I will discuss Physician offer letter negotiation, how to negotiate before receiving or after receiving an offer letter, and then the difference between an offer letter and an employment agreement. In any job search, the organization may state to the physician that before we provide you with an employment agreement, we want you to sign the offer letter. The offer letter dictates the general terms: compensation, term length, how to terminate the agreement, signing bonuses, relocation assistance, maybe some productivity compensation, and restrictive covenants, like the non-compete non-solicit. Essential things are listed in the offer letter, and usually, whoever is doing the recruiting is in advance. It could be a physician recruiter for the organization.
It could be an outside physician recruiter who is more like a broker between the employer and the employee. If it’s a small physician-owned practice, it could be the owner of the practice discussing the terms with the physician interested in the job. I find that most private smaller physician-owned groups do not provide offer letters. Whereas, in most more extensive healthcare networks and hospitals, especially in academia, there’s almost always an offer letter delivered to the physician. You can certainly go back and forth on the general terms before receiving the offer letter. Usually, they give you those terms with the first offer letter. So, for the first time, you’re going to see, alright, this is the comp, this is the benefits.
What If a Physician is Unhappy With an Offer Letter?
This is the term, et cetera. If a physician is unhappy with the terms listed in the offer letter, then this is the time to negotiate those terms. As someone who reviews these days, it’s challenging for me to give someone advice just straight off an offer letter. There are specifics in minutia contained in the employment agreement that can drastically alter whether an offer is reasonable. What are the terms of a non-compete, meaning how long it lasts, the radius in the restricted territory, and what specialties it includes?
Let’s say someone is in family medicine, can also be a hospitalist, and can do urgent care. Does it stop them from doing all those things or just one of them? It just depends. And those little details are not listed in the offer letter. And seeing, okay, the comp is good, the benefits look good, the term looks good, all that looks good. Then once you see the actual employment agreement, it’s like, this is a deal-breaker as far as I’m concerned. So, how to negotiate terms when you just received the offer letter, in my opinion, is difficult.
First, you need to figure out a base salary amount if it’s just a square base that I’m expecting. A couple of places you can go, Google MGMA compensation data. You can usually find some couple of years old data online. It’s easily accessible. Ask colleagues. If you’re in training, ask other residents or fellows in your program. If you already have friends, ask them how much you are making. What are the different offers that some of your friends are getting?
How to Negotiate a Letter
That’s the best type of information I can find. Yes, salaries do vary based upon where you are in the country. However, just the straight-based wage should not be the determining factor for a physician, especially when out of training. The environment, the ability to learn new procedures, having a positive mentor, and having growth opportunities in the first job are essential. I find that it’s helpful if the physician puts a list together, these are the most important things to me. Then they need to go over it with the employer before signing the offer letter.
And if you can agree on terms, then that’s the point where you’d sign the offer letter. Then the employer would draft the employment agreement and give that to the physician. Now, there are times when a physician will sign the offer letter and then, after reviewing the agreement, decide that this is not the job for me. The offer letter is not binding unless there’s language involved that states some damages are associated with the absence of commitment. I’ve never seen that before.
Even if a physician has signed an offer letter after reviewing the employment agreement and they’re unhappy with what’s in there, they don’t have to go through with it. They can simply say, this is not what I was expecting. Either we can negotiate the terms of the employment agreement and language, or I’m just going to move on somewhere else. So, those are tips on negotiating a physician offer letter and then the differences between that and an employment agreement.
Other Blogs of Interest
- Should You Sign a Physician Letter of Intent?
- What Should be Included in a Physician Contract?
- What Should a Physician Offer Letter Include?
Contracts: Is an Offer Letter a Contract?
Is an offer letter a contract? In short, most likely, it is not. When a professional is entertaining a new position, many employers offer an offer letter, also known as a letter of intent. And then, that letter will break down the basics of the employment relationship. It’ll list compensation, potential bonus structure, probably the term of the agreement, how long it lasts, and maybe a few of the benefits: if there are non-compete, non-solicit, and if professional liability insurance is needed, perhaps who pays for tail insurance. So, just like essential bullet points, these are the things that will be incorporated into the employment contract.
Now, it does make sense to negotiate the main terms of the agreement before signing an offer letter. It’s kind of bad form to agree to a salary, get the offer letter, and then continue to negotiate after you’ve already negotiated. However, there are many times when you’ll agree to an offer letter. Then the employer will follow up with an employment contract. Then the employment contract agreement terms may be much different than you were expecting. Maybe the specific language of the non-compete was much more restrictive than you were anticipating. Or perhaps if you’re paid purely on collections, the end of the collection as soon as the contract is terminated. Then you missed out on 60 to 90 days of collections that percentage you should get.
Is the Offer Letter Binding?
Once you sign the offer letter, the question is, is it a binding contract? And the short answer is no. It’s not. Unless there’s specific language in the job offer letter that states this is binding in some way, which would be extraordinarily rare. It’s just not done. Maybe in like academia when it’s more of a thorough offer letter, and that’s all that they’re providing. And then they’re just referring to a bunch of policies and procedures. Still, if it’s just a typical professional environment, then no, the offer letter will generally be general; these are we’ve agreed on terms.
An Offer Letter Is Not a Contract
However, the professional can continue negotiating, even if they’ve signed an offer letter. And even regarding the terms on which they have already agreed. The employer will likely not be happy if you come back at them and ask them to renegotiate terms. But if you’re going to do that, you need to explain why you’re doing it. Meaning, yes, this salary at 250,000 annually made sense. Still, you’re also giving me a three-year non-compete that covers five counties, which will effectively make me move once an agreement terminates.
Taking that into account, 250,000 is not worth me taking this job. So, giving the employer context as to why you agreed to compensation at one point, but now at this point, it’s no longer an amount you’re willing to work for is essential. And I think most intelligent employers will understand that nothing is final until you sign the employment contract agreement. Even though you’ve agreed to terms in the offer letter, it doesn’t mean that you can’t reopen those, but you must keep in mind that it may tick off the employer in some way.
Negotiate Terms in the Contract That Are Not in the Offer Letter
Now, what about terms that aren’t listed in the offer letter but are detailed in the employment contract agreement? Those are absolutely the terms that you should try to negotiate. And when I say negotiate, what do you do? If you have a signing bonus, ask for a little more. If you have a non-compete, try to reduce the amount of time of the non-compete and try to reduce the geographic restriction if they’re not going to pay for professional liability insurance or tail insurance after the contract ends. Try to work out an agreement where they’ll pay for all of it, or maybe a portion of it.
As I stated before, if there are bonuses involved, you want to make sure that you’ve earned those bonuses or want to get them paid. Even if you’re not employed at the time that they’re typically paid out or maybe get them prorated. Many employees will get a signing bonus if there’s a forgiveness structure. And then in the contract, it’ll state that if they leave before this period, they’ll have to repay a portion of it. If you have annual forgiveness, then get that reduced to either quarterly or monthly forgiveness.
Expressly, if you have a two-year term on the agreement and were given a $20,000 signing bonus, it may state that for each year you’re here, it’s forgiven one-half. Well, the employee should get that reduced to monthly. Because if you leave in the middle of the year and it is yearly forgiveness, you missed out on six months of forgiveness. Whereas if it’s monthly, you have six of the twelve months forgiven.
You can negotiate plenty, even from when you’ve signed an offer letter to a contract. In general, it is not binding. And you can constantly renegotiate terms. Once you sign the employment contract agreement, yes, those terms are final, and you’ll have to stand by whatever you already agreed. But as far as the offer letter goes, it’s still negotiable for the most part.
Can an Offer Letter be Revised after Accepting?
Can an offer letter be revised after signing it? In short, yes, it can. There are infrequent times when an offer letter, also known as a letter of intent, would be binding upon a professional. I mean, it would need to state that the terms of the offer are binding explicitly. And typically, in that case, it would be something in academia, and it would be much more detailed than just a typical employment contract in a company. I can’t recall a time where an offer letter said it is binding with an employment contract agreement to follow that would also be binding. And there are several reasons why most employers don’t do that. First, from the employee side, receiving an offer letter will break down the basic terms of the employment relationship.
When a Job Offer Proves To Be Something, You Didn’t Expect
The compensation, productivity, bonuses, the length of the term, how long the contract lasts, how an offer can be withdrawn or terminated, some of the benefits, malpractice insurance, if necessary, the restrictive covenant, non-compete, non-solicit, non-disparagement confidentiality. It’s basic terms. An offer letter is usually a page or two at the most. In contrast, a standard employment agreement is at least 20 pages and could be longer. It’s just basic terms. Now, if you look at basic terms and say, you know what, that’s an excellent salary.
I’m okay with that. And maybe it just says it has a non-compete but doesn’t have the actual terms, and then you agree to sign the offer letter. But then, when you get the employment agreement, have some context and specific language provided. It could change from a job contract you thought would be great to not so great.And let me give you an example. Let’s say, in the offer letter, it says, yes, there’s non-compete. But you notice it doesn’t have any terms. Then you look at the actual employment contract agreement. The non-compete lasts for three years and a hundred miles from your primary practice location, sales territory, or whatever.
Well, that job offer where the comp looked great, maybe the benefits look great. If the non-compete forces you to move from your current community, that may be a deal-breaker for some people. Perhaps you can go back to them and say, hey, I’d like the terms of this non-compete reduced. It is not what I was expecting. It’s much more restrictive than usual. And for me to feel comfortable signing this agreement to the job offer, we need to change these terms. It’s your legal right to voice out your concerns.
Contextualize Reason For Negotiation
The terms may not have been in the offer letter, but you want to get the terms changed before you sign the employment agreement. What if the employer says no? Let’s say they say, no, we’re not willing to change the terms of the non-compete. Well, you could go back to them and say, I know we already agreed to a base salary. However, if I accept the terms of this non-compete, it’s not worth what I decided to initially. It’s worth a hundred thousand more for me to agree to this.
Although we initially settled on the base salary in the offer letter, I’m not okay with that now. I’m not going to accept that now. And if you want me to sign this employment contract agreement, we will need to change the compensation structure. That’s fine. The employers may be upset. They may be ticked off. Still, when you do something like that, you’re coming back at them and renegotiating already negotiated terms that were listed in an offer letter. You need to provide context and reasoning for why.
And non-compete is a good example. I didn’t have the terms of what it would be. Now that I notice those specific terms, I’m not okay with it. And this is one of the reasons why I want changes to other things. I think any savvy employer is going to understand, okay, well, I mean, that makes sense. Now, they may not be willing to make any changes. And as I said before, they may be slightly upset that you’re coming back at them. Still, I would never suggest that a professional should ever sign an employment contract agreement with terms. They’re not willing or comfortable just because they signed an offer letter and agreed to the terms of an offer letter. Unless there’s a claim that it is binding, it is not binding.
You can still negotiate terms even though you signed the offer letter. And even though you negotiated them initially. It is much better to tick off an employer and maybe reach terms than to accept terms with which you disagree. If you go into a new job and feel like you’re not being appropriately compensated, or you are concerned about one of the restrictive covenants. Most people don’t last that long in those positions. You want to feel good going into a new job. You want to have a smooth relationship with your employers. If you don’t feel good even if you’ve signed the offer letter, don’t go through with taking on the new job offer and starting a new position. It’s your call.
Can You Reject a Letter of Intent?
Can you reject a letter of intent? The quick answer is yes, you certainly can, and should, if you’re unhappy with the terms of it. A letter of intent, also known as an offer letter, can be provided to the job applicant once negotiations or discussions about a position move forward. Usually, it would work if a potential job candidate would find out about a job offer. Either through a job listing, word of mouth, maybe they were reached out through a recruiter, there’s a discussion of the main point to the position like the salary, benefits, that type of thing, location. And once there’s interest on both sides, many employers will offer a letter of intent or offer letter. And that is a description of the main points of the employment relationship.
What’s in an Offer Letter
In most offer letters, there will be the start date, location, and length of the job contract, which is called the term. Maybe a brief discussion on how the contract can be terminated, compensation, so is there a base salary? Are there bonus opportunities? Is it net-collections, or commission-based, RVUs? It would be a brief description. It wouldn’t go into a long four paragraphs about comp. If malpractice insurance is necessary, who pays for that? Is it the company or the employers? And who pays for the tail insurance if that’s necessary as well? Are there restrictive covenants? The restrictive covenants are usually a non-disparagement, a non-solicit, a non-compete, and it might go through briefly like this is how long go last.
And maybe this is the geographic restriction enforced by the company or employer associated with the non-compete and then a brief description of the benefits like health, vision, life, dental, disability, retirement, and maybe expenses. What expenses will be paid by the employer? That’s what would typically be in an offer letter. The job candidate, when viewing this letter, if the terms of it are unfavorable, or maybe not what the job candidate was looking for, they can say, no, I’m not interested in this. I’ve read the terms. I’m not going to sign this. I wouldn’t suggest just flatly saying to the employer, no, I’m not taking this job. Take a hike. It would simply make sense to counter. You can say, I’m not going to sign this job offer. However, these things would make this opportunity to work for this company good for me.
An Offer Letter is Negotiable
So, if you’re offering a 200-base salary, then maybe I want 250 or a signing bonus of 10,000, and I want a 20,000-signing bonus. And are you going to provide relocation assistance if I must move into a new city? These are all things that should be done at this stage. Even though a professional has been given an offer letter, it doesn’t mean that’s rescinded.
And then, even further, if you come to terms with the offer letter, what will then follow will be an employment agreement. Even if an offer letter has been signed, unless there are languages that claim this is a binding offer letter, no terms can be changed, which you will rarely see. Once you get the job offer employment agreement, you can still negotiate terms. So, you need to think strategically, alright? Am I happy with what the offer is? And then, what is my leverage in negotiating new terms? I would suggest never signing an employment agreement with which you disagree.
Even if you reject the offer letter, and even if you decline the employment agreement, it does not mean that the negotiation is over. Suppose the professional is reasonable in what they’re asking for. In that case, I find most employers expect at least some negotiation when they’re bringing in new job candidates. I mean, it is the expectation. But once again, if they’re reasonable.
Ask for Reasonable Changes to the Contract
Suppose an job applicant is asking for a 200% increase in base salary. In that case, the employers are likely going to, look, you are delusional, and we will withdraw the offer and move on to a different job candidate. With the job offer rescinded, you’ve already missed your chance at negotiation.
So, it helps the professional understand their profession’s industry standards. That way, a job candidate, they can ask for reasonable changes to the job contract. There are also many times when you’ll get brief details in the offer. Then when you see the actual written language in the agreement, it substantially changes what it looked like in the offer letter. Maybe if it just briefly mentions there will be a non-compete, but once you review the job offer employment agreement, it’s a terrible non-compete.
Maybe you expect a one-year non-compete, and the employer offers three, or you’re expecting a small geographic radius of 10 miles. They came back with a hundred, or something like that. That can change from “yes, this is a great offer” to “there’s no chance I would ever accept this new job offer.” So, there can be negotiation throughout the process up until the professional signs the employment agreement. At that point, those are the terms. It would help if you made certain before you sign anything that you’re okay with what is in agreement. And then understand there will be obligations after the relationship with the employer ends.
What Happens After You Sign an Offer Letter?
What happens after you sign an offer? There are two main distinctions. One, a professional could be given an offer letter by the employer, and that’s it. No employment contract follows. It’s just you agree to the terms of the offer letter, and then you start the job. And then, the second way would be the employer asking the potential employee to sign an offer letter, agreeing to basic terms. And then, at that point, they’ll incorporate those terms into an employment agreement and offer the employment agreement to the prospective employee. Then that person needs to decide if they want to sign the employment contract agreement and then move forward with the relationship. Let’s first go with if you begin an offer letter with no employment contract agreement to follow.
In that scenario, you’re most likely in an at-will employment relationship, meaning the agreement or the employment relationship can be terminated at any time, for any number of reasons, with no notice unless it’s specified in the offer letter. And then, for the most part, there wouldn’t be any restrictive covenants that follow when the employment relationship ends. Restrictive covenants could include a non-solicitation agreement and a non-compete. T
hose are the two most common or the two that matter the most for most employees. If you negotiate, hiring employers would provide you an offer letter that goes through basic things, such as compensation, benefits, start date, and that’s about it. I would say most licensed professionals usually would sign employment contract agreements. Attorneys don’t, for the most part, but almost any employee in healthcare, health physicians, nurse practitioners, PAs, vets, chiropractors, and dentists, always sign employment agreements.
Not Required to Take On An Offer You Signed
Let’s say you’re in another situation where an employer gives you an offer letter, and you agree to the terms. Then they’ll follow up on the employment agreement. Many people ask, alright, what if I’ve signed the offer, but when they give me the employment agreement, it doesn’t look so great. Do I have to go through with the job offer? The answer is no. Unless there’s strange language in the offer that states it’s binding, which would rarely happen if they follow up with an employment contract agreement, you can still negotiate terms.
Allow me give you an example as a guide. Let’s say in the job offer it just states there’s a non-compete, but it doesn’t have any details. So, you get the job contract, and then you look in the non-compete, and it’s five years and covers an entire state. Like you will have to move out of the state if you want to continue in your profession. Well, that’s not a reasonable non-compete, but that could make a job offer that may have looked great at a hundred thousand a year be only worth 200,000 a year if you’re going to accept that terrible non-compete.
Provide Context For Disputing Job Offer
Even if you’ve accepted the terms of the offer, it doesn’t mean you have to go through and execute the employment contract agreement. The employer will probably talk about, well, you agreed to the terms, and now you’re returning to us. So, I find it is most effective if you provide some context as to why the job offer letter did look good at the beginning. Still, after reading the actual details of the employment contract agreement, it’s not so good.
I think most intelligent employers can understand that and appreciate that. If you just come back at them and say, no, now I want to double the salary, the bonus, or whatever it is, without providing any context. I assume the employer will not be pleased with that and may even revoke the offer. So, what happens when you sign an offer letter? First, an employment contract agreement will likely follow, and then you’ll have to determine if you want to go through with that, or they’ll give you the offer letter. It’s an at-will relationship; you can leave at any time, and there likely aren’t any strings attached to it.
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 as to whether they’re willing to negotiate terms or not. Extensive hospital networks are less likely to change an employment contract agreement significantly. Unlike if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for significant changes. What are the things that are important to the physician, and then what are the things that they can get changed?
In my mind, when I’m talking to a physician, the things that stick out as the most important would be:
- The signing bonus,
- Relocation assistance,
- How to terminate the contract agreement,
- Making certain there’s without-cause termination that’s a reasonable length,
- Productivity bonuses,
- Tail insurance and,
- 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 their 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 your specialty’s average salary. 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 between a base salary and RVU production? A base salary and net-collections? Is it all RVU? Is it all net-collections?
This one is dependent upon 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 is over 20,000 by the practice, and the physician will get 15 to 25% of that. That would be a standard percentage. If the physician is purely on net-collections, around 40 to 45% is average. As far as RVUs go, there are two things you can negotiate: the threshold, meaning how many RVUs you must generate to get a certain amount, and the compensation factor, which is the monetary value associated with the RVUs. That has some leeway as well. Regarding signing bonuses and relocation assistance, the main things are the actual number, obviously, but more importantly, what’s the repayment schedule?
Forgiveness Period in Physician’s Contract
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 contract agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire $20,000 forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Between $10,000 and $15,000 should be the cost of relocation assistance. The signing bonus can vary widely from 10 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 wholly unenforceable; California and Mexico, for instance. Usually, the non-compete shouldn’t be any longer than a year. The geographic restrictions should be 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 at one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete applies to every facility we own in the 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 in internal medicine. You can be a hospitalist, and you can go into family practice. 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 urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to consider. And then malpractice insurance is always a considerable discussion with the physicians’ coworkers. First, you must identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And 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 an extensive hospital network. Now, tail insurance usually costs about twice what your annual premium is.
Physician Employment Contracts & Negotiation Tips
Your family practice’s 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. One thing you can negotiate is who pays for tail insurance coverage. Sometimes an employer will say if you’ve been with us for one year, we’ll pay for a quarter, then two years, half, and then three years, 75%. Some ways of getting out of having to pay the entire amount depend on the situation. Now, the first thing I talked about was whether the employer was willing to negotiate or not. Some employers will say this is a take-it or leave-it deal. I don’t think those employers will be great for getting together. If an employer is unwilling to budge on anything, it will likely be challenging to team up.
It means 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 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, a non-compete is absolutely the number one thing. For others, it’s the compensation. For others, they do not have to pay tail insurance. It depends upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.
Physician Contract Questions?
Contract Review, Termination Issues and more!