Physician Contracts: What does a “Fair Contract” look like?

Physicians want to know whether their contract is ‘fair’ but often do not know what components make up a ‘fair’ contract. Most physicians want to talk about compensation and have heard there are national datasets that discuss income expectations for various specialties. For me, that’s NOT what is most important here. I see great jobs that pay in the 30th percentile and terrible jobs that pay in the 70th percentile. There are many other contract clauses that are far more important than the percentile of MGMA or another dataset. When evaluating contracts, here are a handful of important issues you should check out:

  1. Balanced termination ‘without cause’ clause (90-180 days)
  2. No nonsense in the ‘for cause’ termination clause
  3. Malpractice tail insurance covered by the employer 
  4. ‘One location’ noncompete
  5. A noncompete that does not require you to move
  6. A nonsolicit that is clear and allows patients freedom to choose
  7. Compensation clawback obligations are reduced prorated
  8. No compensation waivers upon termination
  9. Employer rights are reduced under Employer ‘without cause’ and Physician ‘for cause’ termination
  10. Open moonlighting and reasonable outside activities
  11. No NPP supervision or fair and clear compensation for supervision
  12. Call schedule is clear, equally distributed, and appropriately compensated
  13. Work schedule is clear and enforceable
  14. Compensation plans that can actually be understood and enforced
  15. Access to data regarding your productivity and collections
  16. Reasonable ramp up base protection time (productivity or collections compensation)
  17. Compensation gets better over time

These are simply a starting point for your analysis. There’s more that goes into physician contracts than you may think, and a thorough and tailored evaluation of your contract is necessary to determine whether it’s fair.

#1 Balanced ‘Without Cause’ termination clause (90-180 days)

Every physician contract should have a balanced termination without cause clause that allows the employer and the physician to terminate the employment at any time upon notice. I feel the most prudent period for both the employer and physician is between 90 and 180 days.

Anything shorter than 90 days makes it quite challenging for the employer to ensure continuity of care and for the physician to find a new job. It may take 30 to 60 days or more for a physician to find, negotiate, and sign a new employment contract. Then, the employer will need to credential and get the physician approved with all payors which may take another 60 to 120 days or more. As such, if the termination without cause clause is less than 90 days, it’s next to impossible for the physician to avoid missing paychecks. 180 days gives the physician a fair opportunity to avoid missing any paychecks.

If the termination without cause clause is longer than 180 days, it can be challenging on a personal level to “cohabitate with your ex” for that long… I can see an employer and/or the physician catching some feelings that may prove unhelpful for a peaceful transition.

A red flag for me is an unbalanced termination clause where the employer might only have to give the physician 30 to 60 days’ notice, but the physician must give the employer a much longer notice. I would encourage physicians to negotiate this to be balanced, and there is virtually no good reason why the employer should be demanding this.

#2 No nonsense in the “For Cause” termination clause

Pull your contract and read through the “for cause” termination clause. This is sometimes called the “immediate” termination clause, but it often lists out several different scenarios where the employer can terminate you immediately and send you home with no more pay. Some reasons are quite appropriate, like loss of your medical license, being convicted of a felony, losing your DA license, your death… But some are inappropriate. I see some employers trying to stick some very vague language in the for cause termination, like “physician performs acts which in the employer’s sole discretion are determined to be contrary to the employer’s best interest…” That is clearly nonsense and should only be actionable under the “without cause” termination clause. It can be challenging to negotiate these sections, but if you have some leverage I encourage you to negotiate away the vague and ill-defined for cause provisions.

#3 Malpractice tail covered by the employer (W2)

Malpractice tail insurance speaks to the malpractice insurance obligations upon exit. If your employer has an “occurrence” policy, then they cover all potential claims of malpractice that occurred during the policy period (i.e. during your employment) regardless of when the claim is actually made, and thus you would likely not have an obligation to purchase tail insurance. If your employer has a “claims made” policy, then that policy will only cover malpractice claims that are made by a patient during the time period the policy covers, such that when you leave the employer you must purchase a separate policy for any claims made against you thereafter. Large employers and hospitals are more likely to cover this, but smaller private practices are less likely. This issue can vary between specialties.

For most employed positions, I believe the employer should cover your tail. They are benefitting from the profits of your work, and it would follow that they should cover all expenses leading to those profits. However, if you are on a per diem, locums, 1099 contract, you are essentially your own self-employe separate entity and may be expected to shoulder some of the expenses associated with your profits. This should probably be a consideration for your negotiation strategy.

#4 ‘One location’ noncompete

The noncompete clause can have a huge impact on your exit strategy. At its core, we really want to just know what it is so that we can plan accordingly. If your noncompete attaches to multiple locations and allows the employer to add locations without you really knowing about it, they can be really challenging to understand your rights. There are plenty of contracts where I can’t even evaluate for the physician where the bubbles on the map need to be drawn. As such, I highly encourage physicians to negotiate the noncompete to apply to only one location. This is often best stated as the physicians quote primary location” or where the physician has spent 50% or more time in the preceding 12 months. This gives the employer a little bit of flexibility just in case your primary work location changes, but also provides some clarity on where you can apply next. It can be a real pain to plan your next job if you do not know the exact geographical limitations. Also, it’s important to know how a change in practice location will impact your exit strategy, and a one location noncompete to be very helpful here.

#5 A noncompete that does not require you to move

Your noncompete should not require you to leave town to remain employed. If it does, I view that as an unreasonable risk and needs to be measured very carefully to determine whether this job is for you. When evaluating a noncompete, think about how the impact of a change in employment would affect your family and life. Will your family have to leave town? Do your kids have to go to a different school? Does your spouse have to change jobs? Will you have to give up your ties to your community, including clubs, churches, schools, activities.… If you realize that saying no would mean uprooting your lifestyle, that can be incredibly painful. I see that as a quick path to moral injury and I do not encourage you to do it. There are many ways to negotiate a noncompete, as outlined HERE INCLUDE LINK to Tips on Negotiating a Physician Noncompete: 12 Options Between YES and NO – Michael Johnson Legal LLC.

#6 A nonsolicit that is clear and allows patients freedom to choose

Nonsolicit clauses can be worded in a very frustrating and vague way. Almost every nonsolicit clause that I read prevents an exiting physician from reaching out directly to former patients and encouraging those patients to follow them to the new practice. However, some go even farther and forbid certain other marketing efforts that the physician may want to take. They may protect referral sources or may even purport to require the physician to turn down patients. I think that is unfair and potentially unenforceable under various state laws, but either way you should expect that anything in the nonsolicit could be enforceable. Patients should have the freedom to choose their physician, but employers should also have some protection from physicians simply using their time at the employer to build up a patient panel and then aggressively market that patient panel upon exit. Clarity on rights and responsibilities is appropriate here.

#7 Compensation clawback obligations are reduced prorated

Many compensation plans include some way the employer can require the physician to return compensation they have already received. It is not always super obvious. Watch out for a signing bonus, commencement bonus, or retention bonus with payback provisions that do not reduce the amount required to be paid back in a prorated way over time. For example, if the signing bonus is $100K, and covers five years, it should be reduced monthly such that if you left at the end of year four, your obligation to pay back would only be $20K… NOT $100K. Also, watch out for this in company 401k, 403b, or 457 vesting obligations.

#8 No compensation waiver upon exit

Many compensation plans are structured to make you always feel like you must stay a little bit longer… This is often in the form of a quality metric bonus but can also be the timing and detail surrounding any productivity bonuses or any other lump-sum payments like a retention bonus. Often, for these additional compensation pieces, you are required to be employed at the time the bonus is earned and when it is paid out… Those are not always the same time. Sometimes there are delays such that you may have a rather large check coming but you need to stay with the employer for another significant period. It can be really challenging to map out the right time to exit from these employers and you may always feel like an exit allows the employer to take your money. I want to avoid scenarios where the employer gets to hold onto compensation you rightfully earned because you decided to move on. These might not be super easy to spot in your first contract and is a great reason to get with a lawyer.

#9 Employer rights are reduced under Employer ‘without cause’ and Physician ‘for cause’ termination

Most physician contracts contain the exact same rights and obligations for the employer and physician upon termination regardless of the reason of termination. I do not believe this is fair. If an employer wants to terminate your contract without cause, or if you must terminate the contract for cause, the employer’s rights should be reduced. Under these scenarios, they have decided they no longer need your services even though you did nothing wrong, or they actually did something wrong and gave you a legal right to terminate the contract. It would follow that they should not able be able to restrict you in the same way as they would if you are voluntarily leaving. The should definitely apply to the noncompete and the nonsolicit, but should also apply to any compensation clawback or waiver issues or any other contract rights that survive termination of the contract.

#10 Open moonlighting and reasonable outside activities

I’m a big fan of open moonlighting in many specialties. For example, in psychiatry there are so many subspecialty areas that can be interesting. If your primary employment does not offer access to keeping particular skills sharp, I encourage you to consider a moonlighting position that allows you to maintain valuable skills. It also helps during your exit strategy because a moonlighting position that can be ramped up quickly if needed can help you bridge an employment gap and can help you add additional time to your job search. Having that in place can help you avoid needing to take a job quickly with little negotiation leverage, and allow you to wait on a better deal.

I’m starting to read some outside activities clauses as being quite punitive… This is especially important for folks who have important valuable outside activities like authorship, social media presence, investors, inventors, or really anything that is super valuable to you that might be impacted by an aggressive outside activities clause. I understand the employer’s position in many scenarios, and often they just need to know what you’re doing to ensure that you’re not doing anything that would be a conflict of interest. Outside of that, they should really let you do what you want on your own time.

#11 No NPP supervision or fair and clear compensation for supervision

As you probably already tell by my other content, I believe physicians are almost always underpaid for supervision services. Most employers want physicians to supervise for free, even if there is no compensation attached to that work obligation. I’m not a big fan of this obviously, and I encourage physicians who are responsible for the work of someone else to be paid appropriately for that responsibility. It’s important to negotiate this piece of your contract because so many physicians are not negotiating it. The result is that the MGMA dataset that employers used to justify the compensation under Stark law is getting worse and worse. It’s actually getting harder to justify appropriate compensation because so many physicians are giving it away for free, and some legitimate regulatory issues might further compound this problem. Bottom line, if you are a physician and you are responsible for someone else’s work, you need to be paid for that work. I do not encourage you to do free work.

#12 Call schedule is clear and compensation commensurate

Most physician contracts state something like this, “Call and call schedule shall be determined in the sole discretion of the employer.” Ouch! My experience has been that a punitive call schedule is one of the leading causes of moral injury and job dissatisfaction. Some employers refuse to commit to evenly distributed call among physicians in the same practice area. They want the option to please senior or disgruntled physicians by reducing their call, putting additional call responsibilities on others. Some small private practices may expect the newest physician to take all the call. I often encourage physicians to push this issue in negotiations and not assume anything with respect to call. Physicians are often quite surprised when employers deny this request because it is so fundamentally reasonable.

Physicians who can get “evenly distributed” call as a specially negotiated term into their contract may end up with the strongest contract in the group, which often provides additional leverage throughout the employment. Do not assume that call schedule will always be evenly distributed. Asking for it during a contract negotiation will often require the employer to show their cards.

#13 Work schedule is clear and enforceable

This may seem so obvious as it doesn’t need to be stated in the contract… but it is often not obvious on purpose. Your employer may want the right to unilaterally increase or change your work obligations or schedule as needed. You should push back on this where possible and clarify exactly what work is required to obtain their compensation. If you don’t know your work schedule and work obligations, it is next to impossible to determine whether the compensation is fair and appropriate. I see tons of physician contracts that include phrases like, “Work schedule, work hours, patient and administrative time, and call schedule shall be determined in the sole discretion of the employer.” As a practical matter, some employers in certain specialties may need some flexibility here, but a completely lopsided do what we want when we want it for whatever we want to pay you contract is not fair.

#14 Compensation plans that can actually be understood and enforced

Some physician compensation plans are next to impossible to understand. Every compensation plan, even those that promise very high compensation, have pros and cons. If you are unable to determine the pros and the cons of your proposed comp plan, the employer needs to be able to explain this to you and maybe even simplify their plans. You should not need an intense mathematics background to understand how you are compensated.

Also, many physician contracts do not even include the compensation plan. It is often stated as, “Physician shall participate in the employer compensation plan which shall be determined by the employer in its sole discretion and amended at any time.” Some of this flexibility is necessary depending on outside factors like reimbursement rates and value RVUs… but at a minimum, you should be able to pull the current compensation plan and understand it easily.

Note to employers: confusing compensation plans are one of the top reason physicians call me to ask about suing you. Make it simple, transparent, and easy to understand, and you will be less likely to get legal hate mail from me…

#15 Access to data regarding your productivity and collections

It is very hard to evaluate and negotiate your production or collections-based compensation model if you don’t have access to your data. Particularly when you are compensated based on productivity or collections, you should have the right to review the raw data that goes into calculating your compensation. I think it’s fair to limit how far back in time you can go and a couple quarters is likely appropriate, but you should have the right to periodically confirm the employer is doing the calculations right. If you have no right to access that data and simply must take the employer’s word that everything is being calculated correctly, that could drive you crazy and could lead to unfairly low compensation. Some employers struggle mightily in providing fair access to data, which also leads to distrust. Evaluate your contract on the front end regarding access to data and make sure you start enforcing that right early on your contract. This also helps you be a better physician and be compensated more, as you will be able to pick up on various trends and appropriately modify your behavior when necessary.

Note to employers: physicians often feel the need to contact a lawyer when you cannot quickly produce data confirming their production. It sows distrust and makes them consider, “What are you hiding?” If you want to avoid this, make it easy and transparent.

#16 Reasonable ramp up base protection time (productivity or collections compensation)

When seeking out a new job that pays you on productivity or collections instead of base salary, it would be unfair to start paying you solely on your production or collections on day one. Physicians deserve a reasonable ramp-up period to get their activities and patient panel to a sustainable level before they should be switched over to production. I believe it is appropriate to ask the employer at what ramp-up time was necessary for physicians under their compensation model to reach a steady state. 12 months? 24 months? More? I also like negotiating for an option to switch over to productivity or collections earlier, depending on the success in that position. If your ramp up time is shorter than expected and you’re crushing it for your employer, it is reasonable for the employer to allow you to also benefit from that success.

#17 Compensation gets better over time

You may be surprised by this: Compensation is not always better in years 3-5 compared to year 1. Physician employers understand that physicians rarely understand how they are compensated and what switching from a base protection or base salary to productivity or collections will mean for their total compensation. Physicians care very much about that starting salary, such that the employer could beef up the first and second year salary but make the rest of the employment unattractive financially.

Physicians often do not see this coming. They often do not understand how they are compensated but remain confident that they will always make more over time due to experience and loyalty. In employed medicine, this is simply not true. Don’t fall for this trap.

An important part of your evaluation under any compensation model is whether you will receive more compensation over time or if it will go down. Watch out for large signing bonuses, large retention bonuses in the first couple years, and student loan reimbursement payments that roll off sometime in years 3 to 5. After these roll off, there is often nothing to replace it (unless you negotiate) and a physician may experience a decrease in total compensation. I’m obviously not a fan of physicians voluntarily accepting lower compensation packages.

“Fair” physician employment contracts are NOT all about compensation

As I hope this outline illustrates that physicians need to take a deep dive into your contract to determine if it is “fair” and the MGMA percentile is unlikely to be helpful. You need to seek clarity about the pros and cons of a particular job BEFORE you start negotiating. If you simply start asking for more money before you understand how that fits with the overall contract, you may not be doing yourself any favors. This list is simply a starting point for your evaluation, and I encourage you to go father than you think in your evaluation. These contracts have a huge impact on your life, and you would do well to understand what you are agreeing to.

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