Why Using a Physician Contract Template is a Mistake | Physician Contract

Hi, I’m attorney Renee Osipov with Chelle Law here in Scottsdale, Arizona, and we draft physician employment agreements. An employment agreement is a legally binding document integral to your practice’s success. They protect you from liability and set professional standards within your practice. Maybe tempting to use a template online that’s free or low cost and doesn’t take much of your time to create. However, this could open you up to costly consequences in the future.

Mistakes Physicians Make

These mass templates and contracts online are tailored to meet the unique needs of your healthcare practice. Specifically, they rarely address your ability to bill on behalf of your physician services. They don’t address confidentiality within patient records and materials. They rarely address the non-solicitation of patients or employees. Suppose the employed physician decides to leave your practice. In that case, he cannot entice or encourage patients or your employees to go with him.

Physician Medical Contract

Also, they rarely craft non-compete clauses to your needs, such as if you have multiple locations where the physician provides services. And then lastly, they rarely offer objectives to your physicians, such as the hours they work at your locations, call schedules, benefits, et cetera. And also, most of these contracts do not comply with state or federal law. So it’s essential to have an attorney draft and tailor a physician employment agreement to meet the unique needs of your practice. We have more information about drafting physician employment agreements, and all of our contact information is on there as well, and we’d be happy to set up a consultation with you. Thank you.

Other Blogs of Interest

• What is Without Cause Termination in a Physician Contract? | Physician Termination Agreement
• Physician Contracts Negotiating Tips | Hospitalist Contract Negotiation
• Family Medicine Contract Negotiation Tips | Negotiate Physician Contracts

What to Know Before Signing Your First Physician Contract | Contracts

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. Well, 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 cure. 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 if you had 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, with 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, 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 in that scenario.

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. I mean, when you’re signing a contract that could be worth a million dollars, at least in my opinion, it would be foolish not to get it looked at by someone who knows what they’re doing.

What Can You Negotiate in a Physician Contract? | Doctors Contract Negotiations

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.
• Compensation
• 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. 

Forgiveness Period

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, 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 Physician’s Salary?

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?

Couple of Ways to Get a Better Salary?

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. 

MGMA Numbers

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. 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.

Why Consider the Cost of Living in a Particular Area

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.