• Employment Contracting

    Five Key Elements of a Physician Employment Agreement

    Are you considering a position as an employee of a hospital, health system, or physician group? 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.

    1. Physician Compensation

    When you’re negotiating an employment agreement, ensure that the following are true:

    • The compensation you’re being offered is comparable to that of physicians with similar skills and experience in your region
      • Access survey reports on physician compensation (for example, from Medscape)
      • Ask employed colleagues in similar practice situations about their compensation
    • 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.
      • Physicians 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).
    • Specific requirements regarding all activities and metrics (e.g., productivity, quality, cost) that will affect your compensation are included in the employment agreement or in an established written policy
      • A written policy should be applicable to all similarly situated physician employees and not subject to the employer’s discretion.
    • All benchmarks you will be measured against are stipulated in the employment agreement
      • Understand how your data will be collected and submitted

    Incentive Compensation: What You Should Know

    If an employer offers a base salary plus incentive compensation, look closely at how you would qualify for incentive payments and how they’re calculated. Many incentive models are still based on collections or work relative value units (wRVUs). However, these models are evolving to support high-quality, cost-efficient care (e.g., value-based payment models).

    2. Benefits

    In general, hospitals and health system employers offer a better range of benefits and more retirement options than private practices.

    Employers typically provide the following:

    • Health insurance for the employed physician (and possibly for family members)
    • License fees
    • Medical staff dues
    • Stipend for continuing medical education (CME)
    • Malpractice insurance (occurrence-based or claims-made coverage)
    • Three to four weeks of paid time off (a benefit that typically combines vacation, CME time, and sick time)

    Some employers may also offer the following:

    • Retirement plan
    • Moving expense allowance (if you’re taking a position in a different area)
    • Educational loan forgiveness
    • Paid sick leave (less common)

    Malpractice Insurance: What You Should Know

    For employed physicians, it’s preferable to have occurrence-based malpractice insurance coverage. This covers 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.

    Paid Time Off: What You Should Know

    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, analyze how your income may be affected when you take paid time off.

    3. Schedule and Call

    From the outset of negotiations, be clear and open about your schedule expectations to ensure that they align with the employer’s requirements.

    Employers often leave scheduling provisions loose so that employed physicians have flexibility to deal with the needs of their patients and the practice. However, the following should be stipulated in your employment agreement:

    • Promises the employer has made regarding your schedule – For example, if the employer promises that you won’t have to work more than one Saturday per month or agrees to a flexible schedule, get the specifics in writing.
    • Call and coverage obligations – Be sure your call responsibilities are not more burdensome than those of other family physicians employed under similar terms. Also, find out whether the employer offers compensation for taking additional call.
    • Specific part-time schedule (if applicable) – This is especially important if you’re paid on a salary basis. It prevents the employer from taking advantage of you by requiring you to work more hours than agreed upon.

    4. Terms and Termination Provisions

    Termination provisions set the term of the employment 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).

    The following termination provisions are often included in physician employment agreements:

    • Termination without cause – Many employers (especially physician groups) include a provision that 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.
    • Termination for cause – 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 (typically, five to 30 days).

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

    5. Restrictive Covenants

    Many states enforce restrictive covenants to reasonably protect the employer’s interest against competition, although state law may impose limits on enforcement. These states generally require that restrictive covenants must be limited in the following:

    • Duration – It is typical for restrictive covenants to last for one to two years following termination of employment.
    • Geographic radius – A reasonable geographic radius 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.

    When you’re negotiating an employment agreement, ask if the employer will agree to limit the instances in which the restrictive covenant would be enforced. For example, the agreement could specify that the restrictive covenant will not be enforced if you terminate your employment for cause.

    Some states do not permit restrictive covenants. However, these states often allow non-solicitation provisions. These provisions prevent you from soliciting former patients, employees, and referral sources after your employment ends. Read the AAFP's opposition to restrictive covenants