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For Physicians - The Contracting Process: Understanding & Negotiating Contracts

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You’ve completed the interview process and you’re now ready to receive a job offer. You may receive a job offer initially in a variety of ways. A verbal offer may be presented to you over the phone — it will provide the key information regarding salary, bonuses, relocation etc. The verbal offer is then followed with either an offer letter or a formal contract. An offer letter typically provides in writing the key information that was discussed in the verbal offer. The contract is a legal document providing all of the details of the agreement.

What is the purpose of a contract? The physician employment contract is a legal document between the physicians who wish to be employed at some institution and the organization which desires to employ him Employers require contracts to define the relationship between, and respective responsibilities of, the physician and the hiring organization. They must comply with STARK and Anti-Kickback statutes. Anti-Kickback Statutes prohibits a physician from referring Medicare or Medicaid program patients for certain "designated health services" to an entity with which the physician or an immediate family member has a "financial relationship." STARK Regulations impact how and when hospitals can recruit physicians.
A written physician employment contract is not only a safe guard against future problems but it also helps to remove out any discrepancies right at the beginning creating a smooth path for both employee and employer.

What to Expect in a Contract and Why:

Definitions: Define terminology used and relationship with you and your employer.

Who is the employer: Is the employer a private practice or a hospital.

Term: How long does the contract last. Most contracts are for one or two year term – the contract will state that the contract will automatically renew at the end of each term.

Employment Status: defines a physician’s status as either employee, independent contractor, or shareholder. Employment status can affect both your tax burden and potential liability in the event of a malpractice suit.

Compensation & Benefits: Amount and structure. Don’t compare contracts based solely on salary - benefits, malpractice coverage, and the time-frame for and conditions of a partnership can affect earnings over several years. There are generally three types of compensation:

  1. as a guaranteed annual sum or salary
  2. as a variable amount based on “production” (usually calculated from billings or collections)
  3. as some combination of above

If a production formula is used, the contract should provide specific details on how compensation is calculated, when you will be paid, and in what increments. Multiyear contracts should spell out the specifics of annual pay increases.
The contract should outline terms regarding any money you might be obligated to repay under certain conditions such as signing bonuses, loans, salary advances, relocation, or recruiting fees. The contract should address total compensation, including malpractice premium payments; coverage for malpractice claims arising after you leave the practice; health, life, pension, and disability benefits; and vacation policies. The contract should also include compensation intervals( ie) – weekly, monthly etc

Malpractice: Type of coverage and amounts – occurrence based or claims made. Malpractice Tail Insurance should also be delineated in regards to who pays your tail when you leave. Tail insurance is coverage for claims made after a liability policy has terminated. Know the coverage limits before you sign the contract. Coverage of $1,000,000 per incident/$3,000,000 in the aggregate is common.

Termination: How and when a contract ends. There are two basic types of termination provisions:

  1. with cause (with good reason) provision allows the employer to terminate the physician for reasons such as loss of hospital or prescribing privileges or inability to meet patient-care obligations.
  2. without cause provision enables the employer to terminate the contract with no stated reason by providing written notice in advance — typically from 30 to 180 days.

In without cause terminations, the notice period should be long enough to allow the physician to secure other employment. If the physician is permitted to initiate a without-cause termination, he or she should make sure the termination clause does not conflict with the non-compete clause.

Notice Period: Time needed for either party to end the contract.

Assignment: Can the contract be owned by someone else? This is usually not done in this type of agreement.

Patient Records: Who owns them and how are they handled. Contract should also address your access to patient records after employment ends.

Restrictive Covenants: Conditions, distance and timeframes. These “non-compete” clauses typically prevent a physician from working for a competitor located within a specific geographic area for a certain period of time. Non-compete clauses are illegal in some states, and they’re enforceable only if deemed reasonable in other states. Some employers have begun to use non-solicitation agreements. This means the employee may practice anywhere, but agrees to ask patients to transfer to the new location.

Indemnification: Holding harmless. It is a legal term meaning that one party to a business relationship agrees to reimburse the other party for any losses or damages. The purpose of the indemnification clause is to protect the interests of the contracting entity, which often becomes an additional target of plaintiff’s attorneys when a physician is sued. Such agreements make good business sense for the contracting entity: If a physician commits an intentional act, such as physical assault, sexual assault, or sexual harassment, the contracting entity is afforded protection from financial loss. Physicians should strive to have indemnification clauses deleted from employment contracts. If a contracting entity is unwilling to delete an indemnification clause, there are several ways indemnification clauses can be narrowed to limit their applicability.

Compliance with applicable law: State and Federal statues etc. How will disputes be resolves and who will pay the costs and attorney’s fees.

Medical Staff membership: Bylaws and terms

Scope of work: Work hours, schedule, and call duty. The contract should stipulate the maximum number of work hours each week or month and should define call-duty expectations. It also should address whether Continuing Medical Education (CME) can be acquired during work hours or must be completed on the physician’s own time also to include funding for CME from the employer. This can be delineated in an exhibit.

Make sure the contract describes in detail the practice’s approach to call duty and coverage for other physicians.

Standard Contract Exhibits

Job Description: Duties, hours, working conditions and call schedule are most common

Benefits Summary: time off, Insurances, retirement, malpractice, etc…

Incentives, Bonuses, and Productivity: Details as to the type if incentives, timeframes for pay-outs and amounts/accrual schedules.

Important Things to Know!

Offer Acceptance vs. Contract Execution – you can verbally accept an offer, but it is only official one the contract is fully executed by both parties

Effective vs. Start Dates – Effective date is when the contract becomes effective – it is not when you begin working which is your start date.

Fully Executed Contract – Both parties should have a final copy with original signatures for your records.


Physicians should recognize that anything is potentially negotiable. The amount of paid vacation, continuing medical education, signing bonuses, moving expenses, and the like are all open to discussion. The best time to negotiate any of these issues is before you sign a contract. Once that contract is signed, you have lost any leverage with your potential employer.

  • Some items in the contract are negotiable and some are not
  • Wait until you receive a written offer before negotiating
  • Remember negotiation is a give and take – state your needs but don’t be too pushy
  • Know your bottom line/minimum requirement
  • Your employer want to meet your need, but must be fair to current employed physicians
  • Be aware of deadline
  • Utilize professional legal review / guidance.
  • Always accept or decline the offer verbally and then follow it up with a written letter or email

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