Negotiation tips for family medicine physicians who have a new employment contract. Really there are two scenarios. If you’re just coming out of training, the second 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.
Contract Negotiation: Look at the Compensation
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 a guarantee for the first two years. Meaning, that many organizations are now requiring productivity components either through RVUs or net collections.
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 an 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. 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. You need to make certain there’s an income guarantee for the first two years. 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 and beyond. You need to identify the compensation structure then make certain that you’re guaranteed for the first two years.
Finding out what is kind of 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 the east or the west or hospital-owned versus private practice, but it can still vary greatly.
Contract Negotiation Tactics Beyond Compensation
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. And so, just basing it off one number is kind of shortsighted. I find it very helpful to talk 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. 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 net 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.
Moving into a Big City vs. Rural Areas
If you’re moving into a big city or there’s a lot of competition because people want to live there, the salaries will be depressed. I know it’s counterintuitive when you’re like, well, if I’m moving into a more expensive area, the salary will 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 a 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 where the salary is just not going to reflect the cost of living compared to other places.
Negotiation Skills: Talk to Your Classmates
But once again, set up and meeting and 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 networks 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.
Negotiating the Type of Malpractice Insurance
The 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 insurance. Or if it’s an occurrence-based policy, you don’t need tail insurance for that.
An Important Thing to Know: Non-compete Clause
Another thing you want to think about and attempt to negotiate is non-compete. These vary wildly as well. Normally, one year is the maximum length 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 that 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, but you’d want to completely avoid non-competes that state it applies to everything the employer owns.
Do You Have to Repay Anything?
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 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.
Other Blogs of Interest
- What Can You Negotiate in a Physician Contract?
- Tail Coverage Cost for Family Medicine
- How to Turn Down a Physician Job Offer
What Can You Negotiate in a Physician Contract?
What can a physician negotiate in an employment contract? The short answer is everything. It ultimately depends upon the willingness of the employer of whether they’re willing to negotiate terms or not. I find big hospital networks are less likely to make major changes in an employment agreement. Whereas if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for major changes. What are the things that are important to the physician, and then what are the things they can get changed? When I’m talking to a physician, I think the things that stick out as most important would be:
- Signing bonus
- Relocation assistance
- How to terminate the agreement
- Make certain there’s without-cause termination that’s a reasonable length.
- Productivity bonuses
- The non-compete
- Tail insurance
- Who pays for tail insurance if it’s a claims-made policy.
Physician Contract Negotiations
Let’s go through each of those and come up with some tips on negotiating. First, as far as compensation goes, the physician needs to know the value and their specialty’s value. Getting the MGMA data is helpful. It is beneficial to talk to colleagues about what they’re being offered or what they’re currently making in different organizations. Sometimes, the associations for each specialty can provide information on the expected salary in your specialty. That’s one way to look at it. As far as productivity goes, this is a little more difficult. It’s going to be completely based upon, I guess, the arrangement. Is it kind of a hybrid of a base salary and RVU production? Is it a base salary and net collections? Or is it all RVU? Is it all net collections?
This one is dependent upon what’s the type of structure. You’re getting a base plus a certain amount if it’s net-collections or a hybrid model. Let’s say. For instance, the expectation was 20,000. Anything collected over 20,000 by the practice. The physician will then get 15 to 25% of that. That would be a normal percentage. If the physician is purely on net-collections, around 40 to 45% is standard. As far as RVUs go, there are two things you can negotiate. The threshold means how many RVUs you must generate to get a certain amount. Then the compensation factor is the monetary value associated with the RVUs. That has some leeway as well. Regarding signing bonuses and relocation assistance, the actual number and repayment schedule are the main things.
Almost every contract is going to have a forgiveness period. Let’s say the physician gets a $20,000 signing bonus, and the initial term of the agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire 20,000 amount forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Relocation assistance should be somewhere between 10,000 to 15,000. The signing bonus can vary widely from 10 up to 75. That one is specialty-dependent. As far as non-compete goes, this does vary state by state on what’s considered reasonable. There are a few states where it’s completely unenforceable, California and Mexico, for instance. Usually, the non-compete shouldn’t be any longer than a year, and the geographic restrictions should be somewhere between 5 to 15 miles from your primary practice location. Where to negotiate with this?
Terms That Matter for Physician Contracts
You want to keep the length one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete attaches to every facility we own in the entire city. Instead of having one office within 10 miles, you could have 30. So, that’s very important. And then specialty as well. Some specialties can do multiple things.
Let’s say you are internal medicine. You can be a hospitalist. You can go to family practice. Or you can do urgent care. If the non-compete states that you can’t practice medicine within that geographic restriction, you’re out of luck. Whereas if you keep it to the specialty of what you’re providing to that employer. Specifically, in this case, let’s say you are a hospitalist. You could go to family practice or do urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to think about.
And then malpractice insurance is always a considerable discussion with the physicians I’m working with. First, you need to identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And then, after you determine what type it is, if it is a claims-made policy, tail insurance will need to be purchased after the contract terminates. And then who pays for that? Most of the time, if you’re in a small private physician-owned practice, the physician must pay for tail insurance when they leave. You rarely have to pay for tail insurance with a big hospital network. Now, tail insurance usually costs about twice what your annual premium is.
Physician Employment Contracts Negotiation Tips
Let’s say you are in family practice. Your annual malpractice premium is somewhere between $6,000 to $8,000. If you had to pay for tail insurance, it’s somewhere between 12,000 to 16,000. That’s one thing you can negotiate, who pays for tail insurance coverage? Sometimes an employer will put if you’ve been with us for one year, we’ll pay for a quarter and then two years, half, and then three years, 75%.
Some ways of getting out of having to pay the entire amount depending on the situation. Now, the first thing I talked about was whether the employer is willing to negotiate. Some employers will say this is a take-it or leave-it deal. I don’t think those employers will be great to work with. If an employer is unwilling to budge on anything, they will likely be challenging to work with.
Meaning, that they’re not going to accommodate the physician somehow. So, I caution any physician who has been given a job offer, we ask for some clarification or certain concessions, and they simply say no. This is it. That’s usually a red flag. And I tell the physician that you may want to continue looking for a job because this might not be a good fit for you. Anything in the contract is negotiable. You need to figure out what’s most important to you. Sometimes, the non-compete is absolutely the number one thing. For others, it’s the compensation. For others, it’s not having to pay tail insurance. It really depends upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.
How to Negotiate a Fair Salary Contract for Physicians
How to negotiate a physician’s salary? As an initial matter, I don’t personally believe that the wage should be the driving factor in a decision for a physician. Now, if there’s an enormous gap, a hundred thousand dollars, maybe 50, but suppose it’s $10,000 just going with the job that offers the most when the benefits are different. In that case, the work environment is different, the ability to learn, have a good mentor, and a good teacher. All those things are probably more important than the absolute base salary amount, but it is undoubtedly essential. And so, when someone asks me, all right, well, what do I do?
How do I get a better salary? There are a couple of ways of doing it. 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 probably the industry standard regarding compensation numbers. Still, 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 quadrants have different salary numbers.
But the base salary could be excellent or not be significant depending upon if there’s productivity compensation in the agreement or if there’s potential for 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. With the carrot on the stick, if you take below market for these two or three years, 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 will you make once you’ve become a partner? That’s certainly important.
Now, as far as the MGMA numbers go, they are kind of hard to find. I mean, you can Google around and see, I would say, data from maybe a year or two old. People rely 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 comps are just way out of whack. I would not use 2020 data. 2019 is probably the safest and most reliable number we have right now. 2021 hasn’t been released, at least at this point while I’m making this video yet.
So, Google around. You can try and find some numbers, but I’d say the best way to do this is to go out there and find multiple job offers and see what you’re being offered initially. And then also, anyone in training has other people in their specialty that are also looking for jobs. Talk to your colleagues and the people you’re training with. What have you been offered? Where have you been offered this? One tricky thing is that some people automatically think they’re in a high-cost city and will make more.
Why Consider the Cost of Living in a Particular Area
And that’s not the case. It’s almost the opposite. If you’re looking for a job in a city that’s a desirable location, usually the salaries, or at least sometimes the wages, will be depressed. I live in Scottsdale, Arizona, which is a great place to live. And when I speak to physicians moving into the area, they’re surprised sometimes because the salaries may not be adjusted to the cost of living of the area, California as well. Suppose you’re in San Diego or LA or even in San Francisco. In that case, the cost of living is very high, and the housing is very high, but the salaries are not commensurate. You need to be aware that just because you’re in a bigger city with a higher cost of living doesn’t mean you’ll be making more; it’s the opposite.
If you’re in a rural location that’s hard to recruit, you will almost always make more money in those scenarios. So, if money is the bottom line you’re looking for, then you need to look in the smaller cities that are difficult to recruit to. On average, you will make more money going to a small rural community. That’s a 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, ask for 350—just easy arithmetic. Try to meet in the middle. Now there is a point where you will look either greedy or potentially just dumb. If you’re offered 300, then you asked for 450. They’re going to say, well, that’s ridiculous. They may even yank the offer.
Leveraged Negotiation Contracts
You need to know your value, and then specialty is also a big part of what kind of leverage you have. Any negotiation of contracts is based on leverage. Do you have it, or do you not? You have more leverage if you’re in a specialty that’s hard to recruit or in high demand. 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. Suppose you’re switching jobs in the community and bringing your patients with you. In that case, you’re worth more than someone coming into the community, like peds or primary care, that must build up a patient base that takes time. Those are tips on getting a better salary and where to start. Contacting an attorney and getting a feel for the area might be helpful.
It’s fairly specialized in people that focus on physician contracts. It’s possible that 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, some employers will not negotiate. They’ll say it’s a take-it-or-leave-it offer. You’ll then have to be willing to walk if you’re unhappy with your salary, but there are just simply people out there that say, no, we’re not negotiating.
This is what we’re offering. 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 you’re unhappy with an offer, you need to be willing to walk as well. Accepting a deal that you think is well below your value is never a good feeling. Don’t just accept that because you need a job. Find the right job.
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