Contract Negotiations: Five Elements to Consider

Five Key Elements of a Physician Employment Agreement

If you’re considering a position as an employee of a hospital, health system, or physician group, it’s important to know the basics before you negotiate an employment agreement. These five elements are just the starting point; there are a number of other important contract-related considerations to take into account. A health care transactional attorney can help you review a specific employment agreement in detail to be sure it is fair and appropriate and represents your best interests.

In contract negotiations, it is useful to find out whether the compensation you’re being offered is comparable to that of physicians with similar skills and experience in your region.

As a result of our Practice Profile survey, the AAFP has data on family physician individual income (before taxes).

You can find that data, segmented by employment status, primary employer, practice size, number of years since residency, region, and primary location (i.e. metropolitan versus non-metropolitan) on the Mean and Median 2012 Individual Income of Family Physicians table.

1. Compensation: Am I being compensated fairly? Will I be able to earn incentive compensation under the terms of the agreement?

Ensure that your base salary is guaranteed for as long as possible without adjustment. For physicians coming directly out of training, this period may only be one year, while physicians who are joining a health system as part of a practice sale may be able to negotiate a longer period of guaranteed base salary (three to five years).

Find out whether the compensation you’re being offered is comparable to that of physicians with similar skills and experience in your region. Survey reports on physician compensation are available to help you to determine how much family physicians in your area earn. You can also ask employed colleagues who are in similar practice situations how they are compensated.

If an employer offers a base salary plus incentive compensation, look closely at how you would qualify for incentive payments and how they are calculated.

Many incentive models are still based on collections or work relative value units (wRVUs). However, these models are evolving to support higher quality, better coordination of care, and improved efficiency through clinical integration and accountable care organizations (ACOs).

If you will be eligible for meaningful use incentive payments and other types of bonus money that may be available, get specific information about the criteria the employer will use to disburse these payments.

Specific requirements regarding all of the activities and metrics (e.g., collections, productivity, quality, meaningful use) that will affect your compensation should be included in the employment agreement or in an established written policy that is applicable to all similarly-situated physician-employees, not subject to the employer’s discretion. Consider what benchmarks you will be measured against and how data will be collected and submitted, and ensure that the benchmarks are stipulated in the agreement.

2. Benefits: What benefits does the employer offer? Should I ask for any additional benefits?

Employers typically offer health insurance for the physician employee (and possibly for family members), license fees, medical staff dues, and a stipend for continuing medical education (CME). Many employers also provide a retirement plan. In general, hospitals and health system employers offer a better range of benefits and more retirement options than private practices.

It’s not unusual for physician employees to get three to four weeks of paid vacation and CME time. It is less common for employers to offer paid sick leave. More employers are combining vacation, CME time, and sick leave into a “paid time off” concept. Be sure that your employment agreement specifies the amount of paid time off to which you’re entitled. If not, changes to your employer’s leave policy could reduce your benefits without your consent.

If your compensation is based in part on productivity, you should analyze how your income may be affected when you take paid time off.

Most employers pay for malpractice insurance. As an employee, it’s preferable to have occurrence-based coverage (for incidents that happen during the coverage year, regardless of when a claim is filed). If you have claims-made coverage (for claims filed during the coverage year), you will need a reporting endorsement ("tail coverage") when your employment ends. This covers incidents that happen during employment but aren’t litigated until after employment ends. If the employer offers a claims-made policy, your employment agreement should specify whether the employer will pay for part or all of your tail coverage upon termination of employment.

If you’re considering a position in a different area, ask the employer whether a moving expense allowance is available.

3. Schedule and call: What are my call and coverage obligations?

Employers often leave scheduling provisions loose so that physician employees have the flexibility to deal with the needs of their patients and the practice. Be open about your schedule expectations to ensure that they align with the employer’s requirements.

If the employer makes any promises about your schedule (e.g., you won’t have to work more than one night per week or one Saturday per month, you can work a flexible schedule), try to incorporate the specifics into the employment agreement.

Call and coverage obligations should be spelled out in the employment agreement. Be sure that your call responsibilities are not more burdensome than other family physicians employed under similar terms. Also, find out whether the employer offers compensation for taking call, which usually only occurs for taking additional call beyond that which you are already required to provide.

If you’re only working part-time, be specific about your schedule in the employment agreement, especially if you’re paid on a salary basis. This prevents the employer from taking advantage of you by requiring you to work more hours than agreed upon.

4. Terms and termination: What is the actual term of the employment agreement? What are the termination provisions?

Many employers (especially physician groups) include a "without cause" termination provision in the employment agreement. This allows you or the employer to terminate your employment without cause. A notice provision that requires written notice 30 to 90 days prior to termination is typical.

Almost all physician employment agreements allow the employer to terminate for cause. Be sure the agreement requires your employer to give you written notice of the cause for termination and an opportunity to "fix" alleged breaches or deficiencies within a reasonable period of time (typically, five to 30 days).

Keep in mind that termination provisions set the term of the agreement, regardless of the stated term. If you or the employer can terminate the agreement without cause, the actual term of the agreement is the length of the notice period (e.g., 30 to 90 days).

Some hospitals and health systems will guarantee a minimum one-year term. Be aware that if you agree to this, you’re contractually obligated to stay for the full term.

5. Restrictive covenants: If my employment ends, will I be able to practice in this area?

Some states do not permit restrictive covenants, or they limit an employer’s ability to enforce them. However, many states do enforce them, even if there are limits imposed by state law. In general, these states require that restrictive covenants must be limited in duration and geographic scope to reasonably protect the employer’s interest against competition.

Most restrictive covenants last for one to two years following termination of employment.

A reasonable geographic radius for a restrictive covenant depends on where you practice. A restriction of 25 miles might be appropriate in a rural area, whereas a one-mile radius might be enforced in an urban setting.

Ask if the employer will agree to limit the instances in which the restrictive covenant is enforced. For example, the employment agreement could specify that the restrictive covenant will not be enforced if you terminate your employment for cause.

Non-solicitation provisions go hand-in-hand with restrictive covenants.  States that don’t enforce restrictive covenants often allow provisions that prevent you from soliciting former patients, employees, and referral sources after your employment ends.