Today I’m going to talk about contract negotiation tips for resident physicians. An employment contract, a real employment contract, not a resident agreement, is something that no resident has much knowledge of in my experience. I mean, a large percentage of my contract reviews are with residents or fellows who are just coming out of training. They have this 20-page contract, they have no idea what should or shouldn’t be in it or kind of what the terms are. And that’s a large majority of people that contact me is just kind of work through. Okay, what is in here? And then obviously, something that also comes up is, well, what is the strategy behind negotiating a resident’s first employment agreement?
Practice Agreement Tips
I wish I could give a one-size-fits-all analysis, but I can’t, so we’re going to work our way through it. First, any kind of negotiation is simply based upon leverage, does a physician have leverage or not? And this goes for any kind of negotiation. The individual or entity with the most leverage is able to get better terms of a contract. In some specialties, a physician coming out of training simply doesn’t have leverage. Those specialties would be essentially any specialty where a patient base has to be built up: primary care, peds cardiology, dermatology, anything where you’re not just kind of doing shift work in the hospital, or maybe some surgery, that type of thing.
If you’re not from the area, you have no ties to the area, and you obviously have no existing patient base, you simply don’t provide as much value to a practice, as if you were, let’s say you were an established physician in the area, you have an established patient base, you have a referral network moving to a new practice, then you have much more leverage because you’re bringing a large patient base with you. If you’re in a specialty where you must build it up to practice, usually, that takes 12 to 18 months, which means you’re not going to be that profitable in year one. You simply don’t have as much leverage to get the type of contract that you may necessarily want. Now, that doesn’t mean you don’t have any leverage. There are some practices that have an absolute need for a new physician, and the reason why that would be is one, there are just volumes that are so high, they just need help, or two, they could be in a location that’s hard to staff to. Other blogs of interest include:
Rural communities are always tough to staff to. I guess the weather also affects that as well. If you’re moving into a community that’s hard to recruit to, then you obviously have more leverage immediately. I think one misconception is that physicians moving into high-cost living areas, the salary doesn’t normally reflect that for a couple of reasons. I mean, I’ll use my hometown, Scottsdale Arizona as an example. Scottsdale is a very desirable place to live, it’s a great suburb of Phoenix, the weather is great, a lot of people want to live here. Well, because of that, the salaries are depressed a little bit, simply because there are more people that want to live here. The same goes for California, San Diego, and LA.
Negotiating Physician Employment Contracts
Miami and Florida, like the warmer climate locations, there’s just more competition amongst physicians for those jobs so that gives you a little bit less leverage as well. Some tips on how to get beyond that are, one, you need to talk to your classmates, those in your residency, maybe those in fellowship. What do your job offers look like? What are you being offered? What’s your base salary? What’s the signing bonus? What’s the productivity compensation down the line? You should get in there and compare offers from all the other people in your residency program to get a better idea of, okay, this is an average of what’s being offered. Two, if it is a difficult place to recruit to, then you need to let them know that you understand that and say, I’m not trying to be a jerk, but I don’t necessarily have to live here.
I have no family here, I have no community ties, it’s remote. I would expect, because of those things, to make a little bit more. You can attempt to Google some of the industry-standard compensation surveys. The MGMA and some of those data is just simply not available to the public, but you can usually find a couple of years old which will give you a better indication of, okay, this is what is normal. Now, the comp in there, the comp averages, and those surveys are averages. So, it’s not just residents, people coming on training. It can be people that have been out for 20 years. You need to take that into account as well. And then having a great interview, coming off as being a normal person, easy to work with, those are things that make someone desirable as well.
If I’m hiring somebody in my law firm, if it’s someone I think is easy to work with, if it’s the culture that shows an ability to adapt, I’m much more likely to offer them more than I would be. If it was someone that might be a kind of super Hi-Q, maybe super-strong academically with writing skills, but a little more socially awkward, most places don’t want that. They want someone that’s going to be easy to work with and a good fit culturally. Those are some tips on how to negotiate a resident contract.
When Should a Resident Contact an Employer to Negotiate?
When should a resident physician start looking for a job? This is a complicated question. First, I do contract reviews every day for physicians and a large percentage of them are individuals getting their first jobs who’ve never had an employment contract before. They’re either in their last year of residency or last year fellowship and they have an offer that they want me to look over for them. There are occasions where there’s a multiple year fellowship or, they are a PGY-2 or something like that, where they already have an offer that won’t begin for two years, and they want me to look at that as well.
Let me just give a couple words of wisdom, just from doing this for a couple decades now. One, if you are a resident or a fellow and you know absolutely where you need to be geographically, maybe you have to move home, maybe you have a significant other that maybe is completing trading themselves somewhere else, want to move close to family, whatever it is, if you have a pinpoint location in mind, it is probably a good idea to get started sooner than later. Meaning start looking for a job when you still have two years left in training. Think of it from an employer perspective. There are employers who don’t have immediate needs for a physician, right? So, if they run well, then they’ll have financial forecasts.
Forecasts as far as what the patient load is going to be, perhaps the practice is expanding and opening a new office, but they’re not going to open it for a year. I guess what I’m saying is, employers know that they’d have a need for a physician, but sometimes, it’s not for a couple years down the line. That’s why an employer will start looking immediately for a position that’s not immediately available. Once they get out there and they kind of see some candidates, and even if that candidate has two years left in training, it’s not uncommon for them to offer them a position and have them sign an employment contract. One benefit of looking early is just simply getting in before someone else takes the position. And so, the earlier that you look at the position, the more likely you’d have a chance to get it, if that makes sense. Next, the downsides of going early.
What’s the negative part of finding a position kind of far out from when you are done with training? Well, obviously, if you sign an employment agreement that doesn’t commence for two years, and then you have change in family, maybe the significant other that was supposed to move to one city is now moving to another, or there’s a sickness in the family. I mean, there’s a million things because at one point, a location is perfect and then two years later, it’s not. The downside of signing early is that things may change in your life, but you have signed the employment agreement. Then it gets into: how can I terminate this agreement even before I’ve started? Are there any penalties associated with it? Some contracts have built in that if the physician doesn’t start, they will owe penalty.
I would suggest that before signing an agreement that has that kind of language in it, you should probably get it reviewed by someone to go over the ramifications. What happens if I sign the agreement, I either can’t start or don’t want to start and then need to get out of the contract? Another possibility is you sign early and then you get a better offer. So maybe it’s just a better opportunity for you. The compensation is more, the benefits are better. Kind of the always concern is that if you sign a contractor early, you’re foregoing any potential opportunities down the road. Now, some employers are okay with letting someone out with enough notice. The contract will have a notice requirement, but if you haven’t even started, most employers are understanding. If there is actual change in family circumstances. They’re not as forgiving if it’s just simply, this person is paying me more than you, I don’t want to complete the terms of this agreement. What’s the contract signed, the employers relying upon you to start, so they’re going to stop recruiting anyone else. They’re going to make plans to either bring in more volume for patients or maybe the office that they’re opening is contingent upon you being there.
So, I guess there are problems for both sides if the physician doesn’t want to start, the employer really could have some damages associated with the physician not completing the terms of the agreement. Overall, I’d say the sooner, the better to start looking, however, just taking the first offer, and signing an employment agreement without comparing different offers is a bad idea. There are almost always multiple opportunities for somebody and just to accept the first one and just because they are the first one doesn’t make a lot of sense to me. So, I would suggest that you look at multiple offers, kind of gauge the compensation structure amongst them, and then kind of go from there.
Physician Contract Compensation Negotiation
What are the most common types of physician compensation models? Spoiler alert! There is no common model. I’d say from contract to contract the way that people are compensated varies the most, it’s kind of the most variable part of any kind of physician contract across contracts. I mean, I review hundreds of physician contracts a year, and it just blows my mind how many ways the different organizations compensate physicians. But there are probably three main types and I’ll go through those right now. The easiest and simplest way of compensating a physician is just a straight-based salary. There is no productivity attached to it, no volume expectations.
It’s just you do the work; you get paid a base salary and that’s it. For people who are just coming out of training, it’s not uncommon for them to receive a guaranteed base with no productivity for the first year or two. And there are many jobs where they just pay the base and that’s it. However, there are also different ways to compensate physicians that kind of introduce some productivity. I’d say the first one is RVUs. When someone enters an organization, they just said, no matter if they’ve been out for a long time or just coming out of training, if you’re entering an organization and this goes mostly for hospitals and big healthcare networks. It’s rare to have a physician-owned practice use RVUs, so they’ll have an income guarantee usually for a year or two and then their compensation many times will then switch completely to RVU production.
Meaning, how much they make each year is entirely dependent on how many RVUs they generate. I’m not going to get into what an RVU is or how it’s calculated. I do have a couple of videos. If you’re interested, you can look at it. I go through kind of what an RVU is and how a physician is compensated for it. But on the basic level, they just multiply the number of RVUs you generate times compensation factor, like a monetary amount that kind of varies by specialty. Usually, it’s somewhere between 40 to $80. And then they just multiply that times your RVUs, and that’s how much you make for the year. Now, obviously, there must be some details that go into that. Usually, there’ll be base draw, so the physician will continue to get a normal salary each month, but then it’s reconciled quarterly.
For instance, let’s just say they’re taking home 20,000 a month. At the end of the quarter, they’ve been given 60,000 from the employer. And then they’ll do a look back on how many RVUs they generated times the compensation factor if there is a surplus. Meaning, they generated more RVUs than they made, then usually they’re then given a bonus. Most employers in that scenario will not give a full percentage with a base draw. Let’s just say in the previous year, someone just via RVUs generated like $240,000, right? So, it’s 20,000 a month. The employer is not going to just give them a base of 20,000 a month because there’s going to be variables involved. If someone takes a two-week vacation, but they keep getting paid 20,000 per month.
Well, then there’s going to be a deficit that either they’re going to have to pay back or carry forward. Most employers will give maybe around 80% of what they made in the previous year as their base draw. And then that way there aren’t a lot of negative balances carry forward. Most physicians do not like that at all. That’s one way of doing it is just after the income guarantee straight RVU compensation. There are others that will do a hybrid of a guaranteed base in addition to RVUs. They’ll give target: monthly, quarterly, yearly target of RVUs. And then once the physician hits that amount, then they can then receive a production bonus. And as I said before, it would be just the RVUs generated above a certain number of times the compensation factor. That’s primarily used in hospitals and healthcare organizations. A different model is net collections-based and that’s used, I would say primarily from physician-owned groups from smaller practices. How that would work is, the amount collected by the practice that is a direct result of the physician’s services would be calculated. And then the physician would get a certain percentage of that.
Usually, the percentage would be between 30% to 40%, somewhere in there. Now, if you’re a physician, you think, well, that’s completely unfair. I only get 30% to 40%, but when you consider overhead staffing, supplies, payroll taxes, all that kind of stuff, it does work out mathematically to being equitable for both parties around that amount. You are not going to get net collections-based compensation. It is like 50% or anything, it’s just not going to happen. In a net collections-based compensation model, it’s like kind of an RVU based model and the fact that there’ll usually be reconciliation monthly. And then, if you were to generate whatever a hundred thousand dollars in a month, then they would just do the calculation.
If you’re on 40%, then you’d get $40,000, usually paid within 15 to 30 days of the end of the month. And that’s what you make. There are some more variables that go into and this is the tricky part, is if you just go into a job and it’s just pure collections from the very beginning, you obviously aren’t going to make a lot in the first couple months because the average accounts receivable cycle from when you do a service to when you get paid through the insurance companies can be anywhere from 30 to 90 days. You could work for the first month or two and make a tiny amount of money. And then it grows over time. Usually, in those scenarios, we try to bake in draw so that the physician isn’t just making a tiny amount in the first few months. What’s my opinion on what’s fair and what’s not, it really just depends upon the job and the specialty of the physician.
I think all the different compensation models are fair if the compensation is right. I think on a kind of motivational level, it makes sense to incorporate some production into the contract. Someone who just has a base salary and there’s just absolutely no bonus or upside in producing more, working more. It’s just human nature though, that they’re just, I don’t know if being ‘stagnant’ is the right word, but, people are motivated by money. That’s just a reality. And if an employer can incorporate some way of compensating a physician who’s ultra-productive, there’s no downside to that. It’s just, I guess probably a matter of whether the employer’s creative or not, but, I mean, there are a million ways of doing compensation. So those are the three most common models: straight-based salary, RVU based production, and net collections. And then there are so many permutations that would then kind of be a hybrid of all three of those.
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