Negotiating a Post Residency Contract | Contract Negotiations
Negotiating a post-residency contract. This is the first actual employment contract as a practicing physician is going to sign. Most residents don’t receive much guidance regarding what should or shouldn’t be in an employment agreement. And I think most of my contract reviews are with people coming out of residency or fellowship. No one ever guided them on what they needed to know regarding an employment contract. Usually, speaking to them is a broad overview of all the things they must look for in the future.Then this is what you need to look for in your current contract.
Let’s just kind of break down the job process and then where the contract negotiation comes in. Mostly, residents will start looking for jobs sometime early in their PGY-3 year. And some do it earlier, I guess, depending upon their specialty. But what will happen is they’ll either have a physician recruiter reach out to them. Maybe they have colleagues that will suggest specific jobs. Or, if they’re looking in one particular location, they can seek employment in whatever city they choose. And then there’s communication between the employer and the physician. It’ll go one of two ways: either the employer will offer a letter of intent or an offer letter.
Negotiate the Basic Terms of the Job Agreement
And then that will spell out the basic terms of the agreement. Now, most physicians are uncertain about what to do at this stage. An offer letter is not binding. However, the terms reached when you sign an offer letter are then incorporated into the employment agreement. Which will then be binding when you sign it. For the most part, one needs to negotiate the general terms of the offer letter before getting the employment agreement. Because suppose you sign the offer letter and then try to make a lot of changes to the terms you’ve already agreed upon. The employer won’t appreciate that. Now, there are plenty of times when even if we read each solid term on an offer letter, once you get the actual agreement taken into full context, that job appears not to be a viable option.
Look For Restrictive Covenants and Bonuses When Negotiating
Maybe the non-compete wasn’t listed in the offer letter. And then when you read it in the employment agreement, it’s terrible. Maybe it will force the physician to move out of whatever city they’ve chosen to be in. And that can be a deal-breaker for some. Or maybe there are bonus repayment obligations, either a signing bonus, relocation bonus, or student loan repayment. Usually, that’s tied to the initial term of the agreement, typically two to three years. If the physician were to leave early, they’d have to pay back the bonus amount. Depending on the payback terms, that could also be a deal-breaker for some physicians. If the job just gives you the employment agreement, I find it’s much easier to negotiate in that scenario. That’s because there’s been no preconceived terms or agreements from an offer letter.
When you have the agreement’s full context, you can determine what’s most important to the physician. Every contract is different, and different physicians give every term different importance. Some people may be moving to a city for family purposes. Their family is there, they have roots in the community, and they must be there. Well, if there’s a non-compete that effectively boots them out of that area for a year or two. That could be a, no, this is not viable for my family or me.
Others could get their compensation. Maybe it’s all net-collections, RVUs, or hybrid models making it less lucrative than most of the jobs the physician gets. Or maybe they’re in a specialty where tail insurance is critical.
Look For Professional Liability Insurance When Negotiating
You only need tail insurance if it’s a claims-made policy. And so, maybe OB-GYN or some other surgical specialties can have very high annual premiums. That means they’ll also have a very high tail insurance rate. And if the employer is making the employee pay for their own tail insurance, that can also be a deal-breaker. I find the best way for physicians to figure out what’s fair for them is to ask their colleagues how much offer they’re getting and where. If you can access the MGMA data, that is also helpful. You also need to talk to somebody who understands these contracts and has some knowledge of this industry standard. How much does the average physician get in continuing education?
Does the employer always pay for their association, societies, med license, DEA, and registration? What are the expected benefits? How much time off should they get? These are all crucial things that no physician is just going to know after residency. And so, it’s essential to talk to somebody who does know those things.
Contract Negotiations Can Be Tough for a Post-Residency Physician
Negotiation can be challenging for a resident if they’re in a plentiful specialty and maybe in a desirable city. You won’t have much negotiating power if you’re in a specialty requiring a patient base that must be built over time. Usually, it takes 12 to 18 months for a practice to reach maturity. And in that scenario, when you’re coming in with no established patients, it will build up over time. You’re simply not as valuable in the first year or two because you don’t have the patients.
You’re not going to generate the collections or have the encounters necessary. In that scenario, compensation might not be something you’ll have a lot of luck negotiating. But maybe some of the other ancillary things you would, like the bonuses, the non-compete, and tail insurance. So, that’s a primer on negotiating the first post-residency contract for residents.
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When Should a Resident Receive a Signing Bonus?
When should a physician in residency receive a signing bonus? The timing of it is essential. When residents finish training, they have likely already signed an employment contract. More importantly, when they negotiate contracts, usually in their early PGY-3 year, some PGY-2. When they receive the signing bonus is crucial for a couple of factors. One, as physicians in residency, don’t make much money. Say they’re training in New York and get a job in California. Depending on their family size, moving across the country could be a substantial amount of money.
Almost every employer someone signs with as a resident will offer relocation assistance. Usually, between $5,000 to $15,000. You won’t see above $15,000 as far as relocation assistance goes. Somewhere along there, they should pay for the entire amount, to be honest. And some people moving a short distance can also use the relocation assistance money for traveling back to the city. To look for an apartment or a home. So, airline lodging, all that kind of stuff. Some people could use that money for a security deposit or maybe the first couple of months’ rent. Most employers are flexible in what the physician can use that money for. But they want it to be housing-related or relocation-related in some manner.
Negotiate To Get The Amount of the Signing Bonus You Need
Now, the timing of when you get paid is important. Usually, the physician will receive different offer bonuses. One would be the relocation assistance as I said before, somewhere between 5,000 to 15,000. And also, a signing bonus is usually paid out during their first pay period. Whenever they get paid first after they start with the employer, that’s when they would receive the bonus. There’s a different way of doing it. Often employers will say unless it’s a big hospital network that has established relationships with moving companies. Let’s say you’re running a private practice. They’ll say, pay your moving expenses, submit us the receipts, and then we’ll reimburse you. Well, for some people, outlying $10,000 to $15,000 to move is difficult. Simply because, as I said before, you’re not a wealthy doctor when you’re still in training.
So, we assess the situation for the physician and determine if it is helpful if you get this before moving. How soon before you complete training do you need the money? We can say to the employer, “Hey, look. It will help us defray the cost of the move if we receive this before moving.” Or, more importantly, maybe the employer would be willing to pay the amount directly to the moving company. In that way, there’s no cash outlay by the physician, which is the entire point. The signing bonus also. The timing of when the employer pays it can be essential as well. Depending upon the size of the signing bonus, we could say, we would like half upon execution of the agreement.
Discuss Post Residency Repayment Obligations
So, when you sign the actual agreement, and both parties sign it, that’s called the execution of the contract. Many times, we could say we’ll get half upon signing. And then the other half when they start. Both bonuses will have a repayment obligation tied to them. At least it usually would. This means that, let’s say the physician has an initial two-year term. The employer states, that you’ll owe us a prorated portion of the bonuses if you leave before the initial two-year term. It could be quarterly forgiveness, monthly forgiveness, or yearly forgiveness. Let’s say someone has a $30,000 signing bonus. They say, alright, half of it is forgiven after the first year. And the other half is forgiven after the second year.
So, if the physician left between the first and second year, they owe back $15,000. So, the employer is insulated from the physician, simply taking the bonuses early. And then splitting out on the job by signing the agreement in advance. There’ll be language in there that talks about the repayment obligations. If the employer is expressing concerns about that. Or maybe they just don’t utilize that. That would be a good way of saying, look, if you’re concerned about me, just take the money, and leave.
Then let’s put in these repayment obligations; therefore, you’re protected if I were to leave. And I benefit by getting the money in advance. So, that’s a discussion of when the physician in residency should receive the signing bonus or relocation assistance. It’s just dependent upon the situation for some people. It’s fine receiving it after the fact. But for others, it’s important to have it up front—just some things to think about.
How Much are Resident Physician Salaries?
One question med students have is the average salary for a resident physician. After physician graduates from medical school, they move on to an internship or residency within their specialty. Then get paid. But for most of them, it’s simply not even remotely enough for the work that they’re doing. So, it’s not uncommon for a resident to work 70- or 80-hour weeks. The average salary for a resident physicians in the United States is around $63,000. Maybe you’re a resident right now, thinking, I don’t even make close to that, or maybe I make more. This is average across all specialties. Some specialties will make a little bit more than others.
Some could be as high as the 60s. Whereas maybe in family medicine, you could be about 50s. Can a resident negotiate their salary during training? No, they have no leverage. Anytime you’re negotiating contracts, you base it upon leverage. Even those resident physicians coming out of training and moving on to their first employed job don’t have much leverage. They only have leverage in those situations if they’re in a needed specialty. Or two, if they’re willing to go to an under-served geographic area and need physicians.
So, around 63,000 is the resident salary. If you think of it this way, if they work 70 to 80 hours a week, they’re making about $15 hourly. And providing care as a doctor for $15 an hour. Now, once they move out of training, the salary increases substantially. And for some specialties could be an eight-fold increase, at least just coming out. But that’s what it is. One consideration we make when reviewing and negotiating the resident or fellow’s first contract. Most of them don’t have much money coming out of training.
Importance of Relocation Assistance Signing Bonus
So, suppose the new employer is offering a signing bonus or relocation assistance. In that case, we want to ensure they’re getting a chunk of that before moving and starting the new job. Wherever, if they are moving from where they’re currently training. Simply most residents, especially if they have family, maybe the only breadwinner. At that point, they don’t have $10,000 to $15,000 if they’re making a cross-country move. So, we need to ensure that either the employers pay their moving costs directly to the moving company. Or they’re going to front the money before the physician needs to spend it on the move.
That way, they don’t have to outlay a ton of cash. Because it certainly is expensive moving from one place to an entirely different one. Physicians in residency certainly are underpaid. Unfortunately, it’s part of the process they must go through to be fairly compensated for their services. But it’s just tough when you’re making that little. And I think the average physician has about. I think 47% of physicians have student loans over $200,000. It could be a big burden.
When Should a Physician Resident Start Looking for a Job?
When should a resident physician start looking for a job? This is a complicated question. First, I do contract reviews daily for physicians. Many are individuals getting their first jobs who’ve never had an employment contract before. They’re either in their last year of residency or fellowship and have an offer they want me to review. There are occasions where there’s a multiple-year fellowship, maybe a PGY-2 or something like that. Wherein residents already have an offer that won’t begin for two years and want me to look at, as well.
Search for a Residency Job
Let me give some words of wisdom, just from doing this for a couple of decades now. One, if you are a resident or a fellow in practice. You know where you need to be geographically. Maybe you have to move home, or you have a significant other completely trading themselves elsewhere. Want to move close to your family, whatever it is. If you have a pinpoint location in mind, getting started sooner than later is probably a good idea. Start looking for a job when you still have two years left in training. Think of it from an employer’s perspective. Some employers don’t have immediate needs for physicians, right? So, if they are well run, they’ll have financial forecasts.
Forecasts as far as the patient load will be, perhaps the practice is expanding and opening a new office. But they’re not going to open it for a year. I guess I’m saying that employers know that they’d need physicians. But sometimes, it’s not for a couple of years. That’s why an employer will start looking immediately for a position that’s not immediately available. Once they get out there and see some candidates, even if that candidate has two years left in training. It’s not uncommon for them to offer them a position and make them sign an employment contract. One benefit of looking early is simply getting in before someone else takes the part. So the earlier you look at the job, the more likely you’d have a chance to get it. If that makes sense.
If You Take a Practice Early
Next, the downsides of going early in practice. What’s the negative part of finding a position far out from when residents have completed training? Suppose you sign an employment agreement that doesn’t commence for two years. And then you have some change in the 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. There are a million reasons why a location is perfect at one point, and 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 some penalty.
Which Year to Start the Job Search?
I would suggest. Before signing an agreement with that kind of language, probably get it reviewed by someone to review 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 get a better offer. So maybe it’s just a better opportunity for you. The compensation is more. The benefits are better. The 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 some actual change in family circumstances. They’re not as forgiving if it’s simply that this person is paying me more than you. I don’t want to complete the terms of this agreement. Once the contract is signed, the employer relies upon you to start, so they will stop recruiting anyone else. They’re going to make plans to either bring in more patient volume. Or maybe the office they’re opening up is contingent upon you being there.
Where Residents Should be Looking
So, I guess there are problems for both sides if the physician doesn’t want to start. The employer 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, taking the first offer and signing an employment agreement without comparing different bids is a bad idea. There are almost always multiple opportunities for somebody. Accepting the first one just because they are the first doesn’t make much sense to me. So I’d suggest you look at multiple offers, gauge the compensation structure amongst them, and then go from there.
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