How to Negotiate a Physician Salary | Negotiation for Physicians

How can a physician negotiate a better salary? As an initial matter, I don’t personally believe that the salary should be the driving factor in a decision for a physician. Suppose 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. I think all of 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, what do I do?

Physician Compensation Negotiations

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 the industry standard regarding compensation numbers. 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 great or not be great. That depends on whether there’s productivity compensation in the agreement or the potential for partnership. So, there are many scenarios where a physician is out of training and given a two-year, three-year agreement.

Physician Contract Salaries

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, you can Google around and find them. I would say data from maybe a year or two old. I found that people are relying on 2020 numbers. They’re in trouble 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 wasn’t out yet while I was making this video. So, Google around. You can try and find some numbers. I’d say the best way to do this is to go out there and find multiple job offers and see what your initial offer is. 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 offers have you received? Where have you been offered this? One difficult thing is that some people automatically think that they’re in a high-cost city and that they’ll make more.

Salary Rate in the City

And that’s not the case. It’s almost the opposite. Suppose you’re looking for a job in a city that’s a desirable location. The salaries are usually, 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 get surprised sometimes because the salaries may not be adjusted to the cost of living in 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 and 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.

How Doctors Negotiate

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 it would help if you looked in the smaller cities that are difficult to recruit. You will make more money on average if you’re 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 the offer is 300 and you want 325, don’t ask for 325. You ask for more than that. So if they offer 300 and you want 325, then ask for 350, 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 asking if you received an offer of 300. You ask for 450. They’re going to say, well, that’s ridiculous for, it may even yank the offer.

Negotiation Based on Leverage

You need to know your value, and then specialty is also a big part of what kind of leverage you have. Leverage as the basis in any contract negotiation. 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. Then you’re worth more than someone coming into the community, like peds or primary care, that has to build up a patient base that takes time. 

Learn to Walk Away From Unworthy Offers

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. You may not find somebody within the area you’re looking at, so maybe do a broader search. But anyway, the last point is that some employers will not negotiate. They’ll say it’s a take it or leave it to 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. 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 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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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 you’ve never been to, 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 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 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 a narrow mind. And this will apply to anybody looking for a job. There are 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 is if someone lives in an area, has family in it, and has kids in it. They absolutely cannot move after the contract ends. That is since they will have to also think about things related to moving, like:

• The schooling of the kids
• Your wife’s job
• Running a business

Sometimes, non-compete could be an essential 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. Suppose you’re an OB-GYN and need to pay for your tail insurance, and your underlying premium is $40,000 a year. Then, your tail insurance cost will be higher than other specialties, around 80,000. So, who pays for tail insurance certainly could be the most critical thing in an employment agreement during a contract negotiation for an OB-GYN. 

Employer Practice Negotiations

My advice is if you get paid on production. Let’s 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’ll be able to collect for a 60 to 90-day window after the contract terminates? If you don’t have that, you work for free for two or three months, which nobody wants to do.

Going back to what is essential, it depends upon the person what his goals are. Having the numbers is essential 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. Distributed 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 need further consideration. If someone has a base that’s $10,000 less, 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. Those are the few factors during contract negotiation to think about.

Physician Employment Contracts

If you’re coming out of training, let’s say you’re prominent in the community. That is either you’re a primary care PE, it’s cardiology, have an established space, or 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. You can use those absolute complex numbers 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? Rural communities 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 hard to recruit or extremely profitable. So obviously, surgeons are challenging to find, or some other GI subspecialties are always tricky.

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 I generated in my last position. Now, it doesn’t always translate from one state to another or situation to another. Maybe you’re going from private practice into an employed group.

But having any data to back up what your production was is essential during contract negotiation. That is 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 think I can make ten videos. But this is just kind of an overview of negotiating.

How Long Are Most Physician Contracts?

How long are most physician contracts? It varies greatly, but somewhere between one to three years is an average initial length of a physician contract. However, the critical part is that nearly every physician contract, except for a J one agreement, can be terminated without-cause. This means either party can terminate the agreement with a certain amount of notice. Kind of the entry standard is between 60 to 90 days. So, even if a physician has, for example, a two-year contract, if it has a six-day without-cause termination clause in it. It’s a 60-day contract effectively.

Average Physician Contract Length

There are also some considerations if the physician decides to terminate the agreement without-cause. One, are there any repayment responsibilities? Let’s say a physician has a three-year initial term and received a signing bonus, relocation assistance, and maybe student loan repayment. There usually would be some language that states that if they terminate the contract before the end of the initial term. They would owe some repayment on those bonuses. And usually, it’s prorated. It’s not an all-or-nothing thing. For instance, since we’re using a three-year term, they would say one-third is forgiven each year. So, if you had a $30,000 signing bonus, $10,000 on year one would be given, then $10,000 on year two. And then let’s say you left sometime between the second and third year. Then you would owe them back $10,000. Who pays for malpractice insurance? 

An Employment Agreement Term for Doctors

If the contract is terminated without-cause, the restrictive covenants will apply. The initial term is not that important. Most contracts have language that states that the agreement will automatically renew for one-year terms after the initial term expires. That’s pretty standard as well. Rarely would a contract just end? It would always automatically renew. If the contract has a fixed term, it will not automatically renew. Then, usually, somewhere between 60 to 90 days before the end of the term, the parties would meet and then discuss whether they want to continue or not. Especially as a physician, continuity of care is essential, and that’s why they have notice termination provisions in the contract so that a physician can’t one day state, Hey, I’m leaving.

Providing Notice for a Smooth Transition

I won’t be in tomorrow. If they have patients scheduled, or if they need to offload all of the patients, new providers. They need to provide notice to make a smooth transition and assure that the patient receives continuity of care. So, as far as how long a contract is, as I said before, one to three years. However, almost any physician can get out of the contract with a certain amount of notice. If you have any questions about a physician contract, maybe you’re entering into a new agreement, coming out of training, or perhaps you’re in a current agreement. You want us to take a look at the contract. We’re happy to do that.

Physician Options When Offered Salary Reduction Due to COVID

Since COVID-19 began, physicians have faced unprecedented challenges like all health care workers. Being offered a salary reduction is one of them. Many of these physicians have the same story, with most employers offering them a temporary 10% salary reduction through the end of 2020. Some employers have offered entirely new Employment Agreements with substantially different compensation systems. (These new agreements reduce base compensation drastically or shift the entire compensation structure to a production-based system. Suppose a long-term reduction in volume necessitates the employer to to create future compensation reductions. Then, a pure production-based compensation system would negatively affect the physician’s overall compensation.

This is all dependent upon:

• The physician’s specialty is in, and it’s been negatively affected by Covid-19.
• Where they practice geographically
• How COVID-19 has impacted the region and its number of Covid-19 patients. (This may have caused short-term cancellations of elective surgeries and other related procedures).

The most frequent question asked by our attorney is, should a physician unilaterally accept a salary reduction, or are there other options?

Physician Without Cause Termination

Every Physician Employment Agreement (Agreement) contains a without-cause termination clause. Without-cause, termination allows either party to terminate the Agreement for any reason with some notice to the other party. 60 to 90 days’ notice is the industry standard. So, if the physician refuses to accept the salary reduction, one option for the employer would be to exercise the without-cause termination clause and terminate the Agreement. This is the likeliest scenario if the physician refuses to accept the salary reduction.

Suppose the employer exercises the without-cause termination clause. In that case, the downside for the physician is that all restrictive covenants (non-compete, non-solicit) will still apply in this situation. Additionally, any repayment obligations (signing bonus or relocation assistance) will likely be enforceable. A physician can do nothing to stop their employer from exercising without-cause termination.

Employment Agreement Compensation Amendment

Physicians who desire to stay with their current employer but don’t accept long-term salary reduction can agree to an amendment. This amendment may contain a salary reduction for a limited period. This gives the employer short-term cost relief but limits the time the physician receives a reduced salary.

Peer Pressure By Other Medical Staff Members

The final tactic employers utilize pressuring the physician into taking a salary reduction by intimidation. Employers tell the physician they’re a bad colleague if they refuse a pay cut when other physicians have agreed without trepidation. The appearance of being a “bad teammate” applies pressure to physicians who are reluctant to agree to a compensation reduction. This is an effective management tactic that each physician must consider.

Overall, there isn’t much a physician can do if their employer offers a unilateral compensation reduction. Suppose they are willing to terminate the Agreement. However, physicians working in specialties that are difficult to staff or underserved areas find it difficult to attract new physicians. Have a much better likelihood of refusing a unilateral pay cut and may not be terminated. As with any physician contract negotiation, leverage is everything.

Contact an Attorney

If you’re a physician with questions about your options or contract, contact us today or schedule a consultation.