What is an Evergreen Physician Contract? | Doctor Contract Review

What is an evergreen physician contract? In brief, an evergreen contract simply means that the contract will continuously renew automatically for a time and will continue until one party terminates the agreement. There are a lot of moving parts to this. Let’s just start with what is the term of the contract. Usually, there’ll be some specific length to the initial part of a contract. Somewhere between one to three years is kind of a normal length. Now, almost all contracts will not be a fixed term, meaning it’s one year, two years, three years, and then it stops. Almost all physician contracts say the initial term is two or three years. Then it will automatically renew for successive one-year terms until terminated in the way the contract allows.

Few Ways of Terminating an Employment Contract

There are usually three ways a contract can be terminated. Well, I guess four. 

Fixed Term Contract

If there is just a fixed term and no automatic renewal, if the contract ends, and the parties don’t come to you with a new agreement, the contract ends. 

Mutual Agreement

Another way to be terminated is through mutual agreement. 

With Cause Termination

Another way would be with-cause. This means that if one party breached the agreement and then didn’t fix that breach at some point, then one of the parties can terminate the agreement with-cause, and usually, that could be immediate. 

Without Cause Termination

And then the last would be without cause termination. This is by far the most common way the contracts are terminated. Without-cause means either party can terminate the agreement for any reason, with a certain amount of notice to the other party. In most instances, it’s between 60 to 90 days. The contract will state, let’s just say the physician is unhappy or maybe they have a better job, or they want to move back for family reasons, they would simply give written notice to the employer that just says, I’m terminating the contract without cause. I’m providing you with the 90 days’ notice required in the contract. My last day of work will be this date. They work out the 90 days, and then they leave. 

Those are the different ways that you can terminate a contract. 

Is an Evergreen Contract a Problem?

Now, I’m seeing more and more that instead of an initial term, it just continues forever unless terminated by either party. They don’t even have an initial term listed. Is that a problem? No. If there’s a without-cause termination provision in the contract, you can think of it as if it’s only a 90-day contract. 

Now, that’s not how it works, but if it is an evergreen contract with no fixed term, it just continues forever until it’s terminated. That’s fine if you do have the ability to give without-cause termination. If I see a physician’s contract without the without-cause termination clause, it’s an enormous red flag, and I would never ever have a physician sign a contract like that. Now, if they’re a J-1, it’s a three-year requirement. In that scenario, many states will prohibit any kind of without cause termination clause in the contract. But for most physicians, it needs to be in there. I mean, if you’re unhappy with an employer and there’s, let’s just say there’s a two or three-year term, no one’s going to want to stick out employment in a scenario where they’re just very unhappy for two or three years.

Signing Bonus, Relocation Assistance, and Other Types of Bonuses

It just doesn’t make sense. Another consideration is most of the time, if the physician is going to receive a bonus, either relocation assistance, signing bonus, or student loan repayment, there’s going to be some period that they’re going to be required to work for the employer, or they’re going to have to pay back a portion of that bonus. Let’s say there’s a three-year initial term, and the physician receives a $30,000 signing bonus. The employer may say, alright, one-third of that bonus is forgiven annually until the end of the three years. And then, at that point, you don’t owe us anything back if you were to leave. 

The same goes for the other bonuses. It could be monthly repayment, quarterly repayment, or yearly repayment. For the physician, it’s better if it’s monthly because if you were to leave in the middle of a year and it was yearly forgiveness, you’re losing out on an entire year of forgiveness. Whereas if it’s monthly, you’ll be forgiven until you ultimately leave the job. So, evergreen contracts simply go on forever until terminated by the parties, in whatever mechanism they choose, either mutual termination, without-cause termination, or for-cause termination. Is one better than another? I don’t think there is. If you can get out of the contract without cause at any time. But anyway, every contract is different, so it has to consider the entire arrangement to determine if it’s a good opportunity.

Other Blogs of Interest

• What is Without Cause Termination in a Physician Contract?
• Breach of Employment Contract Examples
• Can You Write an Email to Terminate a Contract?

What to Know Before Signing Your First Physician Contract

What should you know before you sign your first physician employment contract? This question is a broad topic, but we’re going to hit the main areas, things to think about before signing your first employment agreement. 

Ways to Determine if Compensations Offered Are of Fair Market Value

First, determine whether the compensation you’re being offered is fair market value. There are a couple of, I guess, good ways of going about trying to find that. The MGMA, the medical group management association, collects annual salary data from across the country. If you can access that, they have a lot of good information about total compensation, average net-collections, and average RVUs generated by specialty. It’s hard to get that info sometimes.

I mean, if you Google around, you might be able to find some of the compensation data that’s a couple of years old. Or you can talk to someone who has access to the data, like for our firm, we have access to the data. So, we can tell the physician exactly what the numbers say. Now, that’s certainly not the be-all-end-all. There are other services out there that offer something similar. But I also think it’s limited because some specialties have a tiny sample size. In addition, just total compensation should not be the determining factor when looking for a job. Alright, so that’s compensation. 

Another way of thinking about it would be, if you have classmates in your training program, you need to ask them what they’re receiving. It’s going to vary based upon geography and then setting. Are they going into a hospital network? Are they going into the federal facility? Or are they going into private practice in some way? It is good to speak to people you train with to see what they’re being offered. And then mentors are another excellent place. 

How To Terminate Contracts

If someone is already out and maybe they’ve been a teacher for you or a mentor, ask them if they’re willing to talk about the type of compensation they’re receiving. Next would be how to terminate the agreement. Something you need to consider. There are four ways to terminate a contract if the initial term ends. Let’s say you have a two-year contract, and no language states it automatically renews. It just ends, and the contract terminates. You can complete a contract by mutual agreement. Then you can also terminate a contract with-cause. So if one of the parties breaches the contract, either party can terminate the contract if the other party doesn’t fix the breach. It’s called the cure period. And then lastly, and this is what I want to hit on, is without-cause termination. 

Every contract you sign must have without-cause termination in it. There are minimal circumstances where no without-cause termination would be okay. If you’re a J-1, that one would probably benefit you not to have that in there. But without-cause termination means you can terminate the contract at any point, for any reason, with a certain amount of notice to the other party. Contracts that don’t have without-cause termination, meaning you must work out whatever the initial term is. There’s no way of terminating the contract for any reason. They would have to breach it if you wanted to get out of it.

Why Do I Need No Cause Termination on My Contract?

The reason why you need that is, let’s say you start with the job, you’re paid on productivity, and the volume is not there. It’s not your fault, or maybe the employer brought you in telling you it was going to be one way, and the call is just excessive. Or perhaps it’s just a terrible personality fit; whatever reason you’re not happy in that job, you need the ability to get out of it if you want. So, it would be best to have without-cause termination in the contract. Somewhere between 60 to 90 days is standard for physicians.

Legal Mistakes Physicians Make are not going through Non-Compete.

Alright, next, the non-compete. A non-compete says the physician can’t work after the contract terminates for a period within a specific area. For example, most non-competes are one year, sometimes up to two.

And then, a reasonable mileage would be 10 to 15 miles from your primary practice location. Often, the employer will try to tag multiple locations. So, maybe if you worked in three outpatient clinics in a hospital or something. They try to attach it to all four of those, or perhaps the employer has many facilities in the area. You’ve only worked at one of them, and they might try to attach it to all the facilities they own. That’s not fair either. You want to try to get it to one year, 10 to 15 miles from maybe at most two locations. Anything beyond that would be considered unreasonable. There are a few states where it’s entirely unenforceable to have a non-compete. But for the most part, most states allow non-competes for physicians.

Health Care Malpractice Insurance, Do Not Practice-Without It

Lastly, the employer should almost always pay for your underlying annual premium with malpractice insurance. How much must they pay each year to insure you? Depending upon the policy, whether it’s a claims-made or an occurrence-based approach, it will determine if you must pay what’s called tail insurance.

If it’s a claims-made policy, tail insurance is necessary. A good rule of thumb is that tail insurance costs about twice your annual premium. In some specialties, it can be costly. OB-GYN, some of the higher-level surgical things could have tails that are fifty to a hundred thousand dollars. You want to avoid having to pay for that. So, make sure that there’s either a fair split between the employee and employer or having the employer pay the total cost of the tail insurance, or there’s also insurance called occurrence-based coverage. And in that scenario, tail insurance is not needed at all. It’s about a third more expensive than claims-made, but you won’t have to pay for tail insurance.

Now, you probably need to think about dozens of other things. I would say, in my mind, those are probably the foremost important. But you have benefits, bonus structure, contract length, other restrictive covenants with the non-solicitation agreement, non-disparagement, confidentiality, your hours worked, and the call. I mean, you need to think about a ton of things. So, I would suggest reaching out to someone with experience reviewing contracts. When you’re signing a contract that could be worth a million dollars, I think it would be foolish not to get it looked at by someone who knows what they’re doing.

Consequences of Breaking an Employment Agreement

What are the consequences of breaking an employment contract? The first issue is what is considered breaking a contract. Some think just exercising their right to terminate the agreement breaks the contract. I don’t think of it that way. You don’t give proper notice when I think of breaking a contract. You simply leave the job without following the terms of the agreement. In that scenario, what are the potential consequences? Let’s say professionals at a job are not working out for whatever reason. In almost any employment contract, there will be a section discussing how to terminate the contract. And then, within that section, there’ll be what’s called without-cause termination. Without-cause termination means either party can terminate the agreement at any time with a certain amount of notice to the other party, generally between 30 to 90 days.

Breach of Notice Period Agreement Might Cause Legal Damages

Let’s say the professional walks in on Monday and says, I’m leaving tomorrow. Still, they had a 60-day without-cause termination notice requirement. Well, if that does happen, the employer could then potentially go after. When I say go after, I mean legally go after them, sue them for breach of contract. And when you sue somebody for breach of contract, it can involve several damages. There could be lost profits for what they would’ve expected that employee to generate during those 60 days. They could also go after the replacement value. They could go after the employee if they had to find a costly short-term replacement. There could be damages for recruitment fees in trying to find that employee’s replacement. They could maybe go after them to get back a signing bonus, relocation assistance, licensing fees, and credentialing if they’re a healthcare provider.

So, if you break a contract, you walk out and don’t fulfill the terms of the agreement. The professional may be liable for several things. When I’m having a consultation with somebody unhappy, they say, well, these are all the things the employer is not doing right. They’re not paying me my bonus in time, or they’re making me work more than that in the contract, or I have to take twice as many calls as they said I would. Okay, just because they’re doing it or breaking the contract doesn’t mean you can leave and then cite that as a reason. 

What Should You Do If Your Employer Is Breaking a Contract?

If you believe the employer is in breach of contract, you need to provide them with written notice that states you are in breach of contract for these reasons. And then typically, there’d be some language that states you can cure the breach, usually somewhere between 15 to 30 days. And if the employer does fix the problem, then the employee cannot terminate the contract for-cause.

If you can terminate it for-cause, usually, it can be immediate. You give the employer written notice that they’re in breach of contract and if the employer does nothing. It would be the option of the employee to terminate it immediately. That is simply different than the employee just breaking the contract. It would be best if you went through it to protect yourself under the terms of the agreement. And even if the employer is not fulfilling their terms, you still must give them notice. You still must wait for the cure period. Then if they fix whatever the problem was, you still can’t just break the contract and jump immediately to a new position.

How to Ensure Your Safety if You Need to Break an Employment Agreement

To protect yourself, read the contract, see how the contract can be terminated either for-cause or without-cause termination, and follow the requirements. Suppose you must give 60 days’ notice to terminate the agreement without-cause. In that case, you must provide 60 days’ notice, or you can potentially open yourself up for a lawsuit in damages. Lastly, there will be a section in the contract that states how to give effective notice. What I mean by that is it will say to provide proper notice. You must send certified mail, hand delivery, a written letter to the address of the business or the attorney of the firm, or whatever. 

If you don’t give effective notice, It is not considered a proper termination. It means you don’t follow that notice section. And in that scenario, the employer can say, “Well, you owe us another 60 days until you give us effective notice.” So, follow the termination section, and follow the notice requirement. In that way, you can avoid paying anything back to the employer or damages for lost profits, recruitment fees, etc. I went over it at the beginning of the video.