A physician is being shown his physician employment contract by an attorney. Unless he knows how to negotiate a physician employment contract, he will have a hard time getting the best deal for himself

How to Negotiate a Physician Employment Contract

How is a physician underpaid, overworked, and left holding expensive bills? Answer: By not carefully reading and negotiating the employment contract. Read on to learn how physicians should negotiate their employment contracts and what they should be on the lookout for.

At Gardner Employment Law, we understand that a physician prefers to spend his or her time helping patients rather than reading contracts. If you have a contract you’re unsure about, or if you need a new contract drafted, we’re your go-to source to get it right.

Why Should Physicians Negotiate their Employment Contracts?

Every term in a contract is negotiable until you know it isn’t. If you don’t attempt to obtain better terms, you could miss out on higher compensation and additional benefits. Later, when a problem arises, you might find yourself stuck with terms that benefit the hospital or clinic instead you. The hospital or clinic expects negotiations to be a part of the process when they present the physician an employment contract. Oftentimes a physician doesn’t want to be bothered with contract negotiations. We understand that you have spent many years and much money building your medical practice. It may be tempting to simply sign the dotted line and get to work. But, by rushing into the contract you can leave a lot on the table.

According to a CHG Healthcare 2022 survey cited by the AAMC (Association of American Medical Colleges), physician turnover rates at an all time high with more physicians changing jobs than ever before.  Based on that fact, it is more important than ever to negotiate the terms of your physician contract.  With so many physicians leaving positions, the hospitals and clinics need replacements, which means they need help.  That gives you leverage if you have the qualifications to fill one of those very positions

Apart from turnover rates, many non-medical companies are beginning to look at the medical field as a great source of revenue. CVS and Walgreens have now added physicians to their networks of healthcare services.  As more venture capital firms and large conglomerates enter the medical field, contracts have grown increasingly complicated. Having an experienced attorney in your corner to help you understand what your contract says and what it means for you is crucial to make sure that you can practice medicine to the best of your abilities.

What Should a Physician Look for in a New Contract Regarding Salary?

A physician, like any professional signing a contract, should be on the lookout for how exactly his or her salary is structured and what the physician is required to do to receive the full potential compensation. Contracts may contain several components of the salary which can be broken down in a number of ways. You must understand what each of those ways means in terms of dollars and cents before signing on the dotted line. For example, if the contract states that the physician will receive a percentage of the “net receipts” of certain revenues, you want to know the formula for the “net receipts.”

The simplest compensation is the traditional 100% guaranteed salary paid at incremental dates. A 100% guaranteed salary provision may look something like “Physician will be paid at the annual rate of $200,000.” The rate may be lower than you want, but there is security in knowing that you will have a regular paycheck. These days a set-in-stone salary paid to a physician without any incentives is hard to come by, but one that may be ideal for you. Many employers will include incentives in the contract requiring physicians to work harder, to produce more gross revenue, in order to achieve their full compensation, as compared to the guaranteed salary with no strings attached.  This is true of many professions in the healthcare industry, such as pharmacists and nursing home employees.

More common compensation plans are the “base salary plus productivity bonuses” and the “purely productivity” model. A base salary plus productivity bonuses will include a set-in-stone base salary and bonuses for meeting certain productivity criteria. A physician must clearly and carefully understand what exactly the productivity criteria may be. It is not unheard of for a physician to sign what looks like a lucrative contract only to be disappointed when they find out that the productivity metrics used are difficult to actually attain. As mentioned above, you may not pay attention to the term “net receipts” until your compensation is lower than you expected. You then may learn that the employer is deducting quite a bit from gross revenues that you brought in.

Some productivity bonuses may be only given if the physician meets a certain call schedule, does additional administrative duties, or meets with a certain number of patients per week.  A “purely productivity” compensation plan will have the same performance incentives as a “base salary plus productivity bonuses” model, but will include no base salary. This “eat what you kill” style of compensation may be preferred by some physicians, but not by all. If you unknowingly sign up for a compensation plan that includes performance incentives or is purely productivity based, you may end up making far less compensation than you expected. Sometimes prospective employers may even slip in productivity metrics which can reduce your compensation. We have seen contracts penalizing the physician who uses too many supplies or fails to meet with a minimum number of patients. Understanding what you will actually get paid requires an experienced contract attorney who knows how these compensation plans truly work.

Why Should a Physician be Worried about Insurance and Indemnification?

Physicians need to be concerned about clauses in the contract pertaining to malpractice insurance and indemnification. Both these provisions are forward-looking. Without thinking through what “might happen” or if you don’t have much experience as a physician, one of these terms can result in a physician being on the hook for thousands of dollars. While a thorough discussion of these two subjects are beyond the scope of this article, they are worth mentioning so that you are at least aware of the possible pitfalls.

An indemnification clause can require a physician to pay for losses incurred by the hospital or clinic. This type provision, indemnifying the employer, has become increasingly common in physician employment contracts. For example, say a patient sues a hospital for malpractice and the jury awards the patient 1.5 million dollars. The employer’s malpractice policy covers only 1 million dollars. If the physician who treated the patient agreed to indemnify the hospital for such incidents, the physician can be required to pay the remaining 500,000 dollars out of his own pocket, even though he may have not been at fault at all. The hospital passed the blame on to the physician in the indemnification section of the contract.

When it comes to the general topic of “insurance,” many physicians consider themselves experts in this field. No doubt, you know a lot about insurance. However, it is a tall order to ask a physician to understand the ins and outs of occurrence policies, claims-made policies, tail coverage, nose coverage, and on and on. All of these terms can appear in a physician’s employment contract and all of them have a different impact on what a physician may be required to pay if the physician is ever named in a lawsuit. Understanding “insurance” and understanding insurance law are not the same thing. When negotiating your physician employment contract, you need to consult with an attorney who knows how insurance law coincides with employment law.

Can Physicians Be Bound by a Non-Compete Clause?

Yes, Texas law does cover physicians regarding non-compete agreements. In our blog articles “What Makes a Physician’s Non-Compete Buyout Reasonable?” and “Impact of Physician Non-Competes on Continuity of Care,” we discussed various aspects of physician non-compete agreements. Texas law requires that physician non-competes, as compared to commercial non-competes, to contain a reasonable buyout provision.  The law also requires a number of unique elements, such as access to patient records and certain protections for a departing physician to be able to contact patients.

However, physician non-competes do share several characteristics with traditional non-competes as well. Physicians can still be restricted from practicing in a certain geographical location for a certain amount of time, so long as these restrictions are reasonable. In the past when there weren’t so many nationwide conglomerates, non-competes were less burdensome. But in modern times, where nationwide conglomerates are growing more common, non-competes can be extremely burdensome.

For example, say you are a physician fresh out of residency and you are ready to pack your bags and take your first job at a Big Texas Hospital in Dallas. You move your family to Dallas, sign a contract, and start working. After doing well in your position at Big Texas Hospital for two years, you decide to move on to greener pastures at another hospital in Dallas. However, your former employer reminds you that your employment contract included a non-compete section stating that “for two years after the end of employment, physician may not work for any healthcare provider providing the same type services within a ten-mile radius of any Big Texas Hospital healthcare facility.”  It just so happens that Big Texas Hospital seems to have facilities everywhere. That non-compete agreement may now severely limit your ability to find a new job in Dallas or elsewhere if the hypothetical Big Texas Hospitals are part of a nationwide conglomerate (notwithstanding the required buyout provision which is so expensive that you cannot afford it).

Physicians, like all employees, are free to challenge contractual provisions in court if they feel the non-compete restrictions are unreasonable or do not follow the law. But why wait until after the harm is done to act?  A lawsuit will cost you many thousands of dollars; it may take years; and you may lose. Physicians are highly intelligent and highly valued employees. Physicians should use their intellect to their advantage and negotiate their employment contracts before they sign the document.

How Do Termination Provisions Affect a Physician’s Employment Contract?

The termination provisions in your employment contract provide the procedural steps on how you or your employer can end the contract.  The section usually spells out how the contract can be terminated, when it can be terminated, and whether either party must give prior notice or pay any money to end the contract.  Many aspects of your future can be affected by termination provisions in your contract.  When starting a new job, you may not consider what will happen if you are terminated or you decide to leave. However, termination is one of the most important parts of an employment contract, and terminations can have consequences.

It is common for physicians to sign employment contracts which will last for several years (which is called the “term” of the contract). Unfortunately, just because you have an employment contract for five years does not mean you have job security for five years. Many physician employment contracts allow an employer to terminate the contract and fire the physician for any reason after a certain period of time, sometimes as short a 90 days. In this instance, your five-year contract guarantees you a job for the first 90 days. Unless your contract has protections, your employer can generally fire you anytime they want. The primary protection is that you will not be terminated absent “good cause,” with “good cause” defined in such a way to give you job security. If you want to make sure your employment contract protects you from unjust or unfair termination, make sure you negotiate employee protections into the termination provision.

The ability of your employer to terminate you is only half of the termination discussion. A physician must know how and what could happen when he or she decides to leave for a better position. While most contracts permit the physician to terminate the contract at any time with a certain period of notice, there are other provisions which may complicate your decision to leave. One is the an “extended separation period.” This means that even if you resign or if your are terminated, you are required to continue working for your employer for a certain period of time. Hospitals and healthcare providers like to include this to gives them time to find your replacement. The other problematic post-termination section is the non-compete provision, which is discussed above. More than half of the contract issues that I handle involve situations in which the physician did not plan ahead on how to handle the non-compete restrictions.

Your future can be affected by termination provisions in your contract. This includes how your bonuses will be paid to you after you leave, whether or not you have any insurance when you are terminated, whether you could be required to return to help prepare for and defend a malpractice lawsuit. It is important to consult an experienced attorney to know how all of these factors work together and how you can negotiate the best physician employment contract for your specific needs.

Why Should a Physician Consult a Lawyer?

Physicians are some of the smartest and best trained professionals in the workforce, but employers and their legal staff know how to slip terms and complex provisions into long, boring contracts. A physician’s job is to save lives and provide the best care possible for their patients, but an employer’s job is to run a business. Hospitals, healthcare providers, and large conglomerates have teams of crafty attorneys who are paid handsomely to draft the best possible contracts for them. If a physician doesn’t have an attorney in their corner to fight for them, they may find themselves at the whim of an unfair and unprotective employment contract.

If you want to know more about how to negotiate a contract with your new hospital, clinic, or physicians association, feel free to reach out to us.

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