’t do. Many times, it’s when the contract is in effect and then for a period after the physician contract ends. Kind of the general and normal restrictive covenants for a physician would be a non-disparagement clause, non-compete, and a non-solicitation agreement. These are things you can’t do. Let’s go through each one.  Non-disparagement clause, simple. When the contract ends, they want you to agree that you’re not going to badmouth the employer. The physicians of the employer, and the staff of the employer, there will be no disparaging comments. If you have a non-disparagement clause in your contract, it should go both ways.

I would ask them if it just says, you can’t say anything bad about them, then I would ask them to make it mutual interest, meaning, it just takes the same paragraph and reverses the parties so that they can’t badmouth you after the physician contract agreement ends as well. Next, is the non-compete. This one is easily the most important in the physician contract. A non-competition clause will state that a physician can’t work within a specific specialty for a period within a defined geographic region. Let’s just take a cardiologist as an example. The non-compete will state that the physician can’t work in cardiology for one year after the physician contract agreement terminates within 15 miles of the primary practice location. The important parts of any kind of non-compete are one, the definition of the specialty. Some people are boarded in multiple specialties and can do different things like a hospitalist. If you’re in internal medicine, you can do hospitalists, you can do ED, and you can also do urgent care. And you need to limit the definition of the specialty to what you are doing for that employer.

If you are, as I said before, working for a hospitalist for a hospital, then you want to have the opportunity to do maybe primary care, ED, or urgent care for that year. And then you can switch back to being hospitalists in that area if you want to. That’s the first part. Now, how long should it be? Well, most are somewhere between one to two years. In most states one year is considered the enforceable amount. If you do have a two-year non-compete, you would ask to limit that to one year. One year is fair. I don’t think any state is going to find that a one-year non-compete isn’t fair unless it is a state that completely finds any kind of non-compete unenforceable. There are a few states like that, but obviously, we’re talking about states where it can be enforced. 

If you have a longer than one-year non-compete, you want to cut that down to one year. And then the most important part of a non-compete is the definition of where you can’t practice. Kind of the simplest way would just be you can’t compete, or you can’t have a job within 10 miles of the primary location that you work in. That’s simple, right? Like you can’t work within 10 miles and it’s as the crow flies. There it’s not a street 10 miles, it’s just sticking a pin 10 miles all the way around. Now, if an employer has multiple locations or potentially if the physician is working, maybe not only in an outpatient clinic, but they’re working in a hospital or multiple hospitals, you need to be careful about what the definition of the restricted sites will be. Is it just your primary site?

Is it every site that the physician owns? Is it just the sites that you worked at? You want to limit that as much as possible as well. I mean, one trick is just to say, if they have multiple locations just to say, anywhere where I’ve generated more than 35% of my charges, that way it can only be two locations when you do the math on that one. That’s where the fight matters. If you’re with an enormous employer that has 20 locations in the city, and they’re saying it’s 10 miles from 20 locations, I can’t imagine any court would find that reasonable or enforceable. However, you never want to sign an agreement that you’re just expecting to break or not be enforced. That’s just a bad idea. So, those are the three kinds of main restrictive covenants.  The non-disparagement clause, non-solicitation agreement, and non-compete. We need to go over the non-solicitation clause

That means, for a period, you can’t actively solicit patients, employees, independent contractors, or vendors. And so, the important part of that is what is considered soliciting. Let’s just take the patient part. Actively soliciting a patient would be downloading a patient list of all your patients with the employer, and then blasting out an email to them and saying, hey, I’m leaving the practice. I’m opening my own practice. Please come with me. That would be prohibited under a non-solicitation clause. Now, if the patient reaches out to the physician and says, hey, I hear you’re leaving, where are you going? That’s not an active solicitation. So, that would be okay. As far as soliciting employees, let’s say you’re opening up your own practice outside of the non-compete area, but you’re interested in bringing over the front office, an MA, a nurse, or an office manager, well, a non-solicitation clause would prohibit you from actively soliciting that person to come with you.

Many savvy employers will have a ‘you cannot hire them.’ I mean, if I was writing a physician’s employment contract for practice, I would absolutely make certain, it doesn’t just say you can’t solicit them. I would also say you cannot hire them. But in that scenario, it depends on what the language is, but you couldn’t actively solicit the employees or potentially not hire them as well. So, that’s a brief example of a non-clause.

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Surgeon Contract Negotiation Tips

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Here are some contract tips and some new things to think about when you’re negotiating an employment contract for a surgeon. In this scenario, let’s just take employment contracts. So, either you’re coming out of training or perhaps you’re thinking of switching jobs and you’re offered an employment contract, what are the areas you should be concerned about? And then maybe some areas in which you have more leverage than others. 

Signing Bonus, Relocation Assistance, and other Bonus You Can Get

The first thing you should think about is the bonuses. In almost any contract for a surgeon, there’ll be a signing bonus. And then if you are moving to a new city, town, wherever, they should pay for your relocation as well. We’ll call that relocation assistance.

So, you’ll have a signing bonus, and in addition, you’ll have relocation assistance. Now, how much is the normal signing bonus? Well, it depends. Anywhere between 20,000 to 50,000 would be a normal signing bonus. And then as far as relocation assistance, usually, somewhere between 10,000 to 15,000 would be considered a reasonable amount. If you are not getting that much for either one, that’s something you need to negotiate to improve. 

Some employers will try to lump it all into one. So, take that into account, just add them together. But that’s the normal range for a surgeon. Obviously, there can be more. Some places like if you’re maybe entering with a rural hospital network, they might offer some student loan assistance as well. And there are some student loan packages that can reach 150,000. Now, there will be a period that you have to stay with the employer in order to get all of that money or have it forgiven and not have to pay it back.

But there are beyond the signing bonus and the relocation assistance. Some physicians also get student loan repayment as well, and that’s mostly for people just coming out of training. You’re not going to get that if you’ve been out for a while.

Negotiating Compensation Structure

Alright, next, you need to think about the compensation structure. Is it just the base salary? Is it RVU production if you’re in a hospital network? Is it net collections if you’re with maybe a private physician-owned practice? You need to determine what your fair market value is, and there are a couple of ways of doing that.

One, talking to the people that you’re in training with and seeing what their offers are, talking to your mentors and seeing what they’re making out there, trying to find the MGMA data. The medical group management association is kind of the industry standard for compensation amongst different specialties for physicians. It’s difficult to get up-to-date MGMA data unless you have direct access to it and pay for it. You could probably Google and find some year or two old data, but very unlikely you’re going to find the most up-to-date data on your own, but that is helpful even if it’s a year or two old to see, alright, well, what’s in a normal range.

You can also find beyond total compensation, average RVU production per year, per specialty, and average net collections per specialty as well. So, you need to find that out. Now, is one compensation kind of calculation better than another? Not really. If you’re in a hospital network, it’s likely going to be RVU production. If you’re in private practice, it’s likely going to be net collections. If there is a productivity model involved, one is not better than another.

If you’re on net collections, it’s going to be a percentage of what the net collections that you bring into the practice from your personally performed services are. That percentage can certainly change. If you’re on pure net collections, it’ll be somewhere between 35% to 45%. If you’re on maybe a hybrid of like half guaranteed base and then half productivity, it might be somewhere between 15% to 25% of your net collections. Just kind of depends. 

And then RVUS, very simple. You just multiply the amount of RVUs that you produce per year, per quarter, per month, then multiply those times a conversion factor. You can find that in the MGMA data as well. That is dependent upon specialties. The different subspecialties of surgery will have different comp factor numbers. A way of negotiating is trying to find what is fair market value and whether you’re getting it or not with your new job.

Strategies in Insurance Negotiation During Contract Negotiation Process

Next, if you have a claims-made policy, are they going to pay for tail insurance? If you are joining a hospital network, it’s likely they’re self-insured or have a policy where you will not have to pay tail insurance. If you’re going into private practice or smaller physician-owned practice, it’s very likely they’re going to have claims-made coverage. And it’s also very likely they’re going to expect you to pay for your tail insurance.

Tail insurance just covers the gap in between when you leave an employer and then the last day somebody can sue you. And as far as cost for tail, it could normally be around twice what your annual premium is. Surgical specialties can really, I guess, vary based upon what you’re doing, but it could be anywhere from 12,000 all the way up to 30,000 a year. So, if you just double that, that’s kind of a good range of what you’d have to pay for tail insurance. Tail is a one-time payment; you don’t pay for it per year. It’s just a one-time payment, then you’re covered for what the length of the tail policy dictates.

Getting the employer to pay for your tail certainly is important for most people that have a claims-made policy. Probably 75% of the physician-owned practices make the employee pay for it. If they’re not willing to pay for your entire tail, one strategy we’ve been successful with is telling them, let’s say a three-year initial term, then you would say, alright, for every year that I’m here, you would then chip in one-third of the cost for tail insurance. And if you finish out the first three years, then the employer would pay for the entire amount of your tail policy. You can also get out of having to pay for your tail insurance if your new employer pays for your old tail, that’s called nose coverage. Or, if you stay with the same insurance company at your new job, they’ll usually just roll over your policy into a new one and you wouldn’t have to pay tail.

And then the last thing I’m going to talk about as far as things to think about when you’re negotiating is the non-compete. This is important, especially for surgeons. There are two components to a non-compete. You have things you can’t do while the contract is going on, that’s usually called either exclusivity or outside activities. And most of the contracts will state you have to get written approval if you want to work or practice medicine at all for anyone else during the term of your agreement.

Now, a lot of surgeons will want to do moonlight, locums, or maybe let’s just say they are plastics, but they’re working for a children’s hospital just doing hands. They may want to do and keep up their skills doing adults or other types of general plastics. And so, they want to make certain that their employment contract will allow them to do that. I mean, you wouldn’t want to be prohibited from keeping up your skills somewhere else. But most employers are strong with requiring approval. So, you want to get that approval in advance and just say, alright, if I do this, and obviously, if it doesn’t interfere with my job duties with you, am I allowed to do some of this outside stuff on my off time? And the employer should say yes in that scenario. 

Tips About Non-Compete in Contract Negotiation

Now, as far as the non-compete after the contract ends, you need to think about, alright, well, what is the specialty that’s stopping me from doing? Obviously, if you’re a general surgeon that says you can’t practice general surgery, that’s what it’s going to say. But once again, for other specialties that can do multiple things, you just want it to be specific to the thing that you’re doing for that employer. And then it will be for a period, usually, somewhere between one to two years. Try to get it to one year. 

And then lastly, the geographic restriction will vary widely based on where you are. If you’re in an urban environment, it’ll probably be a little bit less. Somewhere between 5 to 10 miles would be considered a reasonable amount. I’ve seen contracts that try to knock a surgeon out of every contiguous county, which could be a huge geographic radius or 10 miles from every facility that their employer owns. And they could own dozens of them in a city. You want to limit it to the places that you’re practicing like your clinic location, surgery center, and hospitals where you’re performing procedures. Try to limit it to the fewest possible. And then try to really squeeze down that mileage radius as well.  For some people, a non-compete is the biggest deal.

If you have family in town, kids in school, whatever it is, there’s just no way that you could move after, or if your employment ended. That could be the biggest negotiating point with an employer. Some people who move into a city for a specific job have no ties to the area and do not care because they’re going to move as soon as the contract ends.

You must determine what’s the priority level for you. So, those are just four things to think about. There are obviously dozens of other things that could go into a contract. I don’t have time to go over every one of them today, but I’d say the four that I went over are usually kind of the four highlights that I hit with every physician when we’re talking about their employment contract.

Additional Information

What to Know Before Signing Your First Physician Contract

Negotiating a Physician Signing Bonus

Is a Physician an Independent Contractor?

How to Negotiate a Physician Contract

How do you negotiate a physician contract? What are the goals to consider during the contract negotiation process to win the terms of the negotiated agreements? So in my mind, there are three different scenarios. One, you’re either just coming out of training. Two, you’re switching jobs to an area of the country that you’ve never been to before, or three, you’re moving from somewhere within the area where you already live. So negotiation is always based upon leverage. Do you have it or do you not? So let’s just take coming out of training, for instance. For the most part, in negotiating job offers, the only leverage someone has when they’re coming out of training is in a specialty that’s hard to recruit for? I mean, that’s just the honest truth.

Negotiating a Contract by Physicians

You are not bringing in any established PA patient base. You’re also all relatively new to being out on your own. So, there is a learning curve that will go into moving into any position. Consider this, if you are either in an area that’s very difficult to recruit that could apply to any specialty, or you’re in a specialty that’s all to bring in and is super profitable. Those are two things to consider. When you’re looking into it, how do I negotiate the terms of the contract? And when people say negotiate, most of the time, they think about the bottom line, what is my base salary. But I think that’s kind of a narrow mind. And this will apply to anybody looking for a job. There are some other goals to consider during contract negotiations, at least in my mind, things that are more important than just the base compensation. One, what are the terms of the restrictive covenants?

My advice if someone lives in an area, they have family in the area, they have kids in the area. They absolutely cannot move after the contract ends since they will have to also think about things related to moving – like schooling of the kids, or the job of your wife, of if they are also running a business. Sometimes, the non-compete could be the most important thing in a contract. A non-compete says you cannot practice for a period of time within a specific area.

Another important piece is, who pays for tail insurance. Depending upon specialty, this could be an enormous part of a contract. If you’re an OB-GYN and you have to pay for your own tail and your underlying premium is $40,000 a year, your tail insurance cost will be higher compared to other specialties, probably going to be around 80,000. So, who pays for tail insurance certainly could be the most important thing in an employment agreement during contract negotiation for an OB-GYN. 

Employer Practice Negotiations

My advice if you’re being paid on production. Let’s just say you’re in a contract that’s just pure net collection. An average range for a physician is 35 to 40% of collections. Is there language in the contract that states, when the contract terminates, you’re going to be able to collect for a 60 to 90-day window after the contract terminates? If you don’t have that, then you literally worked for free for two or three months, which nobody obviously wants to do. Going back to what is important, it depends upon the person what his goals are. When you’re looking just at base compensation, obviously having the numbers is important. So first, they’re not always easy to obtain. Most places or the majority of the places use MGMA numbers. That’s a medical group management association, and most of the time you have to pay for that and it’s expensive. So no physician, at least most physicians are not gonna do that. 

You could either find someone who has access to those numbers and try to get them. Or if you kind of Google around on the internet, sometimes you can find them, the average, our view production, average compensation. It is broken down into areas of the country. I honestly don’t think those are accurate when it comes to determining exactly how much in what part of the country. There’s just kind of a feel for what is someone getting in this area, but then you also have to take into account all the other things I just said. If someone has a base that’s $10,000 less, but employers will not make you pay for tail insurance, or the non-compete is extraordinarily small, well, that’s worth way more than $10,000 in some instances. That is kind of a few factors during contract negotiation to think about.

Physician Employment Contracts

If you’re just coming out of training, let’s say you’re established in the community, either you’re a primary care PE, it’s cardiology, you have an established space and you’re just moving into a new practice. Well, this is the highest leverage you can have duing contract negotiation. There’s gonna be no, or at least there shouldn’t be a lot of time needed to ramp up the practice. You’re just bringing people with you. Plus, when you have numbers in a community, these were my net collections, or these were the RVs I produced, or these were the patient encounters I had on a weekly basis. Those are absolute hard numbers that you can use to negotiate compensation terms, moving to a different practice. 

In that case, you have the highest leverage possible. Then obviously, you can negotiate all the ancillary things I’ve already spoken about. The last thing would be, if you’re moving, you’re out of training, you’ve been in practice for a while and you’re moving from one city to another, you don’t have an established patient base, that takes away some leverage. There are two factors that kind of work for you for your contract negotiation strategies. One, are you moving to an area of the country that’s difficult to recruit to? Very rural communities certainly pay more, simply because it’s harder to find physicians in certain specialties to come and make them move and live in those areas. Or two, if you’re in a specialty that is just simply hard to recruit to or extremely profitable. So obviously, surgeons are difficult to find or some of the other GI subspecialties are always difficult as well.

Doctors Can Negotiate Effectively

If you’re moving to a different part of the country, then the same analysis applies to some kinds of training. However, you have the benefit of having some numbers of what you produced in your previous position. You can tell them during your contract negotiation, that this was the net collection that I generated in my last position. Now, it doesn’t always translate from one state to another or one situation to another, and maybe you’re going from private practice into an employed group. But having any kind of data to back up what your production was, is absolutely essential during contract negotiation in determining what your new total compensation would be in a new position. So, those are some tips on things to think about. I mean, honestly, just doing this video, I can think of this could be broken down into 10 different videos, but this is just kind of an overview on how to negotiate.

How to Negotiate a Physician’s Salary

How to negotiate a physician’s salary? As an initial matter, I don’t personally believe that the salary should be the driving factor in a decision for a physician. Now, clearly, if there’s an enormous gap, a hundred thousand dollars, maybe 50, but if it’s $10,000 just going with the job that offers the most when maybe the benefits are different, the work environment is different, the ability to learn, have a good mentor, a good teacher, a good team. I think all those things are probably more important than just the absolute base salary amount, but it certainly is important. And so, when someone asks me, all right, well, what do I do?

How do I get a better salary during contract negotiation? In the hiring process, how can I make them offer terms that are in my goals? There are a couple of ways of doing it during contract negotiations. One, you need to know your worth. How does a physician find out what’s a reasonable salary? Well, there’s data. The MGMA medical group management association is, I would say, probably the industry standard as far as compensation numbers go, but it is not the be-all and end-all of whether something is fair or not. They break it down into regions: West, East, Midwest, Southwest, and those kinds of quadrants have different salary numbers associated with them. But just the base salary could be great or could not be great depending upon if there’s productivity compensation in the agreement as well, or there’s maybe potential they can offer partnership. So, there are many scenarios where a physician is out of training, and they’ve given a two-year, three-year agreement. That’s probably below what’s a reasonable or average amount for someone just coming out of training, kind of with the carrot on the stick of, well, if you take below market for these two or three years, then you’ll get away above-market.

Once you become a partner, be careful of the situation. Do you need to find out how many people are partners? How many people have they not offered partnership to? And then what are you going to make once you’ve become a partner? That’s certainly something that’s important. Now, as far as the MGMA numbers go, kind of hard to find, I mean, you can Google around and find, I would say data from maybe a year or two old. I found that people are relying on 2020 numbers, they’re completely screwed up due to COVID.

Some of the RVU compensation factor numbers are way out of whack. Some of the comp is just way out of whack. I would not use 2020 data to compare the contract offer. 2019 is probably the safest and most reliable number that we have right now. 2021 hasn’t been released at least at this point while I’m making this video yet. So, Google and read around. You can try and find some numbers to help you with negotiations, but I’d say the best tactics is just to go out there and try to find multiple job offers and see what you’re being offered initially. And then also, anyone who’s in training, has other people in their specialty that are looking for jobs as well. Reach out to your colleagues, talk to the people you’re in training with. What have you been offered? Where have you been offered this? One kind of difficult thing is that some people automatically think that they’re in a kind of high-cost city that they’ll make more, but have not considered other factors, like higher cost of living.

And that’s just not the case. It’s almost the opposite. If you’re looking for a job in a city that’s kind of a desirable location, usually the salaries, or at least sometimes the salaries will be depressed. I live in Scottsdale Arizona, which is a great place to live. And when I speak to physicians who are moving into the area, they’re kind of surprised sometimes because the salaries may not be kind of adjusted to the cost of living of the area, California as well. If you’re in San Diego or LA or even in San Francisco, the cost of living is very high and the housing is very high, but the salaries are not commensurate with that. You need to be aware that just because you’re in a bigger city with a higher cost of living, doesn’t mean that you’ll be making more, it’s the opposite, really.

If you’re in a rural location that’s hard to recruit to, you almost always will make more money in those scenarios. So, if money is the bottom line that you’re looking for, then you need to look in the smaller cities, that are just simply difficult to recruit to. You will absolutely make more money on average if you’re going to go to a small rural community, that’s fact. Once you have a number in mind, what do you do with the employer? You ask them for more. If you’re being offered 300 and you want 325, you don’t ask for 325, you ask for more than that. So, if they offer 300 and you want 325, then ask for 350, just kind of easy arithmetic, try to meet in the middle. Now there is a point where you will look either greedy or potentially just kind of dumb if you’re asking, if you’re offered 300 and you’re asked for 450, they’re going to say, well, that’s ridiculous for, it may even yank the offer.

You need to know your value and then specialty is also a big part in what kind of leverage you have. Any kind of contract negotiation is based on leverage. Do you have it or do you not? If you’re in a specialty that’s hard to recruit to or is in high demand, you simply have more leverage. If you’re in a specialty that is plentiful or saturated in the market that you’re looking in, your leverage is less. So, you need to take that into account as well. If you’re switching jobs in the community and you’re bringing your patients with you, then you’re certainly worth more than someone who’s coming into the community, like peds or primary care that must build up a patient base that takes time. Those are some tips on how to get a better salary and where to start. Contacting an attorney and trying to maybe get a feel for the area certainly might be helpful.

It’s fairly specialized in people that just focus on physician contracts. It’s possible you won’t find somebody in the area you’re looking at, so maybe do a wider search for that. But anyway, the last point, there are some employers that simply will not negotiate. They’ll say it’s a take-it-or-leave-it offer and you’ll then have to be willing to walk if you’re unhappy with salary, but there are just simply people out there that say, no, we’re not negotiating. This is we’re offering what we offer, and I wouldn’t be offended by that. That’s just kind of the tech that they’re taking as far as employing somebody. So, don’t be surprised if you have an employer that says no, but if it’s an offer that you’re unhappy with, you need to be willing to walk as well. It’s never a good feeling to accept a deal that you think is well below what your value is. Don’t just accept that because you need a job. Find the right job.

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How is Tail Insurance Calculated?

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How is tail insurance calculated? What is tail insurance? Under what kind of malpractice policy do you need it? And then how much does it cost? There are two common types of malpractice policies for healthcare providers. You have occurrence-based, and claims made. In a claims-made policy, you do need tail insurance, and then if it’s an occurrence policy, you do not. 

Two Common Types of Malpractice Insurance Coverage

Let’s talk about the differences between the two malpractice insurance. For an occurrence-based policy, a policy must be in effect when the malpractice incident occurs. In that scenario, there is no need for tail insurance, and I’ll explain why.

In a claims-made policy, a policy must be in effect when the claim is made. And so, for an employee who terminates a relationship with an employer, there’s going to be a period where somebody can sue them. In most states, it’s two years, it’s called the statute of limitations. And in this scenario, let’s say a physician leaves the practice, they’re no longer an employee and they have a claims-made policy, and that policy is done.

Well, they need an additional policy called tail insurance that covers the gap between when they leave the employer and then the last day they can be sued by an individual. Now, there are some exceptions in some states when a minor becomes an adult and a few other scenarios, but let’s just use two years as kind of a common amount here. In the employment contract, it’s going to state that the employer will pay for the underlying policy, assuming you’re not an independent contractor.

Who Will Buy Tail Coverage?

And then, it’s also going to state who is responsible for tail insurance. Now, if you’re in private practice, like a smaller physician-owned group, it’s very likely they’re going to have a claims-made policy. And it’s also very likely they’re going to make the provider pay for tail insurance when the contract ends. If it’s an occurrence-based policy, you’re good; you don’t have to worry about tail when the contract ends.

Why Would Someone Get One Over the Other? 

An occurrence-based policy is around one-third more expensive per year than claims made. So, if it is a smaller physician-owned practice, they usually use claims made, so they pay a third less annually for the premium because they’re going to be the ones paying for it. And then two, they’ll usually put the tail cost on the provider. So, they not only pay less per year for the premium, but they also don’t have to pay for tail insurance and it’s just cheaper for them. That’s why 9 out of 10 private practice owners use claims-made coverage. Some use occurrence-based, but it’s rare. 

If you do have a claims-made policy, and it is determined in the employment agreement that you are responsible to pay for tail insurance, let’s kind of break that down. What it will state is that prior to your last day of employment with the employer, you must purchase a tail policy. Usually, it’ll also state how long the tail policy must be. 

How is Tail Insurance Calculated?

To Calculate Tail Insurance, different factors are considered. There are different lengths of tail insurance. You could have one year, two-year, five-year, or infinite, and then with each one of those, it’s a little bit more expensive. A good rule of thumb in calculating tail insurance costs is about twice what your annual premium is. Let’s just say you’re a family practice physician. On average, your annual premium, so how much it costs to insure you each year, is probably going to be about $6,000. And so, if you had to pay double that, the tail calculation would be $12,000.

Now, that’s a one-time payment, you do not have to pay it annually. You give it all at once and then you’re covered for how long the tail is. If it’s up to you how long the tail lasts, then it makes sense to get an indefinite tail policy. You are rolling the dice if you have a one-year tail, but the statute of limitations is longer than a year because then you’re uncovered for that period. And if you do not have malpractice insurance, they could come after you personally, potentially. And that could be catastrophic for a professional. If it’s only a couple thousand dollars more, it’s just simply worth it to get the longest tail policy that you can. That way, it’s just one last thing you have to worry about.

How Do You Get the Employer to Pay for Tail Insurance?

Well, one, just simply ask them when you’re negotiating, I’d like you to cover the tail expenses. They may say no. If they do, then you could come back at them and we’ve had some success with saying, alright, well, you’re not going to pay for all of it. What if we do it like forgiveness over the initial term? What I mean by that is, let’s say you signed a three-year contract, you would say, alright, for every year that I complete for you, one-third of the cost of tail insurance will be covered by you. So, after three years, when I’ve completed the initial term, if I leave any period of time after that, you’re going to be responsible to pay for tail insurance. You could also have your new employer pay for your tail insurance. That’s called nose coverage. And then the last way of not having to pay for it would be if you stay with the same insurance company with your new position, they’ll generally just roll over your old policy into a new one. In that way, you don’t have to pay for tail insurance. So, that’s a little primer on how tail insurance is calculated.

Additional Resources Regarding Tail Malpractice Liability Insurance

How Does Tail Insurance Work?

When Does a Physician Need to Pay for Tail Insurance?

3 Ways a Physician Can Get Out of Paying for Tail Insurance

What is Claims-Made Malpractice Insurance?

I’d say one of the most frequent things that come up when I’m reviewing a physician’s contract is malpractice insurance coverage, the differences between the different types, and then tail insurance as well. Today, I’m going to talk about what is claims-made malpractice insurance for physicians. Let’s just do some basics on what malpractice insurance is, and then specifically, what is claims-made coverage. Doctors are required to have medical malpractice insurance policy.

Who Usually Pays for Claims Made Malpractice Insurance Policy?

The employer will be the one that nearly always will pay for the underlying coverage. Every year they must pay what’s called a premium to the insurance company. And then as long as they continue to pay that premium, the doctor is covered for any of their activities for that employer.

Coverage Limits

Most of the time, the coverage limit will be 1 million, 3 million. That means 1 million per claim. And then no more than 3 million aggregate per year. If you’re having $3 million claims in one year, you have bigger problems than just insurance. You’re going to have some board complaints. You might have a database entry if they settle, or you lose a trial. So, if someone asks or is concerned about the aggregate limit of medical malpractice insurance coverage, it’s a bigger problem than that.

3 Types of Malpractice Insurance

There are usually three types of insurance. You have self-insurance programs. Some of the bigger hospitals and healthcare networks are self-insured, which generally means they have a big pot of money set aside that they pay claims out of. The second would be occurrence-based insurance. And that just means a malpractice policy has to be in effect at the time period that the malpractice event occurred. The benefit of occurrence-based insurance is you do not need tail insurance. The downside is it just costs a little bit more. Generally, occurrence-based insurance costs about a third more per year than a claims-made malpractice policy would. And then lastly, what we’re going to kind of detail today is claims-made insurance. 

A claims-made malpractice policy must be in effect when the claim is made. If you are with an employer and then the agreement is terminated and you leave, then there will be a period called the statute of limitations from when a patient can still sue you. In most states, it’s two years. Even though you’re no longer with the employer and it was a claims-made malpractice policy, and it ended when you left, you need gap coverage. Another malpractice insurance policy covers the gap between the last day that you work for the employer, and then generally the last date where the statute limitations run. And that’s commonly known as tail insurance or tail coverage. 

You must buy tail coverage if you had a claims-made malpractice policy, let’s talk about that. Everyone wants to know, well, what’s the cost? A good rule of thumb is tail insurance generally costs about twice what your annual premium is. So, if you have a $10,000 annual premium, multiply those times two, and then you would have to pay $20,000 once your employment contract is terminated to cover your tail, that’s a one-time payment. You don’t have to pay it every year. It’s just, that you pay all of it upfront and then you’re covered for whatever it is. Some tail policies last longer than others. Generally, you obviously want more than long enough to go past the statute of limitations. Most malpractice claims, it’s when the patient either knows or should have known of the malpractice event.

There is an infrequent period, but a patient would’ve no way to know about a medical malpractice event until years later. And so that’s kind of when tail coverage kicks in. Who must pay for tail coverage? If you work for a hospital or healthcare network, most of them will be self-insured, but let’s just say they had a claims-made malpractice policy. They will generally pay for your tail. Most of the physicians who have to pay for tail insurance are employed with a private physician-owned group. I’d say it’s probably 75% of physicians who work for a smaller physician-owned medical facility that must pay their own tail. Is this something you can negotiate? Sure. A couple of thoughts on that. You can just ask them to outright pay for your tail. If they say no to that, which many of them most likely will, then you could also say, alright, well, let’s do it this way.

Let’s say for every year that I am employed with you, you’ll agree to pay a quarter of my tail cost. If I finish out a year and then leave, you will pay a quarter of the tail. If I stay for two years, you’d pay half and so on. And in that way, if I complete 40 years, the employer will pay for the entire tail. I find some employers understand that that is a fair way of doing things. And then you can kind of play with the percentages per year or how much each party pays. But there are some creative ways of figuring out how to split the cost of the tail insurance with physicians and employers. Most of the time, physicians will not have the choice of either getting an occurrence-based malpractice policy or a claims-made malpractice policy. Whatever the employer or whatever type of insurance the employer decides to go with, that’s the type of insurance the employee is going to have to use.

Usually, physicians can’t say, hey, I’d like an occurrence coverage if the employer decides to use claims made. The reason why the employer uses claims-made is it’s cheaper. As I said before, an occurrence-based malpractice policy is about a third more expensive per year than a claims-made malpractice policy. So, if you’re the employer and you’re going to make physicians pay for their own tail, you’ll say, not only am I going to save a third per year on annual premium cost, but then I’m not going to pay for tail insurance either. Save them some money. There is a kind of math equation. Let’s say you did have the option of choosing occurrence or claims-made insurance. It’s going to be based on how long you decide to be with the employer.

If you have, say a $6,000 annual premium and occurrence-based would be $8,000. So, $2000 more. The longer you are with the employer, the more that would make sense. Whereas if you’re with the claims-made malpractice policy, you’re paying $6,000 a year or the employer is, but in the end, the longer with your employer, the tail can sometimes be a little bit more expensive. So, you do need to do the math of, alright, if I’m paying a third more per year, at what point does it make sense to just pay if I plan on staying with the employer for 10 years? Well, that might make more sense to a claims-made malpractice policy. Whereas if you’re there for a shorter period of time, maybe an occurrence base malpractice policy makes more sense as well. This certainly is something that you can negotiate in an employment contract. And I do think it’s something that most physicians feel is important. It’s also specialty-dependent. I mean, if you’re primary care and you’re paying $6,000 in your annual premium, then $12,000 for tail insurance isn’t that big a deal. Let’s say surgeons or if you’re an OB-GYN and you’re paying $50,000 a year for your underlying coverage and you must leave and your tail is a hundred thousand dollars, well, that’s certainly something that’s going to get your attention and you may need to discuss the employer.

A couple of ways of getting out of having to pay for tail insurance: one, obviously to negotiate, so the employer agrees to pay for it. Two, if you are with an insurance company and then your new job uses the same insurance company, then generally the insurance company will just roll over your old malpractice policy and tail into your new malpractice policy and you won’t have to pay for tail insurance. Now, obviously, no one’s going to know for certain if they leave a position, the new employer’s going to utilize the same insurance company, but that’s one way of doing it. And then the last way of doing it is nose coverage. What that means is the new employer would pay your old tail called nose coverage. And then that would be a way for you to get out of having to pay for it.

Nose coverage happens, I would say infrequently, but certainly, it’s not completely unique that a new employer would pay someone’s old tail. So, that’s what claims-made coverage is. It’s kind of a lot of, I guess, complicated scenarios but simple once you break it down into three different types of insurance.

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What to Know Before Signing Your First Physician Contract

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What should you know before you sign your first physician employment contract? This is a broad topic but we’re going to hit the main areas, things to think about prior to signing your first employment agreement. First, figuring out whether the compensation that you’re being offered is fair market value. There are a couple of, I guess, good ways of going about trying to find that. Well, one, the MGMA, the medical group management association collects annual salary data from across the country. If you can get access to that, they have a lot of good information about total compensation, average net collections, 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 in the fact that some of the specialties have a very small sample size. In addition, that just total compensation should not be the determining factor when somebody’s looking for a job. Alright, so that’s compensation. Now, 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 federal facility? Are they going into private practice in some way? It is good to speak to people that you train with to see what they’re being offered. And then mentors are another good place. If someone is already out and maybe they’ve been a teacher for you or a mentor in some way, just ask them if they’re willing to talk about the type of compensation that they’re receiving. Next would be how to terminate the agreement. Something you really need to think about. There are four ways to terminate a contract if the initial term ends. Let’s say you have a two-year contract and there’s no language that states it automatically renews, then it just ends, and the contract terminates. You can terminate 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 cure. Other blogs of interest include:

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 very limited circumstances where no without cause termination would be okay. If you’re a J-1, that’s one that usually would probably benefit you not to have that in there. But in almost any other scenario, without cause termination simply 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 the contract if you wanted to get out of it.

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 they brought you in telling you it was going to be one way and the call is just excessive. Or maybe it’s just a terrible personality fit, whatever reason it is that you’re not happy in that job, you need the ability to get out of it if you want. So, you must have without cause termination in the contract. Somewhere between 60 to 90 days is standard for physicians. Alright, next, the non-compete. A non-compete simply says the physician can’t work after the contract terminates for a period within a specific area. As an example, most non-competes are one year, sometimes all the way up to two.

And then a reasonable mileage would be 10 to 15 miles from your primary practice location. Now, many times, the employer will try to tag on 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 maybe the employer has tons of 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 completely unenforceable to have a non-compete. But for the most part, most states allow non-competes for physicians. Lastly, malpractice insurance. The employer should almost always pay for your underlying annual premium. How much they must pay each year to insure you. Depending upon the policy, either if it’s claims-made policy or an occurrence-based policy, it’s going to determine if you must pay what’s called tail insurance.

If it’s a claims-made policy, tail insurance is necessary, and a good rule of thumb is tail insurance costs about twice what your annual premium is. In some specialties, it can be very expensive, OB-GYN, some of the higher-level surgical specialties could have tails that are fifty to a hundred thousand dollars. Obviously, you want to avoid having to pay for that. So, making certain that there’s either a fair split between the employee and employer or having the employer pay the complete cost of the tail, or there’s also insurance called occurrence-based coverage. And in that scenario, tail is not needed at all. It’s about a third more expensive than claims made, but in that scenario, you won’t have to pay for tail insurance.

Now, there are obviously probably dozens of other things you need to think about. I would say in my mind, those are probably the foremost important. But you have benefits, bonus structure, length of the contract, some of the other restrictive covenants with the non-solicitation agreement, non-disparagement, confidentiality, your hours worked, the call, I mean, there are a ton of things you need to think about. So, I would suggest reaching out to somebody who has experience reviewing contracts. I mean, when you’re signing a contract that could be literally worth a million dollars, it would be, at least in my opinion, foolish not to get it looked at by someone who knows what they’re doing.

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What is Considered Patient Solicitation?

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What is considered patient solicitation? First, why does this matter? If a healthcare provider has signed an employment contract, it’s very likely there’s going to be a section that’s called restrictive covenants. And then in that section, it’s going to have several things that the provider can’t do after the contract terminates. The most common restrictive covenants would be a non-compete, non-disparagement clause, confidentiality. And then what we’re going to talk about today in non-solicitation agreement and any non-solicitation agreement will essentially say the provider can’t actively solicit, usually elicit patients or employees of the employer for a period. Let’s just say you are a primary care physician and you have decided to leave the employer and they have, let’s just say a 10-mile non-compete. You decide to establish a practice outside of the non-compete so you’re not violating that.

Are you allowed to blast out an email or send direct marketing to your patients from the old employer? The answer is no, that’s what the non-solicitation agreement would stop. It stops the act of solicitation of your current patients. Now, the practice can’t stop patients from coming with you, meaning, a non-solicitation agreement can’t dictate someone’s healthcare provider. But they can dictate that the physician, in this instance, isn’t the one initiating contact. Some of the questions I usually get are, alright, well, let’s say I’ve given notice and it’s widely known that I’m leaving and I’m seeing a patient and they ask me, hey, I hear you’re leaving, where are you going? Is that considered solicitation? In my opinion, no, that wouldn’t be an active solicitation. The doctor’s not initiating it. They’re simply providing information that’s already known and the patient requested it. So, in that circumstance, yes, you can say to the patient, yes, I’m leaving. And here’s where I’m going. Now, where people get in trouble is they would maybe go into the EMR and download a list of patients that they currently have. And then, as I said before, send out a direct email to all of them saying, hey, I’m leaving. Here’s my new practice. Please come with me. That’s what this would prohibit.

Some other issues are, alright, well, let’s say I go to my new job and then I just do general marketing. So, I put up a billboard, or I send out direct mail to a specific zip code. Is that considered solicitation? And for the most part, no, it’s not. If you’re not actively targeting your patients and you’re just doing general marketing, that’s not really considered a solicitation, they can’t stop you from doing those types of activities. Next, employees. One of the biggest fears and this is in private practice specifically, is bringing in a new provider, they establish relationships with the staff, so the MAs, the RNs, front office, office manager, and maybe the other providers in the office, and then when they leave, they take all the staff with them as well. A non-solicitation agreement can also stop a provider from actively soliciting employees. Other blogs of interest include:

And if they’re a savvy employer, they’re going to stick in there “you just simply can’t hire them for the restrictive period”. A normal restriction for a non-solicit is about one year. So, one year from when the contract terminates, you can’t solicit these people. If it states you cannot hire them, which would be considered enforceable for the most part, you can’t hire them. There’s nothing you can do about it. If it says you can’t actively solicit them, then once again, you can’t be the one to initiate contact. So, no emails, voice messages, text messages, or direct messages through social media. You can’t do any of that. Now, if someone approaches, let’s say that front office staff says, hey, I hear you’re leaving. I’d be interested in coming with you. If they’re the ones to initiate the contact, you are not the one actively soliciting them.

I think over time, more and more contracts have inserted you “cannot hire them” into the language. And it’s smart for the business to do that. Once again, you can’t initiate contact with the employees. Overall, yes, non-solicitation agreements are enforceable. They’re there for a reason. As I stated before, they don’t want someone coming in and then yanking their entire staff or a patient base as well. Is there any kind of negotiation as far as a non-solicitation agreement? Not really. Maybe you could negotiate some types of activities that would make it beyond the edge of solicitation, but for the most part, this is kind of like an all-or-nothing clause. Like with the non-compete, you can usually play around with the time, meaning, how long it lasts or the geographic restriction.

So, five miles instead of 10, or it applies to one office instead of two and then also the specialty listed, what you can’t do, like maybe you’re internal med and you could do urgent care, hospitalists, ED, primary care and focusing the specialty. Whereas with the non-solicitation agreements, really, you can’t solicit your patients. That’s about it.

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Family Medicine Contract Negotiation Tips

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Negotiation tips for family medicine physicians who have a new employment contract. Really there are two scenarios. One, if you’re just coming out of training and then the second one would be if you’re an established physician in an area and you are either moving into a new practice in the area or potentially getting bought out by a larger practice or hospital network. The negotiation tips may be a little different for both, but I guess the general strategy is probably the same. For anyone in family medicine who’s been offered an employment agreement, the first thing you need to look at is the compensation. If you’re entering a new area where you have no ties, you need to make certain there’s guarantee for the first two years.

Meaning, many organizations are now requiring productivity component either through RVUs or net collections. And so, if you just immediately start a job and you’re on productivity from the beginning, you are going to make a significant amount less than you would if you were given income guarantee just because it takes time to build a practice. Usually, somewhere between 12 to 18 months for practice to reach maturity. If you’re just paid, let’s just say on net collections, well, if the average accounts receivable cycle for a claim is 30 to 90 days, well, you could be working for a month before you see a dime of that. So, you need to make certain there’s income guarantee for the first two years. And then if it does shift into maybe just RVU based, or as I said before, just net collections based, you’ll be able to kind of gauge what your compensation will be.

And they’ll usually use the second-year data as a good indication of what you’ll make in years three, four, five, and beyond. You need to identify the compensation structure and then make certain that you’re guaranteed for the first two years. Also, finding out what is kind of a going rate in the area is beneficial. MGMA data is what I generally use. It’s not the be-all and end-all, meaning, the numbers are helpful to know what’s the median salary for a family medicine physician in the south or in the east or the west or hospital-owned versus private practice, but it can still vary greatly. The benefits matter, malpractice insurance, and the restrictive covenants like the non-compete, all those factors can determine whether a job is good or not. Other blogs of interest include:

And so, just basing it off one number is kind of shortsighted in my opinion. Talking to your classmates, especially if you’re just coming out of training, seeing what they’re making or what they’re being offered from their jobs is something I find very helpful. If you’re established, it’s kind of, I wouldn’t say unprofessional, but most people aren’t willing to talk about how much they make after you’ve been out for a long time. So, that probably won’t be as effective, but you also know your value. If you’ve been out for a while and you know how much you make like, I generate this many RVUs per year, these are my next collections. That kind of data is very helpful.

Don’t be afraid to ask for more. Now, it has to be a reasonable amount if you’re being offered 200 and you ask for 400, and it’s a family medicine physician, they’re going to laugh you off. Small jumps are kind of, I think, almost expected on the employer’s side. And then you also must think about bonuses like signing bonuses, and relocation assistance. These are also things that should be in the contract as well. The signing bonuses vary wildly from, okay, I guess, based upon geography, if you’re going into a city or an area that’s hard to recruit to, it’s more rural, it’s not as desirable for the general population, you’re simply going to make more money and get a higher bonus. If you’re moving into a big city or there’s a lot of competition because people want to live there, the salaries are going to be depressed.

I know it’s kind of counterintuitive when you’re like, well, if I’m moving into an area that’s more expensive, the salary is going to reflect the cost of living. It’s not. It doesn’t because, for instance, I live in Scottsdale. People want to live here and when you have 50 candidates applying for one position versus rural town in South Dakota where there are two, there’s just less leverage for the physician to try to negotiate a higher salary. So, don’t be surprised if you’re looking into a bigger city that the salary is just not going to reflect the cost of living as compared to other places as well. But once again, talk to your classmates and see, alright, what are they offering you? There are some programs if you’re moving into a hospital network that can offer student loan assistance as well. You’re not going to get that from private practice. They’re not going to offer you student loan assistance if they’re in private practice. So, if it’s something that’s important to you, you need to look in more rural and with network and they may have that opportunity.

Some states also offer that as well. If you work in certain healthcare shortage areas, that might be something you investigate as well. Next thing to look at is what type of malpractice insurance they offer. Is it occurrence based, or claims made? Or I guess if you’re with a hospital network, they could be self-insured. If you do have a claims-made policy, and this is more for private practice, you need to look at who must pay for tail insurance. Tail insurance is generally about twice what your annual premium is. For family practice, usually somewhere between 6,000 to 8,000 annual premium. So, your tail cost would be somewhere between 12,000 to 16,000. That’s a one-time payment, but that’s one thing you don’t want to look at.

You can certainly negotiate for the employer to pay for tail. Or if it’s an occurrence-based policy, you don’t need tail insurance for that. Another thing you want to think about and attempt to negotiate is the non-compete. These vary wildly as well. Normally, one year is about the maximum length that we’d want for a non-compete. And then really, depending on the area, it could be anywhere from 5 to 30 miles. Two things you want to think about as far as that and trying to negotiate: one, you want the specialty as specific as possible. What I mean by that is, some family medicine physicians can do multiple things. They could do urgent care, they could do primary practice, some could be a hospitalist or whatever. If you have a job, you want it narrowly tailored to that job.

Let’s just say you have a non-compete where you can’t be in family medicine and private practice for a year within 15 miles of your location. Well, if it’s just like, you cannot move under any circumstances and you must stay in that area, well, you want the specific specialty that you’re in for that employer to say that it’s just family practice in private practice in that area. And therefore, you could just do urgent care, be a hospitalist or whatever for the year period, and then move back into private practice if you want. You also want to limit the number of locations. Is it just your primary location or if you’re working in multiple locations, is it the non-compete attached to each of those locations, or if they’re a bigger corporation or health network and they have facilities throughout the city, is it 10 miles from everything that they own? You want to narrow that to just your primary practice location, or maybe if you’re splitting your time, those two, but you’d want to completely avoid non-competes that state it applies to everything that the employer owns.

And then the last thing to think about, do you have to repay anything if you terminate the agreement? Many times, if you’re given a signing bonus, relocation assistance, or student loan assistance, if you don’t stay for a certain period and you were to terminate the contract without cause, you would have to pay back some of those things. Some things to negotiate would be, for instance, let’s say you had a $30,000 signing bonus and a three-year initial term, you want to make sure it’s forgiven either, I mean, monthly would be the best. So, 1/36 forgiveness, meaning, for every month that you’re there 1/36 of the signing bonus is forgiven. And so, if you stay for three years, you don’t have to pay anything back.

Now, some places will try to do it yearly. And in that scenario, let’s say you’re in year three and you terminate the contract in the middle of the year. Well, if it’s yearly forgiveness, you just gave up six or seven months of forgiveness, and then you must pay back $10,000 instead of maybe four or five. Honestly, there are a million things you can negotiate in a contract. I was just trying to hit the highlights and the things that are usually most important to family medicine physicians.

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What is Without Cause Termination in a Physician Contract?

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What is without cause termination in a physician contract?  Essentially it allows either party to terminate the agreement at any time, for any reason, with a certain amount of notice to the other party. The reason why this is so important is that if a physician enters a job, I mean, everyone expects a job to be great, right? You don’t take a job expecting you to want to leave immediately, but things change, or it certainly can be different once you start. Let’s say a physician takes a job and after a few months, it’s clear it’s either not a good cultural fit, maybe they’re on productivity compensation and the volume isn’t there, maybe they just don’t like working with the management or the other physicians, whatever the reason, they’ve decided, I do not want to stay here.

And so, without cause termination will allow that physician to give notice, work out a period and then move on. The average length or at least the standard length for most without cause termination notice period is somewhere between 60 to 90 days. Anything higher than 90 days causes a couple of problems. Anytime somebody gives notice, the dynamics will change between the physician and either the other physicians or the organization itself. You’re no longer in the long-term plans. Sometimes, there can be bad blood as well. And so, a shorter period to have to work out whatever it is, is advantageous. It’s just better. If you had a 180-day notice, you’re there for six months dealing with a potentially awkward environment.

Another thing to consider is the longer the lead time, the harder it is to find a new job. If you’re coming out of training, everyone comes out at the same time. So, all the employers understand this and there’s a rhythm to when they offer jobs and start onboarding and all that type of thing. If you’re out, you’ve been out for a while and then you decide to switch, it can be at any time, but most people don’t post for jobs six months in advance. They will say, we have a need now. If you have a six-month notice requirement for your job, you may lose out on job opportunities because they need someone much faster than six months. Other blogs of interest include:

And so, they’re going to find somebody and kind of leave you in the dust, so to speak. Two main reasons: don’t put yourself in a toxic environment for a long period of time, and then two, help yourself to shorten it down so that you can find a new job more easily. In the contract, it’s going to state how much notice you must give. And let’s just say it’s 60 days in this example, it will also state that it must be in writing. So, you need to find in the contract, it’ll be under the termination section, and it will say like without cause termination or for no good reason or something like that. And then it’ll just state, either party can terminate the agreement with a certain amount of notice to the other. As I said before, in 60 days.

There’s another section in your contract that’s called either notice or notices, and it’s going to state exactly how you can provide notice to the employer. It’ll state whether it needs to be certified mail or hand delivery. Most contracts don’t have email, certainly, there’s no verbal acknowledgment, no fax. If you were to tell your boss, hey, I’m leaving in 90 days, but not give them written letter that states you’re leaving, they could potentially force you to work for another 60 days until you give them effective notice. So, those two sections. Look into the without cause termination section to see how long or how much notice you must give and then look in the notices section and make certain that you’re able to provide effective notice. I’ve had a couple of times where physicians have called me after the fact and said, I emailed my boss.

It was 60 days’ notice; they waited 45 days and then came back at me and told me I didn’t provide them effective notice. And now, they’re saying I must give another 60 days. Well, obviously, it’s vindictive on the part of the employer. They were mad and they did that on purpose just to kind of screw with the physician. But if you don’t give effective notice, it doesn’t count. Make certain you’re following both of those things: giving the proper notice and then following the notice section. Now, what happens if you decide to leave a job and don’t give the proper amount of notice? Well, many contracts will have penalties associated with that. For instance, a common way of doing it would be to penalize the physician, whatever their kind of average daily rate is for every day that they didn’t give enough notice. If it was 60 days and they only gave 30 days, then they’d owe 30 days of their average pay to the employer, which could be a significant amount of money, obviously.

You want to make certain that you’re giving as much notice as is required in that without cause section, therefore, you can’t be penalized. I guess theoretically they could come after you for recruitment costs, locums to cover your shifts or if you’re an outpatient or something like that. It’d be rare for them to do that, but you are opening yourself up to liability if you fail to give them the specified amount of notice in your contract.

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Are Physicians Eligible for Student Loan Forgiveness?

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Are physicians eligible for student loan forgiveness? In my mind, there are three main ways that a physician can have their loan forgiven or at least a portion of their loan forgiven. The first would be if the employer simply agrees to pay a certain amount directly to the physician’s loan provider. The second would be if they’re part of the public service loan forgiveness program which is where they work for a federal entity for a period, generally out of training. And then third would be if there’s state program. Not every state provides a loan forgiveness program, but many of the states do. And normally, it would be in rural areas that are hard to recruit to and the state would then pay or forgive a certain amount of whatever their loan was, if the physician stays in the area practicing their specialty for a set amount of time.

Let’s just take each one individually and go through some of the things you need to think about. First, it would be with the hospital or hospital network. You are very rarely going to see any kind of loan forgiveness if you are joining a private physician-owned practice, it just simply does not happen. If you do enter loan forgiveness with a hospital or hospital network, it’s usually situated like this: they’ll say, we will pay this amount to your loan provider directly. And then as long as you stay employed with us, then there’s no repayment. And there’s a couple of ways of, I guess, situating it. The first would be if they just give a lump sum upfront. Normally, the loan forgiveness would be somewhere between 50,000 to 150,000, and then if they give a lump sum upfront, then it would be forgiven over time.

Meaning, if they give you $150,000 for loan forgiveness, and then you leave after six months, well, you’re going to have to pay back a large portion of it. It’s usually tied to the term of the agreement, sometimes beyond it if it’s a significant amount of money. Let’s say you have a three-year initial term, then they would state maybe for every month that you’re there 1/36 of the loan that the upfront money we gave you would be forgiven. That’s a normal way of doing it. Another would be, let’s just say it’s $50,000 stretched out over the term and it’ll just state every month, we’ll pay directly whatever the 1/36 of 50,000 is to your loan provider. That’s good in the fact that a physician wouldn’t ever have to repay anything which is annoying. Other blogs of interest include:

And there are some tax implications as well. So, those are kind of the two main ways of doing it. If you’re with a hospital network, they’ll just pay you a big sum of money upfront, then you use that to pay off a portion of your loan or they’ll just pay a certain set amount over time. Sometimes, if let’s just say, they were going to pay you 150,000, they may do 50,000 at the end of each year of the initial term of the contract. So, after year one, they’d pay 50,000 to the loan provider, after year two. That’s another way of avoiding having to pay anything back. And I would suggest doing it that way. The next one would be with the public service loan forgiveness program. Briefly, this is if you become employed through the federal government and then stay employed for 10 years is the amount then they will completely forgive your student loan.

The downside to that is you’re usually going to make less, so your compensation is going to be below market. So, you may need to do a cost analysis of, alright, well, if I’m making $50,000 less a year over the course of 10 years, could I have just taken a normal position, made more, and then paid it off in the end? Depends upon the situation, but that’s kind of the thinking that you need to go through is alright, which one ultimately would I make more money or have the forgiven faster? And then last, as I said before if there’s a state program. Some states will provide, once again, usually somewhere between 50,000 to 150,000 and they would just state that if the physician was working within a certain area for a period, they would have whatever set amount forgiven.

It’s rare that loan forgiveness is provided. It’s not a common thing. And as I said before, if you’re joining a private physician-owned group, it’s exceedingly rare that you would get any kind of loan forgiveness at all. Obviously, it’s a great perk to a job. I know plenty of my physicians that I assist will then seek out those jobs in the first couple of years, get through the initial three-year term, get a bunch of their loans forgiven, and then move on to whatever city that they ultimately want to end up in. That’s a smart way of doing it. So yes, physicians are eligible for loan forgiveness. It generally will not be the entire sum. It will be a decent portion of it. But if you kind of look for those specific jobs, you certainly can find opportunities for that.

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What is the Proper Way for a Physician to Terminate a Patient?

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How does a physician properly terminate a patient from their practice? There are several considerations when you’re going to terminate a patient. There are generally three main things that the physician must do, so they can’t be accused of either patient abandonment or some other kind of ethical lapse. First, the physician needs to provide written notice. I would suggest sending a certified letter to the address on file of the patient. I would also send them an email as well. That way, the patient can’t state that they never received any notice. You also need to provide a reasonable amount of time for the patient to find a substitute provider.

Now, this is obviously specialty dependent. It’s easier for some patients to find a replacement than others. But unless there’s egregious act on the part of the patient, you can’t just terminate the patient on a Monday and say, I’m done providing any care for you, move on. So, you need to find a reasonable amount of time to allow them to find a new provider. You could even assist in that, but I guess ultimately in that scenario, it would kind of depend upon the reason why you’re terminating the patient. Now, there are several factors you can terminate, one, simply maybe the physician is retiring and not transitioning to practice with someone else, maybe they’ve taken a new position out of town and they’re moving. I mean, those are normal things that can happen. If it’s a behavioral concern on the side of the patient that complicates things a little bit, maybe they became verbally abusive to staff or the physician.

Maybe they have mental health issues and it’s just making the care impossible, maybe like in pain management, they signed a pain contract with the physician, and they violated that contract. The physician obviously could then terminate them from the practice. The reason why you’re going to terminate the patient will also kind of dictate. I would think of the assistance that you provide to them. One, written notice, two, give them time to find a replacement, and then three, provide bridge scripts. Once again, depending upon specialty, if the patient is on psych meds or some life-saving medication, the physician needs to provide at least a reasonable bridge script, which then allows them time to find a substitute physician as well. And then lastly, you need to provide information on how the patient can retrieve their medical record. Other blogs of interest include:

Every state board has kind of the details as far as what a physician must do in providing the medical record. And then also, what a patient must do to request it. I mean, for most states, the patient has to request it in writing and then some states allow for a reasonable fee to get the copy of the med record, and then they have to state it has to be reasonably available within a short period. I have had plenty of clients who have gotten in trouble for just not providing their medical records in a timely manner. Sometimes, the physician has no idea any of this is going on and maybe an office manager had some clashes with the patient, and they decide to terminate them, and then for whatever reason, they kind of mess around with providing the record in a quick fashion.

Well, ultimately that can fall on the shoulders of the physician. So, I want to make certain that the patient gets the medical record quickly as well. Just to summarize it needs to be written, you need to give them time to find a new physician, you need to provide bridge scripts if possible or necessary, and then you need to give them access to the medical record. There are patients that there is nothing that you can do to satisfy them and no matter what, it’s going to end up in a board complaint most likely. If you’re covering the things that you’re required to do and acting ethically in terminating the patient, there should be no issues as far as a board complaint goes. Just sticking your head in the sand and not dealing with the patient at all is just a bad idea.

I mean, there are some obligations when you’re providing medical care to someone, and even though you may want absolutely nothing to do with them just because of how they’re acting, or maybe they’re disruptive, you still must go through the steps to make certain that you’re giving a good transition to a new provider. Continuity of care is clearly important and that’s why these general guidelines are in place to make certain that even if someone is disruptive, they’re still going to get the care that they need so that it doesn’t become a huge issue down the road.

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