Physician Contracts: What is Negotiable?

Ok, so you may be thinking “I get it, Michael! Job details matter, and I need to evaluate compensation, obligations, AND leverage and exit.

However, are any of these important job details negotiable?

Almost every issue discussed here is negotiable. I’ll say it again for those in the back, “Almost Every Issue Is Negotiable.”  Only a few benefits are not. For example, you cannot negotiate for more employer match to your 401k because federal laws require that to be uniform. Otherwise, almost all other issues are fair game.

Negotiate Compensation

You can negotiate compensation. The main legal limits on your compensation are via Stark Law and the Anti-Kickback Statue, and only apply to employers that accept Medicare, Medicaid, or other forms of government insurance coverage. Physicians and physician employers evaluating Stark and Anti-Kickback concerns should consider the following requirements:

  • the compensation arrangement itself is commercially reasonable;
  • the amount of the compensation is fair market value; and,
  • the compensation paid under the arrangement is not determined in a manner that considers the volume or value of referrals.

These are often interrelated, and the third consideration is where almost all of the DOJ prosecutions come from.

However, employers often want to hold the line on compensation, particularly base compensation, productivity, and quality. They may be more interested in considering increases in sign-on bonuses, retention, moving stipends, and other one-off payments that are not automatically renewable. They prefer to negotiate one-off payments because they are only paid once and may be harder to renegotiate for, and physicians rarely renegotiate their contracts (I hope you will be different). They also may be ultra-sensitive to changes in compensation because they may feel pressure to modify every compensation package in the practice. Every situation is a little different.

Here is a non-exhaustive list of compensation issues that are negotiable. There certainly may be more.

  • Base Compensation
  • Variable/Quality Compensation
  • Productivity Bonus (make sure to consider step-up in value as RVUs increase)
  • Sign-On Bonus and Retention Bonus (automatic renewal?)
  • Moving Expenses (consider asking for a moving stipend instead of submitting expenses for reimbursement)
  • Profitability Bonus, Profit-Sharing
  • Shareholder Options (owner/partnership options)
  • Productivity of Clinicians
  • Director or Administrator Stipends
  • Watch for Stark Law and compensation based on value of referrals

Healthcare employers are struggling to hold on to employees. You may want to consider bonuses for retaining employees in your pod and increasing bonuses for referring clinicians who get hired (employee referral bonuses).

Negotiate Obligations

Here is where I often have the most success in negotiations. I love working on ways a physician can control their workday and improve their chances of pushing back against an employer trying to expand their obligations. Physicians who negotiate their own contracts often focus on one-off compensation pieces and miss out on valuable opportunities to restrict what the employer can force them to do for their compensation.

I love physicians who get creative and specialty-specific here, looking for small opportunities to prevent the employer from taking advantage of them. Call schedule, work schedule, NP and PA supervision responsibilities, and other non-compensated administrative obligations can be a huge drag on the profitability of a particular job. Having a say in hiring and firing for staff around you can be quite valuable.

If you want to work anything less than a 1.0FTE (Full Time), then I recommend you incorporate a very specific plan on how the employer will reduce your obligations.

Negotiate Leverage and Exit

Physicians often greatly undervalue the impact of “NO” leverage and having a favorable exit plan. Employers often try to reduce compensation or increase obligations unilaterally, even though you have a contract! If you cannot say “NO” because of a weak contract or weak exit plan, you may be pressured into doing more for less. Your employer may see an opportunity to push more obligations onto you compared to other physicians in your practice that have more “NO” leverage and an easier glidepath to exit.

The best leverage I can have in a physician contract renegotiation is a viable alternative and the ability to issue a Notice of Termination. Employers do NOT want to lose physicians because of a better offer and are more likely to back away from changing compensation or obligations when the physician can and will leave. Employers know that physicians who leave for a local competitor often cause other physicians in the practice to reconsider their options. This reshuffling can be contagious in practice groups and savvy employers know this. They are highly motivated to shut down instances of being outbid for physician services in their local market (this is also why they love non-competes). This is often the best path to accomplishing the contract that you desire.

These provisions are most likely to affect your exit plan:

  • Non-Compete, Restrictive Covenants
  • Termination Clauses, Rights Upon Termination
  • Malpractice Tail Insurance
  • Sign-On Payback
  • Moonlighting Provisions

Physicians often mess up their “NO” leverage and exit plan in their first contract, before they understand how important it is. It is imperative that all residents negotiate their first contract and deeply consider these issues.

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