What Should a Physician Offer Letter Include? | Physicians

Today, I will discuss what a physician offer letter includes. We’ll go through what would be standard and what an offer letter is. First, what is an offer letter? When a physician is looking for a job, often the employer will require them to sign an offer letter. An Offer Letter contains the general terms of the employment relationship. That is before giving them the actual employment agreement. They’re two separate documents. Suppose a physician is moving into an academic position, maybe a mix of clinical and academic. Many universities will offer a letter of intent/offer letter that they consider the contract.

And then, it refers to dozens of policies and procedures they have in mind. But today, let’s talk about a general offer letter. A hospital, healthcare network, or something like that, will be the ones that will require the offer letter. That is before offering the physician the actual employment contract. I find most smaller physician-owned practices skip the offer letter. They may verbally discuss the terms and then present the employment agreement to the physician. Let’s say you are coming out of training, and the hospital has said we want to offer you an employment agreement. However, we want to give you an offer letter. Then we’ll agree to those terms and sign it. Then, we’ll move forward with the employment agreement.

What Is the Usual Content of a Letter of Intent

Normal things that should be in an offer letter are usually the terms of the agreement. How long it lasts, and maybe a brief statement about how the contract terminates. Usually, the without-cause portion would be the only thing mentioned. This means how much notice either party should provide to terminate the agreement without-cause, usually 60 or 90 days. It’ll also have your compensation like what is the base salary. Suppose there’s a productivity bonus based upon RVU production and net-collections. They would put at least a basic calculation of the expectation. In this case, if there was an RVU bonus expectation. The offer letter normally would have, what is the annual RVU expectation or maybe the quarterly expectation? 

And then what’s the compensation factor, the RVUs, what are they multiplied by monetarily to get whatever the bonus is? If it’s net-collections, they could even put an actual threshold. Generate over 200,000 in a quarter. You’d get a certain percentage of that as well. The compensation, term, termination, and maybe a brief statement on some of the restrictive covenants. Restrictive covenants are things that the physician can’t do after the contract ends. Normally, non-compete, non-solicit, non-disparagement. In this case, the non-compete is the most important part. Sometimes, an offer letter will put the basic terms of the non-compete. How long does it last, what’s the geographic restriction, and then maybe what type of specialty? Some physicians can do multiple things.

Basic Terms of a Non-Compete on the Intent Letter

And so, it’ll state what those things exactly can and can’t do. For instance, you could have primary care if you’re in internal medicine. You could be a hospitalist or maybe do some ED urgent care. Usually, the contract would state, alright, you can’t do what you’re doing for us for a year in, within 10 miles. But you don’t want a blanket. You can’t practice medicine at all within that period. Also, what could be in the offer letter: who you report to, the locations that you’ll practice in, malpractice insurance, what the coverage limits will be, and if it’s a claims-made policy, who pays for tail insurance. That includes basic stuff that matters. I find it most of the time. The basis is upon compensation. That’s what they care about the most.

And then also, signing bonus, relocation assistance. How much will the employer pay a signing bonus, and how much will they help the physician move to whatever the location is? Once those basic agreements are met, the physician is okay with it. They sign the offer letter and give it to the employer. The employer will then present the physician with the employment agreement. Now, the number one question I get: is the offer letter binding? Well, for the most part, no. In this scenario, the offer letter is not binding if it’s with a private employer, hospital, or health network. As I stated before, the only situation where it may be binding is if it’s in academia. The university is providing the offer letter/letter of intent, which they consider the employment agreement. In that case, it could be binding.

Backing Out Before an Employment Contract

But for the most part, unless it specifically states, this is the contract. The offer letter is not binding. So, the physician could potentially back out after signing the offer letter. I mean, many times, the basic tenants of an employment contractor are fine. And then once we see the actual employment agreement, the terms of it, it’s much worse, or it’s maybe different, or the language in an offer letter, the basics might sound great. Then when we get into the contract and look at the specifics of the language, it’s not great. That happens frequently. Or if there are terms not listed in the offer letter. Then they show up in the employment agreement. It could substantially change whether employment is a great opportunity. And maybe it’s not so great.

So, those are the basic things that must go into an offer letter, whether it’s binding or what follows with the employment contract. Is an offer letter important? I don’t think it is. I mean, generally, reaching the term before they get to an employment agreement. And I always find it’s much easier to tell someone if a job is a great opportunity or maybe a potential red flag after we see the agreement. Going over an offer letter with a physician, I mean, it’s fine to break down, alright, is this comp industry standard or not? But ultimately, I always tell the physician when I’m reviewing the contract for them that we must see the contract first. This is for me to tell whether this is an overall good potential opportunity.

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Can a Physician Sign Multiple Letters of Intent?

A physician was coming out of training and asked, can a physician sign multiple letters of intent? Let’s break down what a letter of intent is. A letter of intent, also known as an offer letter, is simply a document provided to a physician that reaches the basic terms. And then, after that, the employer would provide them with an employment agreement.

I find most smaller physician practices skip the letter of intent or offer letter and go straight to sending the physician an employment contract. But some hospitals and healthcare networks require a signed letter of intent before giving the physician the employment agreement. In this case, when a physician is in training. That’s normally either coming out of residency or fellowship. They’re entertaining multiple opportunities. They’re just in a unique position where many employers come to them through job fairs, recruiters, or general advertisements. And that’s when they are weighing multiple job opportunities in their career. Normally, suppose a physician has been out for ten years. In that case, if they’re going to leave an employer, they’re leaving for a specific opportunity. They’re not kind of entertaining four or five separate offers.

In this case, let’s say we have physicians in training. They’re going to have a ton of different opportunities available to them. And the timing of it is what’s important here. Many people in training want to sign with an employer before they end. It’s not uncommon to have a contract a year, sometimes even two years, before the physician completes their training.

When the Letter of Intent Is Not Binding

When I have a physician come to me and say, hey, I have one offer. I want to sign the letter of intent. But I am not sure if I want to follow through with the employment agreement. If I have multiple opportunities, is it okay to sign multiple letters of intent without signing the employment agreement? Well, for the most part, a letter of intent is not binding. 

The only time the letter of intent may be binding is in academia. Some universities will use a letter of intent as the employment agreement as well then. It refers to dozens of different documents. Suppose you’re just signing with a network hospital. In that case, physician-owned practice, the letter of intent is very likely not going to be binding. Are you stuck to both jobs if you sign a letter of intent and then sign another letter of intent? No, not. Unless you execute, meaning sign the employment agreement, it is generally not binding. 

Is it a good idea to sign multiple letters of intent? Well, I guess that depends on whether the physician cares about burning bridges or not. If a physician signs with an employer. When I say signs, I mean he signs the letter of intent with an employer. Then maybe the employer says, we’ll get you the employment agreement in a couple of months when you get closer to graduating. Well, they are going to stop recruiting at that point.

Reasons for Backing Out 

If they have a physician with a signed offer letter, they will not continue looking to fill that position. Maybe they’ll say that if they are, let’s say they hired a physician recruiter, go out and try to find a candidate, those recruiting activities will stop. The employer may have already started credentialing with the insurance companies. It can take some time, depending on your state. They’ve already expended some resources. They’ve paid some money expecting the physician to come in. And so, doing that and having a physician contact them and say, you know what? I appreciate it, but I decided to go in a different direction. 

That employer is going to be most likely upset, right? They spent some time and money because they agreed that the physician would come. And then that physician backs out. And then not only have they paid out those costs I just talked about, but now they will restart everything and find somebody else. So, that employer will likely be mad that you’re backing out. And it’s very unlikely in the future if you wanted to go back to them, that that would be an opportunity. Now, if you have a family circumstance, health issue, or something, then most employers will understand. Maybe something happened to someone’s family member, and they can’t move away. Or some change in where they want to practice due to a family concern.

Why Is Signing a Multiple Letter of Intent Not Recommended?

A dozen things could be why someone doesn’t want to move forward with the job. But if it’s completely money-based, meaning I signed with you, then this employer will give me $50,000 more. So, I’m going to go with them. If it’s more personal, most employers are completely understanding, and there will not be a problem. But if it’s not, you’ll likely burn a bridge. I don’t tell any of my physicians working to sign multiple letters of intent. Then let it shake out once they get the employment agreement. I think that’s just bad practice. And let’s say you have signed two letters of intent in the same city, then you back out on one and move forward with the other. Most communities are small, especially in a specialty, and everyone knows others.

I mean, if it’s primary care, you’re not going to know every person in this city. Still, then some of the smaller specialties know everyone in the city. Bad blood can spill over, and no physician wants to deal with that just starting their career. So, yes, you can sign multiple letters of intent. I shouldn’t do it. It’s a bad idea and can cause some friction that’s just completely unnecessary. I would not sign the letter of intent unless you are sure that you want to move forward with the job. Now, there are situations where you sign the letter of intent. Then you get the employment contract and the language in the employment contract. That makes the job opportunity much less desirable. In those circumstances, feel free to back out of the offer letter. 

Collecting Offer Letters

Many times, the basic terms in the offer letter look great. Get into the agreement. The language is very lopsided towards the employer and can make a job opportunity not worth it. In that scenario, it is completely fine. But if you’re shopping for the best offer, sign a bunch of offer letters, and don’t sign the agreements. I think that’s a bad idea.

Signing a Physician Offer Letter

What happens if I sign an offer letter but don’t want to go through with signing the actual contract? Maybe due to a change in circumstances or family issues, you got a better job offer somewhere else. Maybe you decided to move home instead of moving to a different city. The question is, can a physician back out after signing an offer letter? The short answer is yes, probably, unless there’s binding language in the offer letter, which there seldom would be. The physician can back out. The offer letter has some basic terms.

Normally, it would be like, okay, here’s what your compensation is. Maybe a brief review of benefits, the term length, how to terminate the contract, and a brief mention of a non-compete. It is normally like a one-page document that briefly describes what it will look like for your employment. There are times when I’ll have a physician get an offer letter, and just the kind of cursory terms look great. And then, when we get the actual agreement, it could change whether it’s a good offer or not. And so, until the employee signs an agreement, it will not be a binding document. Let me give some instances of maybe why the job opportunity looked okay with the offer letter. Still, once we got the actual employment agreement, it changed.

How Agreement Termination Affects Employment Contract

One thing could be how to terminate the agreement. I would say it’s probably rare to put into an offer letter. Normally, a physician would have to provide 60- or 90-days’ notice to terminate the contract without-cause. Meaning that they can get out of the agreement for any reason with the amount of required notice. Let’s say the contract had a 12-month without-cause termination notice. Well, nobody wants that. Once you give notice, relationships change within the organization. You’re on your way out. You’re no longer building a practice. If someone had a 12-month requirement, there’d be an entire year of potentially awkward relationships. I would never suggest that a physician would have to give a year’s notice.

On the back end of that, you must give 12 months’ notice if you’re currently in practice. Very few practices are willing to wait 12 months for the physician to give notice and be able to leave. It just doesn’t happen that way. Sometimes, if the physician is in training and an organization forecast that they need him for a year or two down the line. That’s a different story. But if a physician is currently practicing and switching to a new job, they’re seldom going to wait two months.

Another thing could be the terms in the non-compete. Maybe you’re expecting a reasonable non-compete like one year, 10 miles from your primary practice location. Non-competes, kind of the reasonableness of non-competes, vary among states and are one of the only things that vary in physician contracts. Let’s say, for instance, it’s one year, 5 to 10 miles from your primary practice location.

The Non-Compete

That’s what you’re expecting. And then you get the contract, and it’s a two-year non-compete and 25 miles from every location you practice in a while employed with the employer. That can change things substantially. If someone is married to a town like they grew up there, the family’s there. They want to raise their kids there. Then they have some terrible non-compete, which would force them to move for a period. That can make a great offer a terrible one. And that’s a term that could change. That’s not explicit in the offer letter that could make a great offer a bad one, the benefits as well. 

The Benefits

Generally, there’s no specific recitation of all the benefits being offered. What if the employer doesn’t offer health coverage, disability, or life or retirement? They won’t pay for your medical license and DEA registration. They won’t give you anything for continuing medical education? Perhaps the time off is bad. The average amount of total time off is 30 days. That would include sick days, holidays, and vacation CME. Let’s say they offer you 15 total days. Almost no physician has that small amount of time off. And that could change substantially whether the offer is good or bad. The answer is yes. You do not have to go forward, even if you’ve signed an offer letter. The employment agreement terms could change the offer substantially. It can start in awkward conversations.

And the sooner you give notice to the employer that you’ll not start, the better. People also ask, what could be the absolute worst-case scenario? In this case, if it’s just an offer letter, I would say it’s a low downside risk. Suppose you sign an employment agreement and then wait until a week before. You’re about to start and then say, hey, I don’t want to start the contract. The employer can certainly say that they’ve suffered some damages and could come after you for that. Suppose you’ve just signed the offer letter without seeing an employment agreement. In that case, I’d say the physician is safe in backing out of it and looking elsewhere.

Can Physicians Sign a Contract and Back Out?

This is a big one. Many of my consults are about this issue. We’ll break down what it means when you sign a contract and what your options are after the fact. Yes, you can pull out of a signed contract. However, there may be some repercussions. When you’re going through the job search process, maybe they’ll have you sign an offer letter. Maybe they won’t. But at some point, you’ll get an employment agreement, then smartly should get it reviewed by an attorney. And then, after you’ve worked out the details of what you want in there and signed the agreement. There’s an expectation that you will start the job whenever the start date is. However, there are circumstances where a job opportunity and a signed agreement at one point made a ton of sense. Then maybe six months later, it doesn’t make any sense.

There are different things to think about when you want to break a contract. First, there may be language in the agreement that goes through exactly what happens if a physician doesn’t start in time. For instance, if the employer paid a residency or fellowship stipend. There will be language about how that must get repaid if the physician doesn’t start in time. And then other contracts may have a penalty associated with signing the agreement and then pulling out and not starting the job. I’ll be honest. It’s rare to see language like that. Most places do not put that language in the contract; however, some do. And then there will be a monetary amount set. When someone is in training, let’s say they’re PGY-3, they signed a contract at the beginning of the year.

When Does Backing Out Cost an Amount?

Then they’re going to start in July, August, somewhere around there. Three months later, a family emergency will not be able to start the job. And then, the contract states that if you do not start providing care for us on the start date listed in the agreement, you owe us $10,000 or $20,000. In that case, you agreed to the contract, and it’s clear the repercussions of them not starting, so you would owe them that amount. Suppose you have an actual family emergency or medical illness for yourself or a family member. In that case, unless this employer is a heartless bastard. It just absolutely can’t happen with you starting the job. I wouldn’t be surprised if the employer would go through with enforcing that penalty.

If you’re breaking that contract because you have a better offer, they’re paying more, a higher bonus, or whatever. That’s why the provision is there. And it’s in there for a couple of reasons. If a physician employer hires a recruiter, they must pay for that. Once they have a physician’s signed contract, they’ll probably start credentialing. That can take a decently long time in some states. They’ve filled out those applications and paid the application fee for the credentialing. Maybe they have also started the privileging process if you have to get privileges at a hospital nearby. Then, more importantly, they’ve stopped recruiting for the position. If they need somebody in August, they have a position locked down. Well, they’re not going to keep looking for another physician.

Paying for Damages Cause By Backing Out

And so, if someone pulls out two months before the job is supposed to start that practice. That healthcare network can be in a difficult position if they have a volume need or maybe they’re replacing a physician who is leaving. Then that person who’s signed the contract says, I’m not going to start. I’m moving on somewhere else. The employer could theoretically come after you for the recruitment fees, the credentialing fees, and maybe some damages for lost revenue. Maybe if you pull out the day before you’re supposed to start, and they’re relying upon the collections they would receive from your practice. Now, it would be very unlikely for a practice or an employer to come after the physician for those damages.

Can a Physician Break a Signed Contract? 

Honestly, it would be one in 10,000 or probably just those who broke the contract. It would not happen very often, but it could, so you need to know the repercussions. Can a physician break a signed contract? They can, but there may be negative outcomes associated with that. I find that the best strategy in dealing with this is being completely upfront with the employer and just saying, look, circumstances have changed. These are the reasons why they’ve changed. And I appreciate the interest that you showed me. I appreciate you providing me with a great contract. I understand that I signed it. But if I start this job, I’ll give notice as soon as possible, or even give notice before the contract even commences. Then there’s nothing you can do about that.

Every contract is going to have without-cause termination. That’s the leverage point there. Nobody wants to bring in a physician who doesn’t want to be there. It’s a pain in the ass for everyone. As I said, every contract will usually be 60 to 90 days without cost termination. And so, maybe if the employer is like, no, you must start. Then you give notice on the first day you finish your 60 to 90 days and then leave. Nobody wants to go through the hassle of that. Most places will be willing to certainly let the physician move on. However, as I said, a penalty may be associated with that.