Should a physician sign a letter of intent? A letter of intent is also known as an offer letter. Employers use a different name for it, but it’s the same thing. Let’s go through the process, and once it gets to the offer letter/letter of intent stage, whether the physician should sign it or not. When a physician is looking for a new job or potentially if an employer reaches out to a physician, they can do it through word of mouth from other physicians. Suppose it’s a hospital or healthcare network. In that case, most of them employ physician recruiters who then actively search for candidates for open physician positions, or independent physician recruiters are brokers. They will find candidates for open positions. They’ll bring those candidates to an employer.
Then they’ll get a fee, either a flat fee or sometimes a percentage of the first-year physician compensation. In this case, let’s say a physician is interested in a job. There’ll be an initial discussion with the recruiter, the practice owner, a director, or something to get an initial feel for whether the physician will be interested. And then, if that goes well, it’ll likely end up in some site visitors. The physician will travel to wherever the location is, meet with other physicians, the administration, and other facilities, and probably talk about some basic structure of the employment. At that point, if the employer is still interested. They will offer and say, ” we would like you to sign this offer letter or letter of intent before we move forward with providing you an employment contract.”
A couple of Reasons for a Physician Offer Letter
They do this for a couple of reasons. It takes time to prepare a contract, so most intelligent physicians do. Indeed, any extensive healthcare network or hospital has its legal counsel. It takes a little time to draft an employment contract for a physician. Most places don’t want to go through the time and cost of paying an attorney to draft those contracts unless they have at least some kind of commitment from the physician. And that commitment is then effectuated through signing the letter of intent. Now, should a physician sign a letter of intent? The answer is yes if the employer will require a signed letter of intent before moving forward with an employment contract. If the physician is interested in a job and the employer requires them to sign an offer letter, then sign it.
Does an Offer Letter Bind Me to this Employer?
The next question for most physicians is, okay, if I sign the offer letter or letter of intent, am I bound to this employer? Can I back out, or is it a binding contract? Well, in short, no, you can back out. The terms of the offer letter are fundamental. Compensation, contract length, some benefits, maybe getting into the restrictive covenants, the non-compete, the non-solicit, introductory signing bonus, relocation assistance, compensation productivity. That would be a lot for an offer letter, but those are its basic terms. However, once an offer letter is signed and then an employment agreement is reviewed by a physician. Some terms can change, or the essential information in the offer letter can completely change when provided with more context in the employment agreement.
Is a Physician’s Employment Different Than an Offer Letter?
If it gets to the point where the physician has signed the letter of intent, they think and review the employment agreement. They say you know what. This isn’t for me. This is substantially different. I don’t want to go through with it. Then don’t go through with it, don’t sign the employment agreement. Cordially, let the employer know if these are substantially different or not what I expected. And I’m not going to go through with the contract. In that case, you wash your hands in the situation to move on. I’ve seen almost no scenario where an offer letter would be binding or enforceable.
If there were a language that states there would be a penalty for backing out of the offer letter. Sometimes they would want to recoup the costs of employing a physician recruiter and the travel costs of bringing the physician out to do a site visit. That’s very rare. For the most part, these are just cursory documents. You’ve come to terms with the big stuff, and then the details are in the employment agreement. It is fine to sign an offer letter or a letter of intent from a physician if they’re interested in moving forward with the job.
One Scenario Where a Physician Should Not Sign an Offer Letter
A scenario where they absolutely should not is if they’re fishing for different offers. They say you know what, I’m just going to sign multiple letters of intent, and then once I review the agreements, I’ll decide. If you sign a letter of intent and back out, you have burned a bridge. That’s just the reality of the situation. It is doubtful you will ever have a chance of getting a job with that employer again. And it frustrates any employer when they’re expecting a physician to come. They’ve stopped recruiting the activities. Then the physician comes back and says, you know what? I’m not interested in this. Therefore, most employers will put deadlines.
This is the deadline to sign the letter of intent. And then, once the physician is given the employment agreement, this is the deadline where we want you to either negotiate or sign the agreement. We’re re-sending the offer and moving on if you don’t do it. So, signing the offer letter is fine if you are genuinely interested in a job. If you’re not sure, I will not sign it. But it is not a binding document, and you can move forward and not worry that you’re stuck with the job you’re not happy with or the terms of a job you’re not expecting.
Other Blogs of Interest
- What Happens After You Sign an Offer Letter? | Letter of Intent
- Can an Offer Letter be Revised after Accepting? | Accepted Offer Letter
- Can an Offer Letter be Revoked? | Letter of Intent Pulled
What Can You Negotiate in a Physician Contract? | Doctors Contract Negotiations
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 depending 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!