Almost half of physicians change jobs in the first five years, and the AMA estimates it costs employers $500K to $1M each time… If you want to know why we have physician contracts, this is it!
One crucial aspect often overlooked in medical school and residency is education about the business and legal side of medicine — specifically, understanding and negotiating physician contracts. This post is a basic starting primer on physician contracts, meant to get you thinking about some primary issues we regularly see in the law firm.
Tip 1: The Importance of Physician Contracts
Contracts in any profession are the bedrock of the employer-employee relationship. In medicine, they define terms of employment, compensation, duties, and the relationship’s termination, among other things. A well-negotiated contract allows an unfamiliar reader to understand what the physician is generally expected to do, what they will be compensated for that work and the rules of exit. We use the Trinity framework to advocate for negotiating balance and fairness between Work Obligations, Compensation, and Exit Strategy. Conversely, a poorly understood or unbalanced contract can lead to dissatisfaction, financial loss, career stagnation, or even moral injury and burnout.
Tip 2: Understanding Employer Fears
Employers of physicians must make a significant investment in physician recruitment and onboarding. According to the American Medical Association (AMA), the cost of replacing a physician is estimated to be between $500K and $1M. This figure accounts not just for the recruitment process but also for the loss of productivity, patient care continuity, and potential revenue that a departing physician takes with them.
It’s understandable that employers structure contracts to mitigate this risk. As a physician, you need to recognize that while employers are protecting their interests, you too must protect yours, particularly regarding exit strategy issues related to leaving a job within the first few years. This starts with understanding why certain clauses exist and what their implications could be for your career.
Tip 3: Considering Differences in Practice Settings
The original practice setting classifications for physicians were academics, private practice, and hospital employment. However, medicine has changed quite dramatically over the last few decades. Hospitals and private equity have bought out private practices, and academics have often partnered with major for-profit and non-profit hospital systems. Major payors like insurance and Medicare have generally favored hospitals over private practice. Because of these changes, we believe it is important to redefine these categories. We see the options as follows:
- “Classic” Academics
- Business Ownership
- Perpetual Employment
Classic Academics speaks to opportunities that have carved out protected and paid time for research, scholarship, teaching, and other non-clinical work. Not all employers that market themselves as academic institutions offer this “academic” experience. Some read and feel more like primarily trading volume of work for compensation without a more altruistic opportunity.
Business Ownership speaks to pre-ownership track employment agreements with independent physician-owned private practices that will offer ownership at a pre-determined point in the future. Not all private practices offer future ownership, and we often negotiate the compensation and work obligations differently based on the prospect of future ownership. This would not include private equity-owned private practice, as our experience in the firm is that the contracts in a private equity-owned practice don’t typically offer the same autonomy and control as independent practices.
The last is a catch-all category of Perpetual Employment, where physicians typically trade volume of work for compensation without the altruistic opportunities of classic academics and without the autonomy and control offered by owning the business. Private practices that have been bought by private equity are more appropriately evaluated under this framework, as are hospital employment positions and academic institutions that only compensate the physician on clinical billable volume.
Tip 4: Navigating Employer Negotiation Strategies
You will often encounter employers who claim their terms are “standard” or “boilerplate.” Employers use these terms to suggest that the contract is non-negotiable and uniformly applied. However, this is not always the case. While they rarely let me rewrite their contracts, they are often open to reasonable modifications. While it might be 98% consistent with those of your peers, the remaining 2% — often in the details — can significantly impact your professional life. These differences could be anything from your specific responsibilities, on-call duties, or even termination clauses. Hence, it is crucial to scrutinize every aspect of the contract and understand that many items are negotiable.
Please not that some employers may not change anything in their contracts for you. This is no reason to ignore the contract. The vast majority of you will have the option of comparing more than one offer, so you need to know how the contracts between prospective employers differ and which option is the best fit for you. Also, ALL of you need to understand your contract so you can make an informed decision. The goal is clarity, not necessarily winning changes.
Tip 5: Crafting Your Exit Strategy
Career goals and life plans change, and so too might your job satisfaction or fit within an organization. This is why having a solid exit strategy is as important as the terms that govern your employment.
There are six big rocks to consider in your exit strategy:
- Noncompete
- Nonsolicit
- Term and Termination
- Malpractice Insurance and Tail Coverage
- Compensation Clawback and Waiver
- Moonlighting and Outside Activities
Key to this strategy are noncompete and nonsolicit clauses, which can severely limit your ability to work in a certain geographical area or solicit former patients and colleagues if you leave. A well-negotiated termination without cause clause, which ideally provides the legal right to leave at any time and requires a 90-180-day notice period that protects your compensation during an exit, is vital. It ensures that you have the freedom to leave an employer without significant penalty should the need arise. Every physician should know whether they or the employer must pay for malpractice tail insurance upon exit. Most physician contracts penalize the physician with compensation clawback and waiver concerns upon exit, and it’s important to plan for the financial penalties. Finally, some employers require exclusivity, while others allow the physician to acquire a secondary source of income through moonlighting or outside activities related to medicine. Negotiating for flexibility could improve your exit strategy and compensation. These six issues often make up the bulk of our exit strategy analysis, although other issues can also affect exit strategy.
Tip 6: Understanding Future Compensation
Compensation models in healthcare can be complex, and physicians are often compensated in part or in full on volume instead of base salary. For employed physicians, compensation is usually tied to volume rather than quality or seniority. The initial base salary and signing bonus might be attractive to first-contract physicians, but they can be misleading. It’s essential to adopt a “seven-figure mindset” — your contract will likely be worth over a million dollars over the course of only five years or less, so it’s crucial to understand how your compensation will evolve.
Data from the Medical Group Management Association (MGMA) provides insight into the compensation trends across different practice settings, geographic regions, and volume expectations. An assistant professor hospitalist, for instance, might earn in the lower percentile range of under $225k, while their counterpart in a non-academic setting might command between $375k to $450k on the higher end. This discrepancy is often driven by the volume of patients seen, often measured by the number of work RVUs created. It is also sometimes driven by the number of hours worked, total collections, or another volume-driven metric. Reviewing compensation data and understanding local competitive offers are crucial for negotiating a contract that reflects not only your worth but also the potential volume of work you’ll be undertaking.
Tip 7: Defining Work Obligations in the Contract
Most physicians pick a job based on assertions made about work obligations. Your prospective employer likely assured you of a particular work schedule, call schedule, work location, daily or weekly template, supervision obligations with others, including nurse practitioners and physician assistants, time off (paid or unpaid), and other promises. However, most contracts do not include most of these promises. The contract is often drafted very broadly, allowing the employer flexibility on some or all of these issues. Many employers will say that they need flexibility and do not define work obligations because “operational issues are not defined in contracts” or another excuse. While there may be some limits on what they can specifically promise in a contract, many of these issues can be clearly defined in the contract. You may want to pick out some of the most important work obligation assurances and push for those to be clearly defined.
We typically gauge how aggressive we are on these issues based on practice settings, relative leverage, and promises made during the interview process. If it’s business ownership, your future offer of ownership depends on whether those owners want you to join, and we encourage physicians to be sensitive to the fact that pushing too hard could leave the owners to decide they don’t want a partner that overly limits their practice. For perpetual employment, we cannot rely on any improvements in future contract renegotiations and often prioritize a more forceful approach to incorporating guardrails around your work obligations. For classic academics, this is a bit of a wildcard, and we take it on a case-by-case basis. The best practice here is to use an experienced lawyer who understands these nuances and helps you create a balanced negotiation strategy. Asking for too much could lead to a pulled offer while relying solely on verbal assurances could leave you exposed in the future (particularly if your exit strategy is problematic).
Tip 8: Evaluating Loan Forgiveness and Practice Setting Considerations
An often-overlooked element of physician compensation is the opportunity for loan forgiveness, particularly through federal programs like Public Service Loan Forgiveness (PSLF). Many hospitals are nonprofit entities and qualify for PSLF, but the decision to pursue loan forgiveness should be weighed against your expected salary and the nature of your loans. Remember, student loans are not tax-deductible. Any repayments will be made with post-tax dollars, a significant consideration for your financial planning. First contract physicians pursuing PSLF will likely have much more disposable income to apply for a mortgage or otherwise increase their spending during the first few years post-training. Conversely, there are many specialties where business ownership could significantly out earn other practice settings, and it could be a better financial decision to forego PSLF in favor of the practice setting that’s a better fit for you.
Tip 9: Cultivating Multiple Options and Timing Your Negotiation
Negotiating your contract 18-9 months before you plan to start gives you substantial leverage. It is the time when you can entertain multiple offers and have the freedom to walk away if the terms do not meet your expectations. This cushion allows you to negotiate from a position of strength rather than necessity. Our experience in the firm suggests hiring managers have more room to increase compensation and improve terms when the physician can comfortably entertain multiple offers and walk away. With millions on the line and extensive negotiation experience, they know their leverage, and so should you! If you have these offers around the same time, your ability to clearly understand the best deal and use another to potentially improve it can substantially improve outcomes.
If you find yourself short on time with a job offer that does not fit your career goals and life plans, seriously consider a locums position instead of signing a bad deal. Many find ample job satisfaction in locums, and even comment that it fills some experiential gaps that might not be provided in your residentsy or fellowship program. The compensation is also often quite attractive, and some elect to continue with locums throughout their career.
Tip 10: Understanding Offer Letters are Not the Whole Story
Many employers push physicians to make a final decision at the offer letter stage with very limited information, but we often counsel physicians that this is not best practice. They will often make you feel like this is the only time to ask for anything, and the only thing you can ask about is a small increase in signing bonus. They often lead on the idea that the contract is sacred and cannot be touched. Our experience is that this is not often true.
Offer letters are a brief, attractive snapshot of the most exciting aspects of the job. They often include items that make you excited, like base salary, signing bonus, relocation stipends, training stipends, time off, and CME budgets. They often do not include anything discussed in Tip 5 about Exit Strategy and are not the full picture. We highly recommend that you contact your lawyer at this stage. We often recommend you negotiate the offer letter on hard dealbreakers, of which there should only be a few, but reserve further discussion until you have fully evaluated the contract. We also often recommend physicians signal to employers that approving the offer letter does not represent their final decision and ask for the contract and all external compensation plans and benefits packages. We also typically recommend pausing on credentialing with the employer and turning away other offers until the contract is in hand and is negotiated and signed.
Academics could be an exception to the above. Some academic institutions may only have an offer letter, and the other details could be housed in an external document like a faculty practice plan, faculty compensation plan, employee handbook or policy and procedures, or the like. Even though it sounds like ‘just an offer letter,’ this could be the final document, and you may want to negotiate at this moment. Again, obtaining counsel at this stage (or earlier) is best practice.
Please note that your situation could be different from these general points, and you should defer to your legal counsel to consider deviating from this.
Tip 11: Incorporating Key “Interview Promises” in the Contract
The contract is typically the final document that concludes the discussion of your legal relationship with the employer. It typically has a clause that disclaims any promises made to you before signing the contract, including everything promised to you in the job posting, interview process, and offer letters. Appropriate due diligence at this stage is to compare those prior assurances to the contract, identifying what is or is not included. We often find wild discrepancies between the final contract and pre-contract promises, which often form our primary negotiation points. Relying solely on handshakes and verbal assurances could lead you astray, and clarity in the contract is preferred when possible.
Physicians tend to experience pushback on these points, which often clarify which promises a physician can rely upon when making final decisions.
Tip 12: Understanding Renegotiation Leverage
Many physicians believe their employer has a moral or legal obligation to renegotiate their contracts in good faith in the future, but that’s not true. Employers often lead on that renegotiation happens at pre-determined times, like at the “end of a contract term” (often three years) or some fixed timeline farther into the future. However, most physician contracts automatically renew indefinitely, and thus, no future renegotiation or offering of a “new” contract is required. You should not sign your first contract with any expectation that a ‘better’ contract will ever be offered in the future!
Future renegotiation leverage is correlated with your value and your exit strategy. If you are valuable to the employer, primarily by being profitable and providing great patient care, and you can easily transition your value somewhere else, this often creates leverage. Future renegotiation is often related to details of work obligations and compensation, not exit strategy. Your exit strategy will probably not get better in a future renegotiation (they almost never offer to remove the noncompete), but employers are often open-minded to a measured reassessment of compensation and work obligations. If your requests will cost them money, we often see significant pushback. We also often see employers, particularly in perpetual employment and classic academics, that are unwilling to enter into renegotiations until they have a fear you will exit.
Tip 13: Selecting the Right Lawyer
When hiring a lawyer to help you evaluate and negotiate your offer letter and contract, experience in the healthcare employment niche is vital. Very few lawyers have this and understand the physician experience. Most who are experienced in this space work for megahealth, private practices, or private equity… not for individual physicians, so it can be hard to find. We recommend physicians prioritize lawyers who provide flat fee packages rather than hourly rates and uncapped budgets. Seek a personal connection with an experienced lawyer who has the time and practice model that allows them to truly know you and take a detailed, individualized approach. An impersonal cursory-level review that regurgitates the basics and some compensation data won’t sufficiently protect your interests; you need someone who will take the time to understand your specific situation and needs and craft a personalized evaluation and negotiation strategy.
Summary
Understanding and negotiating physician contracts is an art, not a science, requiring a deep understanding of the industry and one’s own value and needs. Recognize the tactics and motivations of employers, emphasize a strong exit strategy, and understand both your current and future compensation.
If you’re a physician navigating the complexities of contract negotiations, consider the big picture. For instance, an ill-informed analysis may speak of the signing bonus and starting base salary, but an informed compensation analysis may look something like this:
“For a [INSERT SPECIALTY] in [INSERT PRACTICE SETTING] in [INSERT GEOGRAPHIC REGION] with volume expectations of [INSERT VOLUME RANGE], the data suggests a compensation range of [TOTAL COMPENSATION] and [$/VOLUME]. My starting salary is between the 25%ile and 50%ile for my specialty, practice setting, and geographic region. My future compensation package includes value-based metrics and volume-based bonuses, and the current norms in the practice suggest __(# of wRVUs or other measure)_ of volume is common. As such, my future compensation at that anticipated volume level should be between _____ and _____, and I plan on reviewing my compensation plan against market data and other local offers for potential renegotiation every three years.”
An informed exit strategy analysis may look something like this:
“If I want to pivot within the first couple of years, my termination without cause clause allows this with 90 days of notice and guaranteed salary. I may pay back $___ in signing bonus, and my restrictive covenants do/don’t restrict my next job. I will not need to pay malpractice tail coverage, and I can use moonlighting as an option to ease my transition.”
Money isn’t everything. Lifestyle-related and exit-strategy-improving negotiation strategies can be much more effective than pure compensation-focused strategies. This holistic approach to negotiating and understanding contracts ensures you can prioritize what matters most for your career and personal life. Lastly, you deserve informed lawyers on your side to help you protect your interests.