At Michael Johnson Legal, we believe every physician deserves clarity on the pros and cons of their employment agreements. Whether you negotiate aggressively or take a more conservative approach, the key is understanding what’s at stake and how your contract matches your career goals, life plans, and interview promises. While negotiation is often very prudent, there are situations where an aggressive stance might not be the best strategy. Below, we outline key scenarios where a more measured approach could be beneficial.
Pre-Ownership Track in a Successful Independent Private Practice
Understanding practice settings is crucial, and we often recommend different negotiation strategies based on practice settings. Generally, we see three primary practice settings:
- Classic Academics – Positions offering non-clinical paid-for time for research, teaching, and protected time for scholarly activities.
- Business Ownership – Independent physician-owned practices offering eventual ownership.
- Perpetual Employment – Physicians trade time and volume for salary without ownership potential or non-clinical career advancement.
For those pursuing business ownership, initial salaries may appear lower than those of hospital-employed positions. For example, an orthopedic surgeon might receive a $600,000-$700,000 starting salary in a hospital system but only $250,000-$450,000 in a private practice pre-ownership track in the same market. While this disparity might tempt aggressive negotiation, we often counsel clients that it’s more beneficial to focus on ownership terms rather than base salary and take a long view. Consider evaluating the following key ownership considerations before deciding whether the short-term base salary offer is prudent to negotiate:
- Pre-Ownership Track Timeline
- The duration of the pre-ownership track can range from one to four years before a physician is eligible for partnership. Some practices have well-defined pathways, while others may leave timelines vague. Ensure the timeline is clearly stated in the contract and aligns with your career goals.
- You may want to inquire whether there are any performance metrics or subjective evaluations that could impact your eligibility for ownership. The fewer ambiguous barriers, the better.
- Likelihood of Ownership Offer
- Research the practice’s history in offering ownership to previous hires. If a practice has had ten hires over the past decade but only five became owners, that could be a red flag. Is their promotion history consistent, or does it look more like a batting average?
- Speak with current owners (ideally the youngest owner) about their experience—did they feel the path to ownership was fair? Are there unwritten expectations that are not clearly defined in the contract?
- Ownership Structure and Benefits
- Determine what the ownership stake includes. Some practices only offer ownership in the professional practice itself, while others provide access to additional revenue streams, such as:
- Ancillary service profits (e.g., imaging, physical therapy, lab testing).
- Surgical center or facility ownership (if the practice owns an Ambulatory Surgery Center (ASC), this can be a major financial benefit).
- Commercial real estate ownership (owning the building where the practice operates can provide significant long-term value).
- A well-structured ownership opportunity should align with your financial goals and provide multiple revenue streams beyond clinical earnings.
- Determine what the ownership stake includes. Some practices only offer ownership in the professional practice itself, while others provide access to additional revenue streams, such as:
- Buy-In Costs and Structure
- Some practices offer a low buy-in based on book value (the cost of assets minus liabilities) or par value (a random amount that’s low and not truly reflective of the value of the business), while others require a fair market value (FMV) buy-in (which may be significantly higher but also reflective of actual worth).
- While a low buy-in sounds appealing, it may mean a low buyout when senior partners exit. This situation could incentivize them to sell to private equity instead of transitioning ownership internally. Also, if the value of the practice grows during your tenure, you may not see any financial benefit when you exit.
- Consider whether financing options are available. Some practices allow new partners to finance their buy-in through distributions, reducing upfront financial burden.
- Total Owner Remuneration and Financial Growth
- Compare the buy-in cost to the expected earnings as an owner. If an ophthalmologist in a hospital setting earns $400,000 annually, but a private practice owner earns $800,000+, including ancillary income, a seven-figure buy-in could still be a worthwhile investment.
- Ownership should provide long-term financial security, often exceeding what hospital-employed physicians earn over time.
- Autonomy and control cannot be understated. Practice owners face business pressures (hospital-employed folks do too btw), but the added advantage of controlling your practice could outpace financial incentives.
- Investigate whether partners have consistently experienced increasing profitability over time or if reimbursement cuts and operational costs have impacted income potential.
When investigating these thoroughly, you might find that the financial sacrifice during the employment period and the buy-in costs are a worthy investment. These two together are often a rather massive number. In our ortho example with a 3-year ownership track, this could easily top $2M in early career differential compared to the hospital-employed position. However, if the ownership earnings are $500K+, the financial indifference curve could cross over within the first decade of your practice, leaving you with a couple more decades of far greater earnings. When considering these numbers, a small increase in early career salary pales in comparison, and there are bigger considerations at stake.
Work Obligations in Business Ownership Opportunities
We often recommend physicians in hospital-employed or academic settings negotiate for work-life balance factors such as call schedules, clinical duties, and administrative responsibilities. However, in a business ownership opportunity, over-negotiating work limitations may raise concerns about future ownership suitability.
Practice owners typically seek future co-owners who are willing to contribute equally to the workload. If a candidate appears to be minimizing responsibilities, owners may hesitate to offer employment, but even worse… they may offer employment but not offer ownership. Instead of focusing on limiting duties, physicians should consider prioritizing a deeper understanding of what is expected of them and ensuring alignment with their long-term career goals.
In these scenarios, negotiating minor salary increases might be less important than securing favorable ownership terms and timelines.
Exit Strategy Considerations
Physicians should also evaluate exit strategy terms in contracts, including pre-ownership track settings. Unlike many hospital systems, independent practices may require physicians to cover malpractice tail insurance upon exit and often still include broad non-compete agreements upon departure.
A fair approach you may want to consider is to negotiate that these exit terms only apply if the physician voluntarily leaves or declines an ownership offer or if the practice is no longer an independent physician-owned practice. If the practice fails to offer ownership as agreed, we believe it’s fair for them to bear tail insurance costs and restrictive covenants should be reduced or eliminated.
Obviously, practice owners may disagree, but we believe this is a ripe area for negotiation.
Classic Academic Positions in Niche Subspecialties
For physicians in niche academic specialties such as transplant surgery, pediatric subspecialties, or rare procedural fields that are likely more prevalent in the largest academic centers, aggressive negotiation is not always prudent. These positions often have limited openings and highly specific job requirements, making it more competitive for candidates.
Instead, the focus should be on:
- Clarifying protected time for research and teaching. Academic positions often include non-clinical responsibilities such as mentorship, research projects, and publications. Understanding how much protected time you have for these activities and defining it clearly in the contract may be crucial to ensuring long-term career satisfaction.
- Understanding clinical workload expectations. Some academic physicians find themselves taking on more clinical duties than expected, reducing the time available for research or teaching. Ensuring the contract reflects a clear division of clinical versus non-clinical time is critical.
- Moving efficiently in the decision-making process. Since these positions often attract multiple well-qualified candidates, institutions may have stricter timelines for decision-making. Delayed responses or prolonged negotiations could result in the offer being rescinded or given to another candidate. If you want to be more prepared for this, grab the book Decisive, which teaches a method for making quicker decisions with better outcomes.
- Understanding compensation structures. Unlike private practice or hospital-employed positions, academic salaries may be lower but supplemented with grants, incentives for research output, or additional clinical shifts. Ensuring that you understand all components of your compensation is crucial.
- Career advancement opportunities. Some academic institutions provide clear tracks for promotion based on publications, grants, and clinical leadership. Others may be less structured. Asking about tenure pathways, leadership opportunities, and mentorship support can help clarify your long-term prospects within the institution.
Negotiating only the most critical issues and avoiding prolonged negotiations may be the best strategy for securing these highly competitive positions.
Summary
Not every contract should be approached with an aggressive negotiation strategy. The best negotiation strategy depends on the specific practice setting, career goals, and financial objectives. The best practice here is to develop a relationship with a lawyer experienced in physician contract negotiations and allow them to help guide you through this process. A short-and-quick “review” type representation is not what you deserve – there is more to it than that. We enjoy helping physicians work through the issues thoroughly, including:
- Identify their long-term priorities—whether it’s ownership, early career financial goals, academic advancement, prioritizing options to pivot, and/or work-life balance.
- Understand their leverage in negotiations and recognize when a heavy-handed approach may deter employers.
- Focus on overall financial benefits rather than just base salary—long-term ownership stakes, revenue streams, and practice equity can outweigh an immediate salary boost. Additionally, the pursuit of academic advancement and career satisfaction can outweigh financial considerations.
- Consider the employer’s reputation—some practices or academic institutions have a history of delivering on their promises, while others may not.
- Seek professional legal guidance to fully understand contract terms, hidden risks, and negotiation strategies.
By taking a strategic and informed approach, physicians can secure opportunities that align with their career goals without over-negotiating themselves out of a great position. If you need guidance in evaluating and negotiating your contract, we are happy to help you.
