Negotiating Contracts for Physicians
Hi, my name is Robert Chelle with Chelle law, and my firm assists physicians with employment contract issues. Continuing in my series of casual conversations about specific topics, today we’re going to talk about how to negotiate a physician contract. 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, the only leverage someone has when they’re coming out of training, is are they 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. 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. When you’re looking into, how do I negotiate? 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 at a job. There are some, at least in my mind, things that are more important than just the base compensation. One, what are the restrictive covenants?
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. 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 is probably going to be around 80,000. So, who pays for tail certainly could be the most important thing in an employment agreement for an OB-GYN. If you’re being paid on production. Let’s just say you’re in a contract that’s just pure net collection.
Employer Practice Negotiations
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. 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 like 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 they don’t have to pay for tail, or the non-compete is extraordinarily small, well, that’s worth way more than $10,000 in some instances. That’s kind of a few factors 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. 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, 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. 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 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 kind of coming out of training. However, you have the benefit of having some numbers of what you produced in your previous position. You can tell them, 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 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.