What are the different types of contracts physicians can sign? Basically there are two: You have an independent contractor agreement, and then you have the employment agreement. So, what are the differences between the two? An employment agreement means there is an employer and the physician is an employee. They are a W-2 employee, meaning taxes are taken out of whatever compensation they have. And then the employment agreement will kind of go through the general terms of the relationship. How long the contract lasts, how it’s terminated, how they’re compensated, the liability insurance, restrictive covenants, non-compete, non-solicit, that type of thing. In an independent contractor agreement, you are not a W-2 employee. You’re a 1099 employee, which means, no taxes are taken out of whatever the physician is given via compensation.
The physician will be responsible at the end of the year to pay their taxes or quarterly. Another big difference is for most independent contractor agreements, the physician will be responsible for all of the ancillary costs associated practice: Medical license, DEA, registration, professional associations, privileging and credentialing, malpractice insurance, whether they have to pay tail. All of those things are generally the cost of the independent contractor, not the person they’re working for. Sometimes, the employer who is utilizing the independent contractor will pay for certain things, but, I guess another key point is an independent contractor will almost never get benefits as well. Health, vision, dental, disability, life insurance, retirement, there’s none of that is available. So, why would someone, if given the choice of being an employee or an independent contractor choose to be an independent contractor? Other blogs of interest include:
Employment Agreement from the Practice
The entire point of an independent contractor agreement is that its kind of easy to get into and easy to get out of. And theoretically, the independent contractor should be able to make their own schedule, work when they want, that type of thing, although that doesn’t honestly happen very often. An independent contractor, if they’re smart, they’ll create an LLC and then they’ll have any of the money paid through that, set up a bank account, and then they can expense all of those things that I talked about previously. I find that most employers who, I don’t know if force is the right word, but only offer the independent contractor agreement option. Maybe not solely doing that, but many times they’re doing that to just avoid paying employment tax to the physician. Honestly, there’s not a ton of benefits in an independent contractor agreement for a physician. If it still includes restrictive covenants, kind of a long notice required to terminate the agreement.
Is a Doctor an Independent Contractor?
Obviously, as I said before, they don’t get paid benefits or any of the other licensing. I find anesthesiologist, dermatologists are kind of the two specialties that most frequently use independent contractor agreements. Some radiologists as well, but primary care, peds, cardiology, that type of thing, they’re almost always gonna be employees. And then if you are working for a hospital or healthcare network, 100% of the time, you’ll be an employee rather than an independent contractor. Maybe you’re working at a hospital, but you’re working for a group that is contracted with the hospital to provide services. I guess that’s a possibility where you’d be an independent contractor, but it doesn’t happen very often. So, the two types of contracts for physicians, are independent contractor agreements and physician contracts of employment.
Are physicians independent contractors? The answer to that is it depends on what kind of contract you signed. Really there are two types of contracts for physicians. You have employment agreements, and then independent contractor agreements. With an employment agreement, you’re an employee, and then the contract that you signed will kind of specify all the terms of what the physician needs to do, and what the employer needs to do. Then in an independent contractor agreement, many of those terms are the same, but there is kind of much less detail in an independent contractor agreement for some employment agreement. Let’s just briefly go through the two and then we’ll get back to when a physician is an independent contractor.
The main differences are one, in an employment agreement, the physician is paid via W-2, and then the employer will pay for most of the things necessary to be a physician: licensing, DEA registration, credentialing, privileging, practice insurance, any kind of the expenses associated with being a doctor. In an independent contractor agreement, you’re not paid as a W-2 employee, you’re paid via 1099, meaning, the physician would have to take out the taxes when they file their returns. Then most of the time, the entity that is contracting with the independent contractor will not pay for the dues and fees and all the other expenses. So, the physician will be the one that pays for the license, DEA, continuing medical education. There are also no benefits associated with an independent contractor agreement generally. So, health vision, dental, life, disability, retirement, all that kind of stuff, simply won’t be provided to the independent contractor. Obviously, another question is, what’s better for me, and what’s the point of both. I find it’s kind of very specialty-dependent, anesthesiologists, dermatologists, for whatever reason, have more independent contractor agreements than any other specialties.
I mean, honestly, the reason why some of these practices only utilize independent contractor agreements is so they can avoid paying employment taxes. These are essentially quasi-employment agreements. The physicians kind of act as employees, their schedules set for them. They’re using the employer’s facilities and supplies and staff. However, if a physician isn’t an independent contractor, then generally what they would do is create an LLC and then they would run all of the payment through the LLC bank account. They would also be able to deduct the expenses, all the things that I went through before licensing CME, malpractice, insurance, tail, all that kind of stuff as well. I mean, if I had to weigh one versus the other, well, usually, if the physician does have the choice between the two, it would kind of depend upon the compensation structure of whether it would be worth it or not to accept an independent contractor agreement.
If it’s based purely on net collections, sometimes it is more lucrative to be an independent contractor, but if I must give a percentage of which way a physician ultimately benefits more in the end, it’s probably like 80/20 employment agreements because all of the things that the independent contractor has to pay for, are provided by the employer, add up over time. Then another thing to think about is some individual physicians simply can’t get some of the things that a larger employer can. It’s difficult to get individual health insurance for feeling it’s expensive and then all the other things, vision, dental, life, disability, malpractice, tail insurance, that stuff adds up quickly. Anyway, if a physician’s kind of debating between the two, I wish I could give a better answer besides it. It depends, but that’s kind of an overview of whether physicians are independent contractors or not. Just depends upon what kind of contract they signed.
What Should be in an Agreement?
What should be included in a physician contract? Well, obviously a lot, but let’s go hit the highlights of what should be included in every physician contract. Keeping in mind that each physician has their own kind of needs and wants in their specialty dependent, but we’ll just kind of hit the main points that should be in any contract. One, what are the terms of the agreement. How long does it last, how is it renewed, and then how is it terminated? The ‘how is it terminated’ part is extraordinarily important. You can terminate the contract by mutual agreement, or the term could end, and it’s not renewed. It could be terminated for cause.
Meaning, someone violates the agreement, or lastly, and this is the most important part: without cause termination. Any physician contract should have without cause termination that allows either party to terminate the agreement with a certain amount of notice, usually 60 or 90 days. If you’re on an employment contract and you’re not a J-1 waiver employee, if your employment contract does not have without cost termination, do not sign the agreement. You absolutely do not want to be locked into a job that you 100% hate working at or going to every day. And you’re stuck for a term, one year, two years, three years. So, you need the ability to terminate the contract if things are not going well. Unfortunately, every job may look amazing from the outside, but once you get into it and are working there and are there every day, things can change.
If that’s the case, then you need to be able to get out. Anyway, that’s about it as far as the termination of what needs to be in there. The compensation obviously needs to be included, if it’s productivity, computation, how is it calculated either RVUs or net collections, how is payment handled after the contract is terminated at the restrictive covenants, the non-compete, the non-solicitation agreement, non-disparagement. All the terms of that need to be included as well. A couple of things about the non-compete that sometimes is missing are, one, it needs to identify the specialty. Some physicians are either double-boarded or maybe RIM but working as a hospitalist. The specific specialty of what you’re doing for the employer should be included. How long it lasts, usually a year, sometimes two, but to be enforceable most of the time, one year is considered reasonable.
What’s the geographic limitation? Is it five miles, 10 miles, 15 miles? And then more importantly, what is it attached to? Is it just your primary office location? Is it a hospital? Is it multiple hospitals? Is it every facility that the health network or hospital owns? These are absolute details that need to be worked out in any physician contract, they need to be included. A couple of other things that need to be included are sometimes benefits. Some employers will have a benefits summary, like a PDF that lists all of the benefits they have: Health, vision, dental, life, disability, retirement, do they pay for your dues and fees? How much do they pay for your CME? All of that. The specific details like the health plan don’t need to be included in the employment contract, but signing bonus, relocation assistance, how much time off you get, are the things that most likely should be included in the employment agreement.
The bonuses absolutely need to be included or maybe an offer letter, at least. Then, finally, kind of the miscellaneous provisions, what state law applies, how do you give notice, can you assign the contract? At the end of every contract, there’ll be a section of like 15 to 20 small paragraphs that go through a bunch of different things. And you need to look at all of them. Many of them won’t make sense to a non-attorney but they’re important to be in there as well. I’m not going to go through all of those right now, though. So, those are the broad strokes of what should be included in a physician contract. Obviously, I think it’s a great idea to have an attorney review your agreement. You can assign a contract that’s worth, in some cases over a million dollars depending upon salary. Just makes sense to have a professional look over, make sure that you’re covering all your bases.
Employment Contract Questions?
Contract Review, Termination Issues, and more!