Before you sign…

10 things all physicians should understand before signing an employment contract.

By Karen Edwards | Fall 2014 | Feature Articles

 

Dr Whipple

For Katherine Whipple, M.D., a restrictive covenant restricted her willingness to sign with one potential practice. Determine your deal-breakers before you get to the contract stage—and decide your willingness to negotiate or walk away from the opportunity.

When Katherine Whipple, M.D., finished her fellowship in the area of Orbital and Oculofacial Plastic and Reconstructive Surgery, she looked for a practice to join in her New York state hometown. “I wanted to return to Rochester,” she says—and she found a position with an ophthalmologic practice there that seemed perfect.

But when that prospective employer presented her with a contract, her hopes of a hometown practice hit a snag. Salary, benefits, job description, call—everything was agreeable until she came to a section that stipulated a restrictive covenant. The clause stated that, if she were to leave the practice that employed her, she would be unable to practice her specialty anywhere within a certain radius.

“A 10-mile radius doesn’t sound like much,” she says. “But the diameter doubles the radius, and that’s a pretty big area.” She asked for the restrictive covenant language to be removed from the contract, but the organization refused. “I offered not to do any general ophthalmic work if I left, but I wouldn’t sign a contract that restricted my ability to practice my specialty—not in my hometown,” she says. The employer refused her offer.

The ability to practice her specialty where she pleased following any termination was non-negotiable for Whipple. She walked away from the position and found another, better job—still in Rochester. “This time, there was no restrictive covenant,” she says.

Whipple’s story should serve as a cautionary tale for physicians looking for employment. Contract negotiations don’t always go smoothly. But the more you know about contracts and what they’re likely to contain, the fewer surprises you’ll face.

What follows are 10 things you need to know about contracts, according to health care law attorneys and physicians who have already signed on the dotted line. They offer glimpses of what you can expect to see in contracts so, like Whipple, you can prepare ahead for what your negotiables—and non-negotiables—will be.

1. Know your worth.

“You see lots of different arrangements with regard to compensation,” says Jodi Laurence, a health care law attorney with the Florida Health Law Center. “It’s an important part of a contract, but maybe not the most important part,” she says.

Most salaries today are built on a productivity formula, but if you’re just starting out, you’re likely to be given a base salary until you and your practice become more established. You may have a bit of room to negotiate your base pay, but usually not much. Generally, the only time an employer may heed your request for a higher salary is if your specialty is in high demand or you can show their offer is below fair market value. Otherwise, you don’t have the kind of leverage you need to negotiate higher pay.

It makes sense, then, for you to know what your fair market value is. “The MGMA (Medical Group Management Association) publishes salary data by region; that’s one place to look,” says David Manko, JD, a health law attorney with the New York law firm Rivkin Radler.

“Knowing your market before your interview is invaluable, as it allows you to prove your worth to your prospective employer,” Whipple says.

Sanjay Saint, M.D., George Dock Professor of Internal Medicine at University of Michigan Medical School, often mentors new physicians on contracts and contract negotiations. He says that unless your specialty is in high demand, you’re unlikely to receive a much higher salary than the one presented to you initially. But, he adds: “You can look at how long the salary is protected and what the historical trend has been in terms of raises. And often, there is a little bit of wiggle room for the starting salary.”

2. Know where to negotiate.

The length of the contract is one point to consider in contract negotiations. The majority of first-time contracts for new physicians will be for a year or two. Laurence says she encourages two-year contracts when possible. “If a physician relocates with a family, but is terminated a few months later, you at least want the employee to make the money they were guaranteed that first year,” she says.

Susan Kratz, JD, a health attorney with the Minnesota law firm Nilan Johnson Lewis, says a two-year contract also allows a new physician to ramp up business before the guaranteed income goes away. “In the third year, most salaries are productivity-based,” she says.

There are also other compensation terms you can negotiate. “You can negotiate the potential to become a partner,” says Matthew Kinley, JD, with the California law firm Tredway Lumsdaine & Doyle. “You may also want to look at payment for referrals, and at relocation expense,” he says.

If the base salary you want is lower than you’d like, tell them you’re willing to accept it if you can receive a signing bonus, suggests Kratz. Or negotiate a severance package for when you leave, says Manko.

“Just remember when you negotiate bonuses that you don’t run afoul of anti-kickback statutes,” says Kinley. An attorney can advise if you’re about to step over that line.

3. Make sure you have enough malpractice insurance.

Though most employers provide physicians some form of professional liability coverage while they’re employed, the Extended Reporting Period or “tail”—those suits that may be brought against you after you leave the employer—is usually a negotiated benefit.

“Tail coverage will be more important for some specialties,” says Saint. “OB/Gyns, for example, will want tail coverage. But even if it’s not as important for you, it’s a topic you should bring up.”

“What you need to determine here is, who pays for the tail?” says Kinley. Optimally, if you’ve negotiated well, your employer will pay for it. However, if you’ve left the job of your own accord, you may be the one who picks up the tab. It pays to check before you sign the contract.

4. Know the restrictive covenants.

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A health care attorney can help you understand your contract and identify clauses for negotiation before you respond to an offer. But plan to handle the actual negotiation yourself. “If we see an attorney come in to negotiate for you, we wonder what kind of employee you’re going to be,” says internist Sanjay Saint, M.D.

As Whipple learned, restrictive covenants can be deal-breakers in a contract, so they are a provision you’ll want to pay close attention to.

Don’t think that all restrictive covenants aren’t enforceable in a court of law. In some states, that’s true. In California, for example, they’re illegal. In many other states, however, restrictive covenants (or non-compete clauses) are enforceable, and suits may be brought against you if you break them.

Of course, if you don’t intend to stay in the area when you leave the employer, restrictive covenants won’t be an important issue for you. But if you intend to stay and practice in the same location, they become a concern.

“Try to negotiate those out if possible,” says Kratz. If you can’t, then the area the contract defines as “non-compete” should be reasonable. Although a 5—or, in Whipple’s case, a 10-mile radius—can be a big area, it’s considered reasonable in most contracts.

5. Specify duties and call schedule.

All the duties in your contract should fall within your scope of practice, and everything should be spelled out specifically—from what your duties will be to the hours you’ll keep, the call schedule you’ll be expected to work, and even the office location(s) where you’ll practice, says Laurence.

She gives two examples of why that’s important.

In the first, Laurence had a client working under a pediatric-specific contract when the employers suddenly changed one of their office locations to an urgent care facility. The employee worked at that location at times but was not comfortable performing the kind of care the location required. In addition, the hours at that location were extended to provide more coverage. “His duties had changed, the hours had changed,” Laurence says. But because his contract had been negotiated for specific duties and specific hours, he was eventually excused from practicing at that location.

In the second case, seven physicians out of eight who were joining a practice had worked with attorneys, including Laurence, to help negotiate their contracts. Duties, hours, call and location were all heavily negotiated—a good thing, it turns out.

“The employer opened a location that was a 45-minute drive from where the business was located,” she says. The physicians did not want to fill in at that office, so for seven of the physicians, that specific location was negotiated out of the contract. “The eighth physician decided not to hire an attorney, and he was the only one who was required to make the 45-minute drive,” she says.

“Always make these terms as specific as possible,” says Manko. If left to broad definitions, employers will define them on their terms, and you’ll either need to go along or decide to leave the job.

6. Define termination with cause.

If a contract includes a clause that an employee can be terminated without cause, there isn’t much that can be negotiated.

But when it comes to contracts that include a termination-with-cause statement, Manko has a couple of concerns. “I want to know how objective the employer will be when it comes to terminating an employee, and I also want to know—if there is cause—if there will be some latitude in fixing the problem before termination,” he says.

Laurence says if the employer insists on a termination-without-cause section, she negotiates a contract that locks her client in place for a year. “There is no termination without cause for the first year,” she says. “If a family has gone to the trouble of relocating, then is fired without cause on the first day, where does that leave the physician?” she asks.

Don’t forget, however, that termination works both ways. “You want to be able to terminate without cause yourself,” Laurence says, so include that language in your contract.

7. Pay attention to your benefits.

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Terms, termination, restrictive covenants and compensation are all what Laurence calls ‘big ticket” items—the ones that will directly affect your quality of life. These are the sections to which you’ll want to pay special attention.

Of course, benefits can also affect your quality of life, but no physician is going to walk away from a contract because the employer won’t cover their CME travel expenses. Still, benefits can sweeten the deal for you or make up for a loss in another area.

What are some of the benefits you’ll find in contracts? Vacation time, as well as time off and travel expenses for CME, retirement packages, relocation expenses, health insurance, disability insurance, maternity and paternity leave are all open for negotiations, says Kinley.

Another benefit—and one you may not think of—is your autonomy on the job. “You’ll want to know how much autonomy you’ll have, and you may want to negotiate autonomy in some decisions, such as making referrals,” he says.

If disability insurance is offered, Whipple suggests you negotiate for specialty-specific disability insurance. “If you’re a surgeon, make sure it’s surgery-specific, and that it matches the disability insurance that the partners are getting,” she says. Laurence adds that physicians should also ask for a definition of disability. “An employer may be able to terminate you if you become disabled and unable to perform the job you’ve been hired for,” she says. “So ask that disability be defined in the contract.”

Partnership is also negotiable. Not all doctors want ownership or partnership, says Kratz, but if it’s something you’re looking for, then find out how that is valued by the practice, and the costs. Have it spelled out in the contract.

Ultimately, all benefits are bargaining chips. You may not be thrilled with the salary the contract stipulates, but the fact that the employer agrees to provide tail coverage and pay relocation expenses, for example, may make it—for you—a job worth taking.

8. Beware of the quirky clause.

While most contracts you run into are usually standard fare, you may run across an employer who is new to the process with a contract that reflects that. For example, a contract may run on for pages, micromanaging every detail, including hours and duties. You want those terms to be spelled out, of course, but not in fine detail. Physicians are professionals, and the contract should respect that.

“Most contracts are boilerplate stuff,” says Manko. The worst he’s come across, he says, are extremes in terms of call hours or the area defined in a restrictive covenant. Still, these one-off clauses are something to be aware of. If you see one, your best course of action is to consult with an attorney on your best next steps.

9. Know if and when to hire an attorney.

When it comes to academicmedicine, you can forget hiring an attorney to negotiate for you, says Saint. “If we see an attorney come in to negotiate for you, we wonder what kind of employee you’re going to be,” he says.

Whipple also eschews attorneys during the negotiating process. “I don’t think anyone is going to fight harder for you than you,” she says. She does, however, hire an attorney to review the contract she’s negotiated.

And that’s the best procedure to follow, says Kratz. “The attorney should take on an advisory role,” she says. They should review the contract, but not step into the negotiating process unless they’re really needed. “You are the best negotiator for you,” she says.

Still, “Some clients want the attorney to be the bad guy,” says Laurence. “They want us to do the negotiating.” Overall, though, lawyers are best left out of the negotiating process, she says.

But do bring them in for the final review before you sign, says Kinley. “You’ll want an attorney just to understand what you’re signing.” Adds Kratz: “You also want to ensure that the contract you’ve negotiated reflects your expectations.”

If you do decide to hire an attorney, your best bet is to ask colleagues for referrals. Another option, says Kratz, is to contact your state bar association and ask to be referred to a health law attorney in your area.

“It’s important to look for someone in health law, because they’ll know the terminology involved, they’ll know what the health care laws are in that state, and what the contracts there look like,” says Manko.

Yes, it may take an attorney as long as a week to review the contract, but it shouldn’t hold up the process unless there are a number of items that need to be negotiated. Generally, however, the entire process from the point an employer offers a contract (usually a week after making the offer) to your negotiations, and an attorney review will typically take about two weeks overall. Whipple says that it’s time well spent.

10. Pick your battles and be prepared to walk away.

Saint tells residents who are new to contracts that they need to remember four things when they start negotiating.

“First, know what you want,” he says.

Second, you won’t get everything you want, which is why you need to distinguish between needs (those items that are required and largely non-negotiable) and wants (items on which you’re willing to compromise).

Third, look around at other jobs in the area and in your specialty for an idea of what you may be able to get. Having more than one job offer is the goal.

And finally, be honest and above-board with everyone. “Everyone knows everyone else, and people will talk,” says Saint. If you’ve been inappropriate in negotiations or on the job and decide to move to another employer, people will often find out. “If you do want to leave, you want to leave on a good note,” he says. And if you want to negotiate, you want to do so fairly. “Don’t be unnecessarily antagonistic,” he cautions. “Friends come and go, but enemies are forever.”

In most cases, contract negotiation is all about picking your battles, says Whipple. “Location, job, money,” she says. “Pick the two that are most important to you and approach your negotiations based on what you’ve chosen.”

“A contract should be like a good pre-nuptial agreement,” says Laurence. “It should protect you while you’re in partnership with the employer.”

The language and the emphasis a contract places on certain areas will tell you a lot about the organization you’ve approached. Contracts, it turns out, can paint a pretty accurate picture of the culture of a place or a practice. “Make sure you are comfortable with the culture before you enter into it,” suggests Kinley. “That’s just as important as anything you’ll negotiate in a contract.”

Karen Edwards is a frequent contributor to PracticeLink Magazine.

 

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