How to Negotiate a Physician Contract | Contract Negotiation Tips for Medical Doctors
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, a learning curve 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?
Non-Compete is Important to Most People
My advice if someone lives in an area, they have family in the area, they have kids in it. They absolutely cannot move after the contract ends since they will have to also think about things related to moving – like the schooling of the kids, or your wife’s job, or 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 within a specific area for a period.
Negotiate Tail Insurance
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 a 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 that when the contract terminates, you will be able to collect for a 60 to a 90-day window after the contract terminates? If you don’t have that, then you worked for free for two or three months, which nobody wants to do.
Going back to what is important, it depends upon the person what his goals are. Having the numbers is important when you’re looking at base compensation. 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. Most of the time, you have to pay for that, and it’s expensive. So no physician, at least most physicians, will not do that.
You could find someone with access to those numbers or try to get them. Or if you kind of Google around on the internet, sometimes you can find the average RVU production and average compensation. It is broken down into areas of the country. I honestly don’t think those are accurate when determining exactly how much in what part of the country. There’s a feel for what someone is getting in this area, but you also have to consider all the other things I 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, that’s worth way more than $10,000 in some instances. That are 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 during contract negotiation. There’s gonna be no, or at least there shouldn’t be much 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, the RVUs I produced, or the weekly patient encounters. 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 benefit from 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 essential during contract negotiation in determining your new total compensation in a new position. So, those are some tips on things to think about. I mean, honestly, just doing this video, I can think this could be broken down into ten different videos, but this is just kind of an overview on negotiating.
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? How can I make them offer terms that are in my goals in the hiring process? There are a couple of ways of doing it during contract negotiations.
Know Your Worth
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.
Potential For A Partnership
But just the base salary could be great or not be great depending upon if there’s productivity compensation in the agreement as well, or there’s 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 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 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 comps are 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 tactic is to go out there and find multiple job offers and see what you’re being offered initially.
Colleagues in Training
And then also, anyone in training has other people in their specialty that are also looking for jobs. Reach out to your colleagues, and talk to the people you’re in training with. What have you been offered? Where have you been offered this?
Cost of Living in the Area
One difficult thing is that some people automatically think that they’re in a high-cost city and that they’ll make more, but have not considered other factors, like a 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 surprised sometimes because the salaries may not be 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 living cost doesn’t mean you’ll be making more. It’s the opposite, really.
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 simply difficult to recruit to. You will make more money on average if you’re going to go 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, 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 of what kind of leverage you have. Any kind of contract negotiation is based on leverage. Do you have it, or do you not? You simply have more leverage if you’re in a specialty that’s hard to recruit to or is 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. If you’re switching jobs in the community and bringing your patients with you, then you’re 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 tips on getting 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 is that some employers 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 some people 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.
Other Blogs of Interest
- What to Know Before Signing Your First Physician Contract
- Negotiating a Physician Signing Bonus
- Is a Physician an Independent Contractor?
Surgeon Contract Negotiation Tips
Here are some contract tips and new things to consider when 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 Bonuses 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, or wherever, they should also pay for your relocation. 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 reasonable. 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 some student loan packages can reach 150,000. Now, there will be a period that you have to stay with the employer 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’ll not 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? Or is it net-collections if you’re with maybe a private physician-owned practice? You need to determine your fair market value, and there are several ways of doing that.
MGMA Data and Your Colleagues
One, talking to the people you’re in training with and seeing their offers, talking to your mentors and seeing what they’re making out there, and trying to find the MGMA data. The medical group management association is kind of the industry standard for compensation amongst different specialties for physicians. Getting up-to-date MGMA data is difficult 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 will likely be RVU production. If you’re in private practice, it will likely be net-collections. Or, 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 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 you produce per year, quarter, or month and then multiply those times by 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 the Contract Negotiation Process
If you have a claims-made policy, will they pay for tail insurance? If you are joining a hospital network, they’re likely self-insured or have a policy where you will not have to pay tail insurance. They will likely have claims-made coverage if you go into a private or smaller physician-owned practice. And it’s also very likely they will expect you to pay for your tail insurance.
Tail insurance covers the gap between when you leave an employer and the last day somebody can sue you. And as far as tail costs, it could normally be around twice your annual premium. Surgical specialties can really, I guess, vary based upon what you’re doing, but it could be anywhere from 12,000 up to 30,000 a year. So, if you double that, that’s 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 yearly. It’s just a one-time payment. Then you’re covered for what the length of the tail policy dictates.
Get the Employer to Pay for Tail Insurance
Getting the employer to pay for your tail is important for most people with 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 paying 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.
Tips About Non-Compete in Contract Negotiation
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, many surgeons will want to do moonlight, locums, or maybe 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. Just say, if I do this, and 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.
Now, regarding the non-compete after the contract ends, you need to think about, alright, well, what is the specialty that’s stopping me from doing? 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 what you’re doing for that employer. And then it will be for a period, usually between one to two years. Try to get it to one year.
Geographic Restrictions of a Non-Compete
And then lastly, the geographic restriction will vary widely based on where you are. It’ll probably be a little bit less if you’re in an urban environment. Somewhere between 5 to 10 miles would be considered a reasonable amount. I’ve seen contracts trying to knock a surgeon out of every contiguous county, which could be a huge geographic radius or 10 miles from every facility their employer owns. And they could own dozens of them in a city. You want to limit it to the places you’re practicing, like your clinic location, surgery center, and hospitals where you perform procedures. Try to limit it to the fewest possible. And then try to 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 will 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 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 the four highlights I hit with every physician when discussing their employment contract.
Physician Recruitment Forgivable Loan Explained
Physician recruitment agreement forgivable loans explained. Primarily, hospitals use these for people just coming out of training. How a recruitment agreement works is the physician would have an employment agreement with a private practice within an area. Then, the hospital would supplement the first-year compensation of the physician if they stay within the area for some time. I know it might be a little complicated, so let’s break it down. The employment contract with the employer will dictate the employment relationship between the parties.
What are “Physician Recruitment Agreements?”
Some practices couldn’t afford to compensate a physician at the very beginning completely. And so, the hospital may need that specialty in the area, but they don’t want to employ that physician themselves. They might say, if you bring in this physician in this specialty, we’ll cover their first-year expenses plus some bonuses. The recruitment agreement may state, “We’re going to give you a signing bonus. We’ll be helping with relocation assistance and then cover a certain amount of compensation for the entire first year.” Let’s say you’ve got a primary care physician, and they’re making 200,000 a year. The hospital would 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 cover the practice’s expenses as well. And then at the end of that year, there will be an outstanding amount of money.
How Physician Loans Work
And that amount is going to be kind of thought of like a forgivable loan. And as long as the physician stays within that hospital’s geographic area. The recruiting agreement will say that we’ll continue to forgive the loan as long as you stay within these zip codes. There’ll usually be a one-year income guarantee period for compensation, and then there’ll be a forgiveness period after the fact. Usually, it’s three to four years.
How they usually would do it is they’ll take that amount. 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 you’re here, we’ll forgive 1/36 of that 300,000. If you stay in the area practicing for three years, we’ll forgive that amount at the end of that period. You do not owe us anything. 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’s recruitment agreements? Well, during recruitment, I would avoid it if possible. But some jobs would only exist if supplemented in some way by the hospital network. And so, you need to say, is the practice just doing this not to have to pay me? And I will not 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 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 physicians is several things. One, they will ultimately be responsible for the outstanding amount at the end of the initial income guarantee period. And let’s have a scenario where they have a non-compete in their contract with the employer. Still, the recruitment agreement states they must stay within a geographic region to forgive the outstanding amount. They could be completely limited in their options if they have a terrible non-compete in the employment agreement.
Ideally, the hospital would require the employer to remove any non-compete language. I’d suggest making sure that happens. And you need to press the hospital network to press the employer to remove that language. If you 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. They will much more likely remove them if the practice requires a physician. Still, they don’t want to pay the entire amount of compensation and bonuses at the beginning. It’s likely worth it for them to remove the non-compete to get supplemented with all the things I just mentioned.
If you have physician recruitment forgivable loans, you get the non-compete removed from the physician’s employment contract. Because if you’re in a rural environment, there aren’t that many opportunities in your specialty. And you did have a non-compete. Maybe there are no opportunities for you. 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 in that amount as well. They’ll likely have you pay it back immediately and fully as soon as you no longer practice within that region. So, that’s something physicians must be cautious about. And then another one is, every job looks great at the beginning, right? Everyone is nice, the huge growth opportunity, but it may not be as nice when you get there.
Other Issues to Think About
There may be problems that there’s just no way of knowing about in the interview process. You may come into a job and think, oh man, this isn’t gonna 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, paying back significant amounts of money. I would be cautious about signing a recruitment agreement with a hospital network without really thinking about it. Is this the absolute place that I want to be? Do I have other opportunities elsewhere that won’t require me to sign a recruitment agreement? It’s an arduous process. When I’m going over physician’s contract agreements with someone who just had training, they generally don’t know about these things.
Adding a recruitment agreement on top of an employment agreement is like information overload for physicians. Sometimes, it’s difficult to convey the dangers of signing something like that. It’s probably infrequent. The contract agreements that I review containing or having a recruitment agreement attached is perhaps less than 10%. I’m not saying this is a terrible opportunity. As I said, some jobs may not exist if the hospital doesn’t supplement them for the first year. And they can become 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 a contract, starts a job, hates it, gets out, and owes 200,000. I can tell you if you’re just out of training, you’re not going to have, at least not immediately. So, that’s a breakdown of physician forgivable loans. I would suggest talking to somebody, an attorney, about each document before you sign anything. Especially Physician Loan Agreements or Physician Recruiting Agreements. Honestly, be careful if you’re going to do both and find somebody with expertise in doing this. To get a set of eyes on it and kind of walk you through the dangers of it.
Physician Contract Questions?
Contract Review, Termination Issues and more!