Physician Options When Offered Salary Reduction Due to COVID | Salaries of Physicians

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 either reduce base compensation drastically or shift the entire compensation structure to a production-based system. If a long-term reduction in volume necessitates the employer to create future compensation reductions, a pure production-based compensation system would negatively affect the physician’s overall compensation.

This is all dependent upon:

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

The most frequent question our attorney’s are asked, 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 decrease, one option for the employer would be to simply exercise the without-cause termination clause and terminate the Agreement. This is the likeliest scenario if the physician refuses to accept the salary reduction.

The downside for the physician, if the employer exercises the without-cause termination clause, 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 still likely be enforced. There is nothing a physician can do to stop their employer from exercising without cause termination.

Employment Agreement Compensation Amendment During Coronavirus (COVID) Pandemic

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

Peer Pressure by other Medical Staff Members

The final tactic employers utilize is 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 on reducing compensation. This is an effective management tactic that each individual physician must consider.

Overall, there isn’t much a physician can do if their employer offers a unilateral compensation reduction if the employer if willing to terminate the Agreement.  However, physicians who work in specialties that are difficult to staff or in underserved areas where it is 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 your contract, contact us today or schedule a consultation. 

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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 coronavirus (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 Health Specialist 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.

What Should be in a Telehealth Contract?

What should be in a telehealth contract? Telehealth is also known as telemedicine. The pandemic accelerated telemedicine and telehealth across all specialties. It is now possible to conduct practice in any specialty via telemedicine. Most of the state licensing boards, I would say, significantly increased the ability of physicians to utilize telemedicine. Whereas maybe, in some ways, it was prohibited in the past. I find that more and more people are contacting me to review telehealth employment contracts or telehealth independent contractor agreements. And some things need to be thought about before the physician enters them. There’s no huge difference between a telehealth contract and just a normal employment contract.

The Big Difference in Telehealth Contract

If you join a hospital network or a private physician-owned group, the agreements will be relatively the same, with one big exception. And this is the reason why I wanted to talk about this today. The following sentence goes for any physician contract. In the typical agreement, you’re going to have: the term, how long it last, how to terminate the contract, what the compensation is going to be, whether there are any benefits, what the employer is going to pay for, so licensing, DEA, society, associations, continuing medical education, time off potentially. However, it’s a little different for most telehealth agreements. And then, the big one is the non-compete. Now, I wish I had a bright line answer: Okay, this is how it works with telehealth agreements, but I don’t.

Non-Compete Clause

First, non-competes or at least non-compete law is probably one of the only things that change from state to state. If you were to review a physician contract, nothing would be state-specific for the most part. It’s all the same. However, each state views non-competes differently. There are very few states, but some completely prohibit non-competes for physician employment contracts. So, California, New Mexico, Massachusetts, and then there are varying degrees of what’s considered a reasonable enforceable non-compete based upon the state. The tricky part with telemedicine or telehealth is determining where the non-compete applies. If you think of a normal non-compete, it’s going to say:

• For this period
• After the contract terminates
• Usually, one year, sometimes up to two
• The physician can’t compete
• Can’t either work within their specialty
• In a specific geographic area
• Somewhere between 5 to 15 miles from their primary practice location
• You just stick a pin in a map, put 15 miles around it, and then that’s where the physician cannot work during the period of the non-compete.

Why is the Non-Compete Clause Complicated in Telemedicine?

Well, that doesn’t work in telehealth. I find that most physicians who are working in telehealth usually are licensed in multiple states. And so, let’s say they live in Florida, they’re licensed in Florida, but they’re also licensed in Georgia and South Carolina. The telehealth company services all those states. And so, the physician has no say in where the patient is located. And then they’re just seeing the patients that are in a queue. Different telehealth companies do it differently. Some literally the physician when they’re available or when they want to, they’ll just log in, there’s a queue of patients.

And then they tee up whoever is available and do the consult or whatever they do. Others will have, like in, maybe telepsych. They’ll have a set patient base for which they continuously see and write scripts—the difference between a normal non-compete, where it’s just a region. And most of the telehealth agreements will say, you cannot compete with current patients or provide care to current patients in this state that you’re providing care for us. Or you can’t work for another telehealth company that competes in the state that we’re currently in. 

They’re much broader and, in my opinion, much more unenforceable than a standard one year, 10 to 15 miles. Now, these are just working their way through the court systems in various states. And in some states, it’s completely open as far as whether these are enforceable or if there’s a way of making the non-compete enforceable by limiting the area. 

Some Examples Why It’s Complicated

But let’s give a couple of scenarios. Let’s say a physician is doing radiology while living in Georgia but then doing reads from multiple states nearby. And then, the radiology company offers a non-compete. It states that the physician can’t work for any other competing radiology company where you’re doing reads in different states. Or you can’t provide radiology services for any of the facilities that that company has been doing reads for over the last year. Or some scenario like that. I mean, you can see how complicated it can get. If someone leaves the first job, they move to a second job.

They have no control over which facilities they’re providing medical care for the patients they’re seeing or anything like that. And then maybe there’s some change in a business relationship. And so, there may be no problems in the first six months of the non-compete. Then, in the second half, maybe your new company starts servicing the old organizations that your first radiology job is servicing. What do you have to do? Do you have to stop providing health care for those places? Was there any caveat in the original non-compete that the physician would be free to provide medical care to those facilities if the contracts ended? Another one would be if it were just a patient base. Let’s say it’s telepsych. The telepsych company would say the physician can’t provide medical healthcare to any patient that received services from the telepsych company within the last year.

Physicians Do Not Have Control Over the Patients They See in Telehealth

And not even specific to the physician, just any services from their company. Well, once again, let’s say the physician leaves. They have no control over who the patients are that they see. They have no idea of who the previous companies were that the patients used. So, how do you determine or track whether they’re breaking the non-compete or not? And then another factor is how to track everything. Like how would an employer who made a physician sign a non-compete? How would they know if that physician is servicing patients in a new position? It would be challenging. So, I wish I had an answer: yes, it’s enforceable, or no, it’s not. The courts have to go through these areas and then decide on, alright, this is what would be considered enforceable.

And this is what would be considered not. Now, I think it makes sense for the physician to bring up these issues to their company before signing the non-compete and get into those scenarios and say, well, how am I supposed to if our company provided medical healthcare to someone? Then I switched to a different company, and it’s a patient I never had, I had no relationship with, but they utilized another physician in the organization. I mean, there are so many different complications when it comes to this. 

Have a Lawyer Look at the Contract Before Signing

So, it would probably make sense to get it looked at before signing the non-compete. But I guess there will be some limitations from what some of the bigger telehealth companies are making physicians sign right now. Putting a blanket, you can’t work for another telehealth company in the entire state. I don’t think that’s going to hold up at all. It will have to be limited, most likely by geography in some way, which in these scenarios may be impossible to do. So, that’s a brief breakdown of what should be a telehealth contract with a significant focus on the non-compete because that’s the most important part.

Are Doctors Independent Contractors or Employees? | Independent Contractor or Employee for Doctors

Are physicians employees or independent contractors? Kind of a simple explanation. It depends upon the contract that you signed. Most physicians will be employees, meaning they must sign an employment agreement with a new employer. For some specialties like dermatology and anesthesiology. Those two are much more likely to be engaged as independent contractors than employees. Physicians can be hired as an employee and independent contractors as well. It just depends upon what contract they signed. Let’s go through each one. 

Doctor as Employee 

In an employment agreement, the physician is an employee. They’ll receive a W-2, they’ll receive employee benefits: health, vision, dental, life, disability, and then have their medical license and DEA registration. There’ll be some amount paid for continuing medical education. They’ll also receive paid time off. Anyone who signed an employment agreement would typically get all the expected benefits of being an employee. The salary structure, usually, would be or could be a base salary,  based on net-collections, RVU. Or it could be a combination of all three. It just depends. But in a normal situation, if you’re joining a hospital, a physician-owned practice, or a medical healthcare network. You’re almost always going to be an employee. 

Doctor as Independent Contractor

Let’s take anesthesiologists, for instance. Maybe they’re moonlighting on the side, infrequently working for a group, or they signed an independent contractor agreement. So, the legal distinction between independent contractors and employees will be. Instead of receiving a W-2 at the end of the year, physicians would receive 1099. In that scenario, the employer will take no taxes from whatever they earn. They get a check. Then they’re responsible for paying the taxes to the state. If you’re in a state that has that, then obviously, the federal government as well. In an independent contractor agreement, physicians usually have to pay for their own licensing and DEA registration. They won’t get time off, and they won’t receive any benefits.

The employer will usually pay for the malpractice insurance policy. But then you also must think about that scenario, alright, well, who pays for tail insurance? The normal compensation structure in an independent contractor agreement wouldn’t be a base salary but usually net collections-based or encounter-based. 

You would get a flat fee for doing a certain service, something like that. Ideally, in an independent contractor agreement, you’re supposedly able to get in and out of it without hassle. The schedule should be up to physicians. The IRS has a 20-factor test to determine whether someone is an employee or an independent contractor. The physician practices utilize independent contractor agreements. The benefit to them is they don’t have to pay employment tax on any of the wages they provide to physicians. And they don’t have to give any benefits.

Chelle Law will provide a physician contract review to identify the areas that could improve. And to assist you in negotiating the best contract possible today. 

Benefits Independent Contractors Get

The benefit to the physicians of utilizing the independent contractor agreement is usually a little better compensation. The percentages for net-collections might be a little bit higher. The RVU thresholds might be a little bit lower. And the compensation factor for the RVUs might be a little bit higher. They would generally create an LLC or something similar. Then be able to deduct all of the expenses associated with their practice for that employer. They could claim the things I just talked about. Licensing, DEA, if they have paid for malpractice, any business expenses, office, whatever it is. They could theoretically deduct those over time. 

Which of the Two Is Better for Doctors?

Which one is better? Being an employee or independent contractor? Generally, I find physicians will come out ahead under an employment agreement versus an independent contractor agreement. In some scenarios, they’re just not going to have the choice. The employer could say you will only be an independent contractor for us. We will never issue an employment agreement to you, take it, or leave it. And in that scenario, the physician must decide. 

One thing that comes up occasionally is someone who’s never been a 1099 employee. They’ve never been independent contractors before. They’re getting all this money from the job that they’re providing. Then at the end of the year, they think, oh man, I didn’t either budget for this. Or, I wasn’t sending in the quarterly earnings to the IRS. They get to the end of the year and haven’t saved all their money. So, ensure that you are budgeting if you’re working as a 1099 employee. Setting aside whatever amount is necessary to pay the taxes.

Worst Case Scenario for Independent Contractors

The worst thing that could happen for independent contractors. Get to the end of the year and not be there to pay taxes. So, can physicians be employees or independent contractors? Indeed, they could be either one. They could be both. If they work as employees somewhere else, moonlighting elsewhere as independent contractors. It simply comes down to what kind of agreement they signed. Independent contractor agreements are, in my opinion, much less complicated. Usually much shorter than employment agreements. Simply because they’re not going through all the benefits typical employees would receive from their employer. It’s generally easier to get through an independent contractor agreement, but certainly, there are negotiating points for each one. Anyway, that’s the difference between the two.

What Is the Best Physician Compensation Model? | Physician Compensation Models

What is the best physician compensation model? I wish I had a black and white answer, but it depends. Let’s work through the different types of physician compensation models and who can benefit from each. There are three main types of physician compensation models. 

3 Main Types of Physician Compensation Models

First, just a straight-based salary. You work for an employer. They pay you 300,000 a year. You do the work, that’s it. You get the straight base, no productivity incentives, compensation, nothing. Second, you could earn on net-collections. Whatever your services bring into the practice, you would get a percentage of that. Typically somewhere between 35% to 45%. And then lastly, RVUs. The physician produces work RVUs for every encounter and generates a certain amount based on the schedule released by CMS. Then there is the compensation factor. An actual monetary value multiplied by the RVUs generated times that compensation factor. That’s how much physicians will make. 

There are certainly hybrid models that combine one or all of these. It would be rare to have a compensation model with both net-collections and RVUs. That seldom happens. Maybe there would be a half-based salary minimum. And then the rest of your compensation would be tied to either net-collections or RVUs. I find that most physician-owned practices will have some productivity compensation and use net-collections. And then most hospital-based health network employment would utilize RVUs.

Why do they separate them? Not sure. But that’s just how it works in this industry. Which one is best? I think having a straight base salary with absolutely no performance incentives or productivity incentives doesn’t make sense to me. Now, if you’re a new physician coming into a new job. I’ll say, with the hospital, you’re establishing a practice in the area. There will almost always be an income guarantee for the first few years.

What Is the Best Productivity Model for Primary Care Physicians?

It usually takes 12 to 18 months for a practice to reach maturity. So, it only makes sense that physicians wouldn’t be placed on productivity compensation immediately. Especially primary care, cardiology, and any specialty where you must build up a patient base like ED or hospitalists. Those types of things where you’re just doing the work before you. You’re not building up a practice. You can hit the ground running. In those scenarios, it’s okay if it was in the RVU-based productivity model. But it makes no sense initially if you’re building up a practice. Many organizations will have an income guarantee for the first year or two. And transition into a hybrid of base salary plus RVUs. 

Let’s first take net-collections. The main point of negotiation in the net collections-based agreement is the percentage. When I speak to physicians, they’re taken aback upon seeing they’ll only make 35% of anything collected by the practice. However, overhead is expensive. 60% is not an unusual amount in physician practices. If the employer is going to have profit, they need a percentage within that area. As I said, usually somewhere between 35% and 45% is normal. You will not see a net collections-based agreement over 50%. And if they’re a good businessperson, honestly, anything over 40 to 45 wouldn’t make financial sense unless they’re efficient. 

Negotiate the Percentage of Collection

One thing to negotiate would be the percentage of collection the employer gives. It can either be calculated monthly, quarterly or yearly in some instances. And then it’s tier up, or there’s reconciliation at the end of those periods. So, the percentage will be the negotiating point if it’s a net collections-based agreement.

It can be just pure net-collections, meaning everything you bring in that’s what you make. Or maybe you have a base salary. And let’s say that any quarterly collected over $200,000. You get a percentage of whatever it is, in addition to your base salary. As far as RVUs are concerned, once again, you could be paid monthly, quarterly, or yearly if it’s reconciled. You’re not getting paid yearly, but they could reconcile it at that period. Usually, in an RVU-based contract, they would come up with a draw.

Let’s say you’re taking home 10,000 a month, no matter what. And then, at the end of the month or quarter, there’ll be a target. And then any RVUs generated above that target would be multiplied by that compensation factor. Then that’s what you would take home. So, what is the best? Well, as I said at the beginning, it depends upon the setting for the physicians. Net-collections based do not work in a hospital environment. So, if you are in a medical healthcare network hospital, it simply doesn’t work. RVU is the only thing that works in that environment. 

It All Depends on the Setting 

I think RVUs are fair, but you also must consider this. If you’re in a specialty like ED or hospitalists, and you’re only getting on RVUs. You could be completely screwed if the volume of the hospital is very low. If the sense is slow, if the ED is slow, there’s nothing you can do. In that scenario, you would not want to be paid purely on production. And honestly, it doesn’t happen very often, but I’ve seen it before. And it’s just a bad idea. 

Now, if you’re in primary care, you’re at the mercy of, is the office manager good? Is the office set up well, and are they efficient? Is the billing and collection department on top of it? If you’re on a net collection base agreement and the billing and collections department is terrible. Well, you’re the one going to suffer from that. So, I always try to work in a hybrid where you’ll get a guaranteed base. But if you perform over a certain amount, you’ll also reap the benefits of the production. I mean, it’s just human nature. If you can get a bonus, then most people are incentivized to work harder to get that bonus. 

That’s why most of these employers provide something like that. When you’re on a base salary, with no opportunity for production, you’re just doing work that’s in front of you. It’s just human nature that you likely won’t focus or work as hard if there’s no opportunity to make more. So, which one is better? It depends upon the setting. But all three can work perfectly for physicians if it fits the practice that they’re in.