What can a physician negotiate in an employment contract? The short answer is everything. It ultimately depends upon the willingness of the employer of whether they’re willing to negotiate terms or not. I find big hospital networks are less likely to make major changes in an employment agreement. Whereas if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for major changes. What are the things that are important to the physician, and then what are the things they can get changed? When I’m talking to a physician, I think the things that stick out as most important would be:
- Signing bonus
- Relocation assistance
- How to terminate the agreement
- Making certain there’s without-cause termination that’s a reasonable length.
- Productivity bonuses
- The non-compete
- Tail insurance
- 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 the value and their specialty’s value. Getting the MGMA data is helpful. It is helpful 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 as far as what’s a normal salary in your specialty. 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 of a base salary and RVU production? Is it a base salary and net-collections? Or is it all RVU? Is it all net-collections?
This one is dependent upon what’s the type of structure. If it’s net collections, if it’s a hybrid model, meaning you’re getting a base plus a certain amount. Let’s say, for instance, the expectation was 20,000. Anything collected over 20,000 by the practice, the physician will then get 15 to 25% of that. That would be a normal percentage. If the physician is purely on net-collections, around 40 to 45% is standard. 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. Then the compensation factor 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 and the repayment schedule.
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 agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire 20,000 amount forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Relocation assistance should be somewhere between 10,000 to 15,000. The signing bonus can vary widely from 10 up 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 completely unenforceable, California and Mexico for instance. Normally, the non-compete shouldn’t be any longer than a year and the geographic restrictions should be somewhere between 5 to 15 miles from your primary practice location. Where to negotiate with this?
Terms That Matter for Physician Contracts
The length, you want to keep it one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete attaches to every facility we own in the entire 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 internal medicine. You can be a hospitalist. You can go to family practice. Or 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 just keep it to the specialty of what you’re providing to that employer, specifically, in this case, let’s say your hospitalist, then you could go in family practice or do urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to think about.
And then malpractice insurance is always a big discussion with the physicians I’m working with. First, you need to identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And then, after you determine what type it is, if it is a claims-made policy, then 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 a big hospital network. Now, tail insurance usually costs about twice what your annual premium is.
Physician Employment Contracts Negotiation Tips
Let’s just say you’re in family practice. Your 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. That’s one thing you can negotiate, who pays for tail insurance coverage? Sometimes an employer will put if you’ve been with us for one year, we’ll pay for a quarter and then two years, half, and then three years, 75%.
There are some ways of getting out of having to pay the entire amount, just depending on the situation. Now, the first thing that I talked about was, is the employer willing to negotiate or not. There will be some employers that simply say, this is a take-it or leave-it deal. I don’t think those employers will be great to work with. If an employer is unwilling to budge on anything, they will likely be difficult to work with.
Meaning that they’re not going to accommodate the physician in some way. So, I caution any physician who has been given a job offer, we ask for some clarification or certain concessions, and they simply 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, the non-compete is absolutely the number one thing. For others, it’s the compensation. For others, it’s not having to pay tail insurance. It really is dependent upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.
How to Negotiate a Fair Salary Contract for Physicians
How to negotiate a physician’s salary? As an initial matter, I don’t personally believe that the salary should be the driving factor in a decision for a physician. Now, if 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 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, well, what do I do?
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, I would say, probably the industry standard as far as compensation numbers go, but 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 kinds of quadrants have different salary numbers associated with them.
But just the base salary could be great or not be great depending upon if there’s productivity compensation in the agreement as well, or there’s potential for partnership. So, there are many scenarios where a physician is out of training, and they’ve given a two-year, three-year agreement. That’s probably below what’s a reasonable or average amount for someone just coming out of training, with the carrot on the stick of, well, if you take below market for these two or three years, then 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, they are hard to find. I mean, you can Google around and find, I would say, data from maybe a year or two old. I found that people rely on 2020 numbers; they’re completely screwed up due to 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 hasn’t been released, at least at this point while I’m making this video yet.
So, Google around. You can try and find some numbers, but I’d say the best way to do this is to go out there and find multiple job offers and see what you’re being offered initially. 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 have you been offered? 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.
Why Consider the Cost of Living in a Particular Area
And that’s just not the case. It’s almost the opposite. If you’re looking for a job in a city that’s kind of a desirable location, usually the salaries, 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’re surprised sometimes because the salaries may not be adjusted to the cost of living in the area. California as well. If you’re in San Diego or LA or even in San Francisco, the cost of living is very high, and the housing is very high, but the salaries are not commensurate with that. 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.
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 you need to look in the smaller cities that are simply difficult to recruit to. You will make more money on average if you go 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 you’re being offered 300 and you want 325, you don’t ask for 325; you ask for more than that. So, if they offer 300 and you want 325, then ask for 350, just kind of easy arithmetic, try to meet in the middle. Now there is a point where you will look either greedy or potentially just kind of dumb if you’re asking, if you’re offered 300, and you’re asked for 450, they’re going to say, well, that’s ridiculous for, it may even yank the offer.
Leveraged Negotiation Contracts
You need to know your value, and then specialty is also a big part of what kind of leverage you have. Any kind of negotiation of contracts is based on leverage. Do you have it, or do you not? You simply have more leverage if you’re in a specialty that’s hard to recruit to or is 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. If you’re switching jobs in the community and bringing your patients with you, then you’re worth more than someone who’s coming into the community, like peds or primary care, that must build up a patient base that takes time. Those are tips on getting a better salary and where to start. Contacting an attorney and trying to get maybe a feel for the area certainly might be helpful.
It’s fairly specialized in people that just focus on physician contracts. It’s possible that you won’t find somebody in the area you’re looking at, so maybe do a wider search for that. But anyway, the last point, some employers simply will not negotiate. They’ll say it’s a take-it-or-leave-it offer, and you’ll then have to be willing to walk if you’re unhappy with salary, but there are just simply people out there that say, no, we’re not negotiating.
This is what we’re offering, 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.
Other Blogs of Interest
- What is Considered a Breach of a Physician Contract?
- What Should be Included in a Physician Contract?
- Can You Break a Physician Contract?
- What is Tail Coverage for Physician Malpractice Insurance?
What is Without Cause Termination in a Physician Contract?
Essentially it allows either party to terminate the agreement at any time, for any reason, with a certain amount of notice to the other party. This is so important because if a physician enters a job, I mean, everyone expects a job to be great, right? You don’t take a job expecting you to want to leave immediately, but things change, or it certainly can be different once you start.
Let’s say a physician takes a job. After a few months, it’s clear it’s either not a good cultural fit, maybe they’re on productivity compensation, and the volume isn’t there, maybe they just don’t like working with the management or the other physicians, whatever the reason, they’ve decided, I do not want to stay here. And so, without-cause termination will allow that physician to give notice, work out a period and then move on.
Average Length of Without Cause Termination Notice
The average length, or at least the standard length for the most without-cause termination notice period, is somewhere between 60 to 90 days. Anything higher than 90 days causes a couple of problems. Anytime somebody gives notice, the dynamics will change between the physician and either the other physicians or the organization itself. You’re no longer in the long-term plans. Sometimes, there can be bad blood as well. And so, a shorter period to work out whatever is advantageous. It’s just better. If you had a 180-day notice, you’re there for six months dealing with a potentially awkward environment.
Another thing to consider is the longer the lead time, the harder it is to find a new job. If you’re coming out of training, everyone comes out at the same time. So, all the employers understand this, and there’s a rhythm to when they offer jobs and start onboarding and all that type of thing. If you’re out, you’ve been out for a while, and then you decide to switch, it can be at any time, but most people don’t post for jobs six months in advance. They will say, we have a need now. If you have a six-month notice requirement for your job, you may lose out on job opportunities because they need someone much faster than six months.
And so, they’re going to find somebody and leave you in the dust, so to speak.
How Much Lead Time Do You Need to Terminate an Agreement?
Two main reasons: don’t put yourself in a toxic environment for a long period, and then two, help yourself to shorten it down so that you can find a new job more easily. In the physician contract, it’s going to state how much notice you must give. And let’s just say it’s 60 days in this example; it will also state that it must be in writing. So, you need to find in the physician contract that it’ll be under the termination section, and it will say like without-cause termination or for no good reason or something like that. And then it’ll just state that either party can terminate the agreement with a certain amount of notice to the other, as I said before, in 60 days.
There’s another section in your physician contract that’s called either notice or notices, and it’s going to state exactly how you can provide notice to the employer. It’ll state whether it needs to be certified mail or hand delivery. Most physician contracts don’t have email; certainly, there’s no verbal acknowledgment, no fax. If you were to tell your boss, hey, I’m leaving in 90 days, but not give them a written letter that states you’re leaving, they could potentially force you to work for another 60 days until you give them effective notice. So, those two sections. Look into the without-cause termination section to see how long or how much notice you must give, and then look in the notices section and ensure that you’re able to provide effective notice.
What Happens if a Physician Do Not Give Effective Notice
I’ve had a couple of times where physicians have called me after the fact and said I emailed my boss. It was 60 days’ notice; they waited 45 days and then came back and told me I didn’t provide them effective notice. And now, they’re saying I must give them another 60 days. Well, it’s vindictive on the part of the employer. They were mad and did that on purpose just to kind of screw with the physician. But if you don’t give effective notice, it doesn’t count. Ensure you’re following both of those things: giving the proper notice and following the notice section.
Now, what happens if you decide to leave a job and don’t give the proper amount of notice? Well, many physician contracts will have penalties associated with that. For instance, a common way of doing it would be to penalize the physician, whatever their average daily rate, for every day that they didn’t give enough notice. If it was 60 days and they only gave 30 days, then they’d owe 30 days of their average pay to the employer, which could be a significant amount of money.
You want to ensure that you give as much notice as required in that without-cause section. Therefore, you can’t be penalized. I guess. Theoretically, they could come after you for recruitment costs, locums to cover your shifts, or if you’re an outpatient or something like that. It’d be rare for them to do that, but you are opening yourself up to liability if you fail to give them the specified amount of notice in your physician contract.
Physician Contract Questions?
Contract Review, Termination Issues and more!