At the conclusion of their residency or fellowship, physicians are faced with the new challenge of interviewing and negotiating their first contract. One of the first things that I hear from early career physicians who reach out to me is that while they have spent years learning and developing complex medical skills, they feel lost when handed offer letters and contracts. The concepts and language are foreign and they don’t know where to start. They are also unsure about whether to negotiate or just sign what is handed to them by their #1 choice.
The purpose of this article is to share my insights as an attorney who frequently reviews and negotiates contracts for early career physicians and to highlight key elements of physician employment agreements that should be taken into consideration when evaluating different offers.
I. A Note on the Contract Review Process
In the early stages of a physician’s career the contract review process has a few components: (1) education, (2) personal reflection, and (3) negotiation.
- The first component is educating yourself on what you should be considering when evaluating an offer or contract. The key elements listed in the remainder of this article are the big-ticket items that will be included in most offer letters and contracts. It is important to understand what they mean, how they can vary, and why they are important. But beyond these terms there will be nuances in the language of every contract that will be important. I’ve said in many presentations to early career physicians – if you see the words “liquidated damages” or “force majeure” in your contract call an attorney to ensure that you understand what you are agreeing to! If you have questions, ask your attorney. Each contract should be reviewed in its entirety and it is important that you understand what you are signing.
- The second component is one of personal reflection as the early career physician evaluates what is important to them. While the early career physician has some negotiating leverage, it can vary greatly depending on their target market, specialty, or potential employer. That doesn’t mean that the contract review process doesn’t have value. My clients are often surprised that the process forces them to think about what is important to them in a potential first job. This comes up as they compare one possible position to another and when they decide which contract term is more important to them. Are they willing to take the position that has a slightly lower base salary if the non-compete is more reasonable and it is less likely that they will have to up-root their family to move on to the next step of their career?
- The third component is negotiation and trying to get the best contract possible. One of the first hurdles many early career physicians have to clear before contacting an attorney is the discomfort with negotiating their contract. Often there is a feeling that the physician should just sign the best economic offer presented (particularly if it is from the practice where they were a resident), a concern that negotiating things like non-compete will make the employer think they aren’t serious about a long-term future with the practice, or a reluctance to keep a few options open during the negotiation process. The reality is that employers know that early career physicians are often interviewing with multiple practices at one time and expect negotiation of contract terms. The process will also give a physician insight to the practices that they are considering. If a big organization refuses to negotiate even after being pushed by an attorney because they need to keep consistency in their forms, it is likely that administrative structure will be reflected in the way the practice is run. If the practice is forthcoming with information that the physician requests in the negotiation process (ex: providing examples of wRVU performance of other early career physicians), it may be an indication that the practice is more transparent. Negotiation is a key component to getting the best contract and provides valuable insight into how potential employers run their practices.
Finally, people frequently ask me when to engage an attorney. The best timeline is when they begin receiving offer letters. Early career physicians often sign offer letters before engaging their attorney because the documents say that they aren’t binding. While that is true, this will often make your attorney’s job harder when it comes time to negotiate your contract. The practice will default to the argument that while the offer letter isn’t binding, they agreed to move to the contract stage based on the agreement to key terms in the offer letter. The thing to remember with offer letters is that while they don’t have to include all terms, the physician should agree with all of the terms that they do include. Discussing them with an attorney helps to ensure that the physician doesn’t inadvertently commit to terms that will be harder to negotiate later.
II. Compensation
The main term on the mind of most early career physicians is compensation. Compensation is generally broken into three components: (1) base compensation, (2) incentive compensation, and (3) one time bonuses.
A. Base compensation is a guaranteed annual salary, usually payable in accordance with the employer’s payroll practices. Base compensation in multi-year contracts should escalate in future years to reflect added value or inflation, unless there is a productivity component in addition to the base compensation. One of the best ways to evaluate compensation is to compare to other offers received, but resources are also available that provide comparative compensation information by specialty. One thing a physician should ask themselves is whether the base salary is sufficient if additional incentives are not achieved.
B. Incentive compensation has traditionally been based upon metrics such as achievement of targets like work relative value units (wRVUs), but many organizations are now utilizing structures with quality incentives. With the former, it is important to understand how similarly situated early career physicians have performed. Are the targets attainable? In particular, are they attainable in the first year of a new practice? Is the physician only given credit for work they personally perform or is credit given for oversight of ancillary providers or other revenue sources like imaging, biologicals, or drugs? With quality incentives, what are they based upon? Does the practice have discretion on whether to pay or to revise the program?
C. Other types of one-time bonuses are often included in early career contracts. Sign-on bonuses, moving expense reimbursements, and retention bonuses (paid in years 2 or 3 of a contract) are frequently included. Contracts will often require repayment of all or a part of these bonuses if the physician leaves prior to the end of the initial term of the contract. It is important to understand how these repayment obligations are structured.
III. Non-Compete Provisions
The next key term on the mind of many physicians is the non-compete provision. This provision determines the restrictions on where the physician can practice after the current contract ends. Non-competes and their enforceability is an issue of state law, but most states do permit non-competes if they are reasonable and no broader than reasonably necessary to protect the employer. When evaluating and negotiating a non-compete the focus tends to be on the duration, geographic scope, and whether the manner of exit impacts applicability.
These elements and the remaining language in the provision are read in their entirety and determining whether a provision is reasonable can be fact specific. For example, a provision that limits a physician from working 10 miles from any location where they provide services could be appropriate in suburban Pittsburgh but not downtown Chicago. It could be less reasonable if it prohibits the physician from working 10 miles from any location of the practice, regardless of whether the physician provides services at each location. Additionally, a 2 year non-compete could be reasonable in a contract for a full-time physician with an initial 5 year term, but not in a contract for a part-time physician with an initial 1 year term.
Other restrictive covenants that often appear in physician contracts are patient and co-worker non-solicitation restrictions and confidentiality provisions. Each should be closely reviewed.
IV. Professional Liability/Malpractice Coverage
It is essential for a physician to understand the responsibility to provide and pay for professional liability or malpractice insurance under their contract. In most cases, the contract makes the practice responsible for providing coverage but understanding the type of coverage and other nuances is important.
Professional liability coverage is written two ways: occurrence based or claims made. An occurrence policy covers any claims made against the physician for an event that occurs when the policy is in place regardless of when the claim is made. A claims made policy covers claims made against the physician only if the claim both occurs and is made during the term of the policy. With the claims made policy the coverage ends when the policy ends (like at the end of employment) unless a reporting endorsement, otherwise known as “tail,” is obtained. It is important for the contract to either specify that the practice will obtain a policy on an occurrence basis or that the practice will be responsible for obtaining and paying for tail. This is of particular importance in specialties like OB/Gyn where the expense of tail policies is particularly high. Often contract language will indicate that the physician is always responsible for obtaining and paying for tail or in certain circumstances, such as if the physician leaves before the end of an initial term or if the physician is terminated for cause. Any physician responsibility for tail or vague provision should be negotiated.
V. Term and Termination
Finally, it is important that a physician understand the term and termination provisions in their contract to know whether there is any guaranteed / required initial period of employment and if there is the ability of the physician or the practice to end the term at their convenience.
The typical early career contract will generally have a 2 to 3 year initial term and will be “evergreen,” or automatically renewing, each year thereafter. The initial term is often relevant to things like sign on bonuses where a repayment obligation is often tied to the initial term. It is most important, however, to understand whether the initial term is a required / guaranteed period. Whether or not the contract has a provision for termination for convenience / without cause is important for this determination.
If a contract does not have a termination for convenience provision, the initial period will be a required period of work. An attempt to leave early could be a breach of contract for which the practice may seek or threaten a claim for damages or the contract may provide specific recourse like liquidated damages, a pre-determined amount of money that a physician may have to pay to terminate the contract prior to the end of the initial term.
If the contract does have a termination for convenience provision it is important to understand what length of notice is required. In early career contracts, 60-90 days is fairly standard, but large institutions or certain geographic regions may require 180 days.
It’s also important to understand whether the standard is different for the employee and the practice. Physicians should always look for provisions that are at least “equal,” meaning that the number of notice days is the same for the physician and the practice. Even when the number of notice days is the same, the obligation isn’t really equal as the physician may have lost their position without much warning and may need to relocate requiring the hunt for a new home, find a new job for a significant other, or take children out of school.
VI. Conclusion
Navigating contract reviews and negotiations early in a physician’s career often feels like a daunting task. Understanding the key elements of physician contracts will make the process of evaluating opportunities easier and may help the physician to look at the whole picture when determining which position and practice is the right fit. Having an experienced attorney to help educate, navigate, and negotiate contracts early in your career can make the process less stressful and will help you gain a level of comfort that you are signing a contract that you understand and that is the best fit for you.
