Physician Contracts: A Framework for Evaluating Physician Employment Options

Physicians evaluating employment options should consider three broad questions:

1. Compensation: What compensation is being offered?
2. Obligations: What must you do to obtain that compensation?
3. Leverage and Exit: What leverage do you have to tell your employer “NO,” and what is your exit plan?

Compensation, Obligations, and Leverage and Exit

This analysis seems simple on the surface but, in practice, can be quite challenging.

The answer to Question #1 may seem obvious, but it is rarely clear. Physicians may overvalue a part of Question #1, specifically the initial base compensation offering, as an objective measure of whether this job has “good” compensation. Employers benefit from vague language that gives them wiggle-room to adjust or avoid paying compensation.

Physicians often fail to fully investigate Question #2 and may not completely consider what they must do for the employer to obtain this compensation. Employers want the contracts to be vague and expansive regarding obligations, while physicians often benefit from incorporating into the contract detailed promises regarding job duties.

Question #3, Leverage and Exit, is often ignored entirely, to the physician’s detriment. Several sections limit your exit options, and in turn limit your leverage to force the employer to pay you or avoid doing more work. This question will have a huge impact on whether you can apply leverage to the employer when they want to change Question 1 or Question 2 in their favor. Physicians wrongly believe that their compensation and obligations will remain constant throughout the employment. This is wrong. Employers will often bring a physician in promising one set of compensation ÷ obligations but then try to reduce compensation or increase obligations, improving the relationship for itself. Understanding your next best option if the employment does not work out is VITAL to your leverage to tell your employer NO to changes in compensation or obligations. It is very difficult to control your career and quality of life if you can’t say NO to your employer or if NO is very painful.

The point of this blog is to try to evaluate different physician jobs in an apples-to-apples way, while considering these three main questions. My hope is that it highlights how the details of a job matter and how overvaluing the initial base compensation offer may lead you astray.

There is no substitute to a full, personally tailored, in-depth analysis of viable options. My goal here is not to reduce your decision to a simple algorithm. There are many other soft factors that can affect the quality and attractiveness of a particular job, but this list should get you started in the right direction. An individual’s preferences for work/life balance may be paramount here.

Finally, you must like what you do, period. If you do not like the work and it makes you unhappy, this chart is almost meaningless. I do not recommend physicians accept employment that they will not like, regardless of compensation. The compensation is unlikely to last and you will risk burnout.

For example, let’s compare two outpatient psychiatrist positions. Here are some details of a few example jobs and my analysis.

Option 1: Small Private Practice

Compensation

First, let’s address Question #1 and evaluate what they are offering in compensation.

• Base compensation of $200,000 with built-in increases.
• Variable/quality compensation of $30,000 (historically achieved 99% of the time).
• Sign-on bonus of $40,000 for a two-year contract, repayment obligation is reduced pro-rata monthly, automatic renewed retention bonus for each additional two-year period, total is forgiven if employer terminates without cause or physician terminates with cause.
• No productivity bonus.
• 6% employer 401K match on Base Compensation, traditional and roth options, immediate vesting, mega backdoor roth option.
• Employer pays 90% of premiums on health and dental insurance, whole family.[1]
• Optional 457 voluntary profit-sharing compensation historically averaging at $4,000-$8,000 per year.
• Great parental leave (Short Term Disability covers 8 weeks at 100%, can also stack 4 of 7 weeks PTO on top of STD).
• Access to Dependent Care FSA and Health Care FSA.[2]
• Option to buy into practice after 12 months (historically productive and profitable practice with a long track record of success).
• Not PSLF eligible.[3]

Consider the total compensation offered by this employer per year:

Base Compensation	$200,000
Sign-On Bonus, prorated per year	$20,000 ($40,000/2yrs)
Quality/Variable Compensation Metrics	$29,700 ($30,000*.99)
Productivity Bonus	$0
401K Match	$12,000 ($200,000*.06)
Health and Dental Insurance	*Favorable
Optional Profit Sharing 457	$4,000 to $8,000
Parental Leave	*Favorable
Flexible Spending Accounts	$3,150 (tax savings)
Ownership	*Favorable
PSLF	*Not Favorable
TOTAL	$268,850 to $272,850

This number will likely be higher if:

1. You need to obtain access to health and dental insurance through this job.
2. You intend to make the most of tax-preferred retirement accounts.
3. You are likely to utilize parental leave soon.
4. Owning a practice and pursuing advantages of business ownership are valuable to you.

Obligations

Next, let’s consider what you must do to obtain this compensation:

• 32 patient contact hours per week.
• 4 administrative hours per week, specifically dedicated in your daily schedule.
• No NP/PA supervision responsibilities.
• No other administrative or director roles or responsibilities.
• No call.
• No weekend responsibilities.
• Flexible scheduling options (i.e. 7-on 7-off, 3-12s, 4-9s, Friday half-days, tele options, etc.).
• 7 weeks PTO, can rollover 3 weeks per year (max of 10 weeks total), options to increase PTO with more hours per normal workweek.
• 5 miles from where you want to live.

This job appears to require 36 hours of your time per week, multiplied by 45 weeks after considering 7 weeks of PTO. You also have a minimal commute, maybe only an hour per week, so you will not lose valuable time sitting in traffic and burning up your vehicle.

The “When” of what you must do is also important, and this job does not require odd hours or punitive call schedules and provides flex scheduling options. The “When” questions do not necessarily fit neatly into our calculus and are an important soft factor that should stand out for you.

Also, consider here whether you will have one hour initial evaluations and 40+ minute follow-ups with ample administrative support to handle tedious paperwork or other tasks that do not need to be performed by a clinician; or, 45 minute initial evals with 15 minute follow-ups, and you have to help the patient fill out unnecessary paperwork during part of your visit. Work compression issues are important and should not be lost in this analysis.

Compensation ÷ Obligations

In short, the total number of hours you will likely need to dedicate to this employer is about 1,665, and the when and how compressed issues are favorable. Considering a total compensation package of about $270,000, the hourly rate should be about $162/hr.

Leverage and Exit

Next, you should also consider your options if the job does not work out or your employer wants to change it. What is your exit plan, and how much leverage do you have to tell your employer NO?

• Freedom to moonlight anywhere outside of the non-compete.
• Tail insurance provided in full.
• 5 mile and 6 month non-compete and non-solicit that only applies to private practices with patient panels (i.e. inpatient or ED psychiatry positions are exempted); non-compete is waived if the employer terminates without cause or physician terminates with cause. Physician ‘with cause’ provision includes a scenario where employer unilaterally attempts to reduce compensation. Location for non-compete bubble is only the location where physician primarily practices and cannot be changed without written consent. Physician has option to buy out of non-compete for $50,000.
• The sign-on bonus pay back is reduced by number of months served.
• 90 day termination clause for all without cause terminations.

Properly considering Question #3 further improves the attractiveness of this job. You will have ample opportunity to seek alternative employment if you do not like this job. The freedom to moonlight will give you options to find lucrative moonlighting opportunities that can increase your total compensation. You can use moonlighting to try out other types of practice and more easily create a glidepath out of a job you no longer want. Also, rest assured that you have the option of making more money if the need arises. Your tail insurance is covered, so you will not have to worry about a big insurance bill upon exit. Further, a non-compete that limits you to only 5 miles and 6 months is unlikely to prevent you from considering many viable employers or starting your own private practice, although specific instances may vary.  Finally, if the job changes in the future or you simply want to do something else, this employer offers an employee-friendly termination timeline of 90 days (rather low for physicians).  

For this job, you will see how the initial guaranteed base compensation offering of $200,000 is quite low. If you stop your analysis there, you may wrongly conclude that this is not a good option. However, when you closely examine what is required to obtain this compensation, you will see that it is quite lucrative compared to Option 2 below. The answer to Question 1 is quite attractive when considering the answer to Question 2. If your employer decides to try to unilaterally change Question 1 or Question 2 in their favor in the future, you are likely to have ample “NO” leverage and can push back through the threat of termination.

Now, let’s compare this position with another viable option.

Option 2: Big Corporate Employer

Next, lets consider an option from a big corporate employer. I have seen many options like this one from the largest physician employers.

Compensation

First, we need to evaluate the compensation being offered:

• Base protection of $360,000 with an expected RVU production of 5,000. It can be modified by employer unilaterally and not tied to any benchmark. Employer has unilateral option of reducing base protection if productivity expectations are not met.
• Variable/quality compensation of $50,000 per year, achieved on average 60%, and employer has option of changing metrics unilaterally.
• Sign-on bonus of $100,000 for three years, structured as a loan under a promissory note that only gets forgiven if all three years are completed in full. Promissory note remains enforceable even if employer terminates the contract without cause before the three-year period concludes. Attorneys’ fees provision in favor of prevailing party. No automatic retention bonus renewal.
• Productivity bonus of $70 per RVU after 5,000 RVUs.
• 2% employer 403b match, must be employed for more than 12 months to have access, vests only 50% until year 3.
• Employer pays 70% of premiums on health and dental insurance, whole family.
• No 457 access and no other voluntary compensation based on profitability of practice.
• No parental leave protection (you are unlikely to meet your RVU bonus, base protection may be reduced in following year), short term disability only covers 5 of 6 weeks at 60% salary, can only stack two weeks PTO, must otherwise use FLMA – uncompensated leave.
• No Dependent Care FSA or Health Care FSA,
• No ownership options,
• PSLF eligible.

Consider the total of what you get in compensation per year:

Base Protection	$360,000*
Sign-On Bonus, prorated per year	$33,333 ($100,000/3)
Quality/Variable Compensation Metrics	$30,000 ($50,000*.6)
Productivity Bonus	*Not Favorable
401K Match	$0 in year 1; $360,000*.02= $7,200 in year 2+
Health and Dental Insurance	*Middling
Optional Profit Sharing 457	$0
Parental Leave	*Not Favorable (including potential reduced Base Protection in following year)
Flexible Spending Accounts	$3,150 (tax savings)
Ownership	None
PSLF	*Favorable
TOTAL	$426,483 to $433,683

On initial review, this looks like a great number for a psychiatrist! The employer likely touted how its compensation exceeds the 75%ile of MGMA, can total to $450,000 to $500,000 or more, offering top-of-its-class compensation.

However, this number is inflated. The base protection is not completely secure, giving the employer some options to reduce it if the physician is not as productive as they would like. Quality metrics are shaky and may take considerable time and energy to obtain. Access to the 403b match does not start right away and requires you to stay on for three years before it fully vests. The sign-on bonus does not automatically renew, so your compensation will automatically decrease if you do not negotiate a retention bonus. It may be quite difficult to actually obtain the stated compensation.

The main advantage here is PSLF eligibility, which is unfortunately a driving force for many young physicians choosing their first employment with a big corporate employer. More on that issue below.

Did you notice that the productivity bonus pays you less per RVU than the RVUs under the base protection? For the first 5,000 RVUs, which is a lot for a psychiatrist, you are paid $360,000, reflecting $72 per RVU. The bonus pays you $70 per RVU, so your marginal rate of return goes down as you work harder. It should be the opposite. In fact, you may even benefit from NOT trying to obtain the RVU bonus, as you are compensated more per unit of work the LESS that you do. This compensation structure does not truly reward hard work.

Obligations

However, we know that the analysis cannot stop here.  We must also consider what you must do to obtain that compensation offering:

• 40+ patient contact hours per week “depending on need” or other vague language that allows employer to unilaterally adjust patient contact hours.
• No specific statement or restrictions on administrative hours. Employer has option to unilaterally schedule administrative time, no set administrative time during the day.
• No contractual limit on NP/PA supervision responsibilities, no carve-out of patient contact hours for supervision time (must use administrative time or work-compress), and no connected compensation.
• Collaborative care responsibilities and no limits on administrative duties with no phantom RVU consideration or other connected compensation. May need to regularly participate in company-wide meetings without any phantom RVU consideration.
• 1:4 weekday call. No contract statement about “even” or “equal” call schedule among physicians in same specialty. No contract statement about maximum call. Employer can unilaterally decide call schedule.
• 1:4 weekend call. No contract statement about “even” or “equal” call schedule among physicians in same specialty. No contract statement about maximum call. Employer can unilaterally decide weekend call schedule.
• Rigid scheduling of 5+ days per week (incl. weekends) at sole discretion of employer. No flexible scheduling options.
• 3 weeks PTO, no rollovers, and you must find your own coverage.
• 40 miles from where you want to live.

Ughhh! First, looking solely at patient contact hours and PTO, you will be seeing patients for at least 40 hours per week for 49 weeks per year, providing 1960 patient contact hours per year. There is no set administrative hours and no limits on supervision, collaborative care, and other non-RVU producing activities. This suggests those hours may be unlimited, and the physician may spend 10+ hours per week on these requirements at a whopping 490 hours per year. While call requirements for a psychiatrist may be only at-home call, that still means one out of every four nights and weekends are no longer free. Call requirements and expectations can differ among practices, so it is important to keep this in mind. However, even if you assume only a couple hours of work per call, which might be low for that employer, that calculates to an additional 100-200 hours or more of disjointed and inconvenient work per year. Further, this physician may spend 8 hours per week commuting to and from work, at a whopping 400 hours per year (not to mention gas prices). In short, a fair analysis would be that it will take at least 3,000 hours per year for this physician to meet all obligations.

Compensation ÷ Obligations

When considering a total compensation package of $433,683, divided by about 3,000 hours of work, the hourly rate is $144/hr.

To make it close to even with Option #1 from an hourly perspective, something would need to be reduced so that the physician would only need to commit 2,600 hours per year to this job. However, even that would be insufficient when considering the various ‘strings attached’ issues of this employer’s compensation package and the inconvenient and disjointed call hours. Also, if a physician is essentially working 130% of a job, the additional 30% should be compensated at a premium, not at the same rate and certainly not at a discount. There is also a fear of work compression issues with this job because of supervision and collaborative care responsibilities, so the hours may be quite challenging and stressful.

Leverage and Exit

Next, we also must consider the physician’s options if the job does not work out or the employer wants to unilaterally change the contract. What is this physician’s next best option? How much leverage does the physician have to protect the current compensation ÷ obligations?

• No freedom to moonlight, physician’s sole efforts shall be to the employer’s business.
• Tail insurance split 50/50 if physician is terminated before initial three-year term and taken from final paychecks; otherwise, tail insurance provided in full.
• 50 miles and three-year non-compete that applies to all locations where physician practices at least 30 days of the last 12 months (can be multiple locations, employer sole discretion as to selecting your work location or locations), applies to all practice of medicine (not limited to outpatient psychiatry), enforceable regardless of who terminates, prevailing party attorneys’ fees clause.
• Potential obligation to pay back the sign-on bonus if terminated before three years.
• 180-day termination clause for all without cause terminations.

Proper consideration of Question #3 further diminishes the attractiveness of this job. The restrictions on moonlighting make it challenging for this physician to consider other types of practice and prepare a favorable termination plan. This non-compete is quite terrible and will basically force this physician to accept a tele-psychiatry position for at least the next three years or move. Moving the family because of a job can be very painful for all involved and can often cause a physician to stay in an unattractive job. If the physician or employer want out in less than three years, the physician would need to repay the sign-on bonus ($100,000). Additionally, there may be an exit expense in the form of tail insurance. However, tail insurance for a psychiatrist is likely to be in the four-figure range and may not be a big factor here. This could be a much bigger issue for other specialties. Finally, even if the employer unilaterally changes the job or the physician otherwise wants to terminate, the physician may be required to stay on for 180 days. Long termination periods can also be quite the painful experience.

Quick side note: This job comes with a 40-mile commute. Thus, it is possible that you may live close to the rim of the non-compete bubble, such that there may be viable options that are close by and outside of the non-compete.

Which Option is Better?

The biggest positive about Option 2 may be PSLF. Many large corporate employers qualify as non-profits. A physician who obtained four years of service during residency as a psychiatrist may only need six more years of service to obtain PSLF. Even at a substantial student loan of $450K, six more years of service and loan forgiveness may mean a $350,000 to $450,000 tax-free payday. A savvy physician employee could use all of the employer’s retirement accounts to reduce taxable income, save for retirement, and pay a little less in the PSLF required monthly payments. When considering the tax implications and compounding interest, this physician may have needed to earn $600,000 or more to pay their student loans off with traditional pre-tax dollars. If the physician in this scenario sees it through, the extra $100,000 per year in loan forgiveness means they earned approximately $533,000 for those 3,000 hours of work, or $177.78 per hour. While PSLF makes this job more attractive, it is only providing about 23% more and ONLY during the PSLF years. Once you have finished your PSLF 10-year commitment, you are basically getting a dramatic reduction in compensation.

Because of this, I often recommend physicians that accomplish PSLF to reassess their employment options. If they no longer have need for PSLF and the initial sign-on bonus has been resolved, these changes decrease the attractiveness of employment with a large corporate healthcare employer. Complacency here can cause a physician to stay in an unattractive job for no good reason!

However, PSLF-golden-handcuffs come at a significant cost, and the costs may outweigh the benefits. I sometimes see physicians make irrational decisions with their student loan debt. I see physicians with relatively low loans in the $100,000 to $200,000 range INSIST that the ONLY reasonable path to paying it off is through PSLF. This is simply not true. A $100,000 to $200,000 student loan could be gone or reduced to an insignificant amount in a matter of two years or less if you live like a resident for a couple years (Hey Jim Dahle!). The pain of working for the big corporate employer for 3,000 hours per year for at least 5-7 years after residency could make you miserable and cost you far more when considering burnout. Conversely, I see folks with large student loans in the $500,000+ range in relatively lower-paying specialties that are convinced they can pay it off and buy a $1M house and a Tesla right out of residency. This math likely does not work out unless you are in one of a few very lucrative specialties and are very successful.

PSLF issues aside, and post-PSLF, Option 1 is clearly superior to Option 2. Even though base salary for Option 1 is only $200,000, and Option 2 is $360,000, Option 1 is more lucrative. Psychiatrists should remember that there are many locums and tele moonlighting opportunities that can be performed in a flexible way for at least $200 or more per hour… so even if you want your total compensation to be closer to $450,000 or more, that is likely accomplished in less time and in a more flexible way with Option 1. I regularly see part-time hourly psychiatry positions that pay a physician in the $200 + range per hour on a 1099-Independent Contractor contract (2022 numbers… there appear to be many of them available, which suggests wages are likely to increase). Also, having a 1099 side gig can provide some attractive tax advantages.

Life and lifestyle desires can change with time and family considerations. The most lucrative option is to go with Option 1 and moonlight. The best option for quality and control of life is to go with Option 1 and enjoy a ton of free time! The best option to protect the initial compensation ÷ obligations calculus with a strong leverage and exit strategy is also with Option 1.

Here is a Chart to Help Organize Your Analysis

COMPENSATION ANALYSIS	Option1	$	Option2	$	Analysis
Base/Protection
Variable, Quality
Productivity
Sign-On Bonus
Other (profitability?)
401K/403B Match
457
Health and Dental
Parental Leave
FSAs
Ownership Options
PSLF Eligibility
YOUR COMPENSATION
PHYSICIAN OBLIGATIONS
Contact Hours
Admin Hours
Supervision
Collaborative care, other admin/non-patient contact responsibilities
Call
Scheduling
PTO
Commute Time
Other
YOUR TIME
LEVERAGE AND EXIT
Termination Clauses
Tail Coverage
Non-Competes
Moonlighting
Other
YOUR “NO” LEVERAGE
How Good Is This Job?

---

[1] This will vary wildly between states, insurers, and family size. The average American family of four pays in the $22,000 range per year for insurance, no including any deductibles or other out-of-pocket costs. I am a bit limited in this hypothetical, but it can be quite valuable.

[2] Dependent Care and Health Care FSA offer $5,000 and $2,875 per year, and consider you are likely reducing your highest tax rate of around 40% = $3,150 in tax savings.

[3] This may be the only negative from Option 1… I put this here because it is likely that a large non-profit employer will offer this.