What should you know before you sign your first physician employment contract? This is a broad topic but we’re going to hit the main areas, things to think about prior to signing your first employment agreement. First, figuring out whether the compensation that you’re being offered is fair market value. There are a couple of, I guess, good ways of going about trying to find that. Well, one, the MGMA, the medical group management association collects annual salary data from across the country. If you can get access to that, they have a lot of good information about total compensation, average net collections, 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 in the fact that some of the specialties have a very small sample size. In addition, that just total compensation should not be the determining factor when somebody’s looking for a job. Alright, so that’s compensation. Now, 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 federal facility? Are they going into private practice in some way? It is good to speak to people that you train with to see what they’re being offered. And then mentors are another good place. If someone is already out and maybe they’ve been a teacher for you or a mentor in some way, just ask them if they’re willing to talk about the type of compensation that they’re receiving. Next would be how to terminate the agreement. Something you really need to think about. There are four ways to terminate a contract if the initial term ends. Let’s say you have a two-year contract and there’s no language that states it automatically renews, then it just ends, and the contract terminates. You can terminate 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 cure. Other blogs of interest include:
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 very limited circumstances where no without cause termination would be okay. If you’re a J-1, that’s one that usually would probably benefit you not to have that in there. But in almost any other scenario, without cause termination simply 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 the contract if you wanted to get out of it.
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 they brought you in telling you it was going to be one way and the call is just excessive. Or maybe it’s just a terrible personality fit, whatever reason it is that you’re not happy in that job, you need the ability to get out of it if you want. So, you must have without cause termination in the contract. Somewhere between 60 to 90 days is standard for physicians. Alright, next, the non-compete. A non-compete simply says the physician can’t work after the contract terminates for a period within a specific area. As an example, most non-competes are one year, sometimes all the way up to two.
And then a reasonable mileage would be 10 to 15 miles from your primary practice location. Now, many times, the employer will try to tag on 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 maybe the employer has tons of 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 completely unenforceable to have a non-compete. But for the most part, most states allow non-competes for physicians. Lastly, malpractice insurance. The employer should almost always pay for your underlying annual premium. How much they must pay each year to insure you. Depending upon the policy, either if it’s claims-made policy or an occurrence-based policy, it’s going to determine if you must pay what’s called tail insurance.
If it’s a claims-made policy, tail insurance is necessary, and a good rule of thumb is tail insurance costs about twice what your annual premium is. In some specialties, it can be very expensive, OB-GYN, some of the higher-level surgical specialties could have tails that are fifty to a hundred thousand dollars. Obviously, you want to avoid having to pay for that. So, making certain that there’s either a fair split between the employee and employer or having the employer pay the complete cost of the tail, or there’s also insurance called occurrence-based coverage. And in that scenario, tail is not needed at all. It’s about a third more expensive than claims made, but in that scenario, you won’t have to pay for tail insurance.
Now, there are obviously probably dozens of other things you need to think about. I would say in my mind, those are probably the foremost important. But you have benefits, bonus structure, length of the contract, some of the other restrictive covenants with the non-solicitation agreement, non-disparagement, confidentiality, your hours worked, the call, I mean, there are a ton of things you need to think about. So, I would suggest reaching out to somebody who has experience reviewing contracts. I mean, when you’re signing a contract that could be literally worth a million dollars, it would be, at least in my opinion, foolish not to get it looked at by someone who knows what they’re doing.
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