Employed Physicians

Contract Negotiations: Compensation Important, but Far From Only Factor

September 21, 2012 08:15 pm Matt Brown
[Magnifying glass with sheets of paper]

As the demand for family physicians continues to outpace the demand for other specialists and subspecialists and incentive compensation formulas transition from rewarding quantity to rewarding quality, more hospitals, health systems and large physician practices are employing FPs.

That said, it is more important than ever for FPs choosing the non-ownership route to know what to look for when negotiating a contract, says Michael Burke, an attorney and shareholder in the health care law firm of Kalogredis, Sansweet, Dearden and Burke, Ltd., in Wayne, Pa.

Burke, who writes about contracts and other employment topics for Family Practice Management, says the five most important areas on which to focus in the employment contract are

  • compensation;
  • restrictive covenants;
  • benefits, reimbursements and malpractice insurance;
  • term and termination; and
  • schedule, call and locations.
story highlights

  • As the health care system moves to new payment and delivery models, more hospitals, health systems and large physician practices are employing family physicians.
  • Salaried, non-owner FPs need to know what to look for when negotiating a contract.
  • Compensation, restrictive covenants, benefits, reimbursements and malpractice insurance, term and termination, and schedule, call and location are the five key areas on which to focus.


According to Burke, although cutting-edge payment models are not yet common, hospitals and health systems are beginning to focus more on measuring quality and effort rather than the number of procedures performed when it comes to incentive compensation. It is important that physicians understand exactly how their work will be measured and remunerated.

"You're seeing them move away from pure collections to work effort -- work RVUs (relative value units) or some sort of hybrid compensation formula where 20 or 30 percent or whatever of your incentive compensation is in a package that says you can get $10,000 if you get a certain compensation score," says Burke. "I think that with ACOs (accountable care organizations) coming and quality care becoming the main focus as the nature of the business becomes more preventive … that's going to filter down to private practices as well."

Restrictive Covenants

In states that allow restrictive covenants, Burke says physicians need to ask how much their ability to practice in the area will be restricted after termination and explore other terms of the covenant.

"Does the agreement include a nonsolicitation clause?" he asks. "Is there a confidential information provision?

"I have a lot of doctors who move to an area to take the job and they say, 'You know what? If it doesn't work out, I'll just move back home, so I don't care.' But other doctors say, 'This is my home.'"

Benefits, Reimbursements and Malpractice Insurance

Although all of these issues are significant, malpractice coverage may be the most financially important in the long term, says Burke.

"Are you getting occurrence-based insurance, where you don't need tail coverage, or are you getting claims-made insurance, where tail coverage is needed following employment?" Burke asks. "And if it is (claims-made), who's paying for it, you or the employer? To me, that's a big issue, because it could be a lot of money."

With regard to benefits, Burke explains that health systems prefer to attach them as a schedule so they can change them without the employee's consent.

"I understand that (employers) want to keep certain benefits uniform, but employees want to try to have vacation time, CME time and allowances fixed unless they consent to any changes," he says. "That is something that is often negotiable from doctor to doctor, and the employer might not vary from their form schedule, but it's always worth taking a shot."

Burke says that because hospitals and health systems generally have more money to spend than physician practices do, benefits generally are better.

"It used to be that physician employees would always get family health coverage. Now, a lot of times, they get individual coverage and they have to pay for the rest of the family, or they may even have to contribute to individual coverage," says Burke. "Generally … health systems -- because they have more money to set up these plans and benefits and may have to compete for employees -- they may offer more options."

Term and Termination

According to Burke, most physician practices likely will only agree to a 60-day employment term, meaning that the contract would be terminable in 60 days without cause. A health system, on the other hand, is more likely to ask for a commitment of a year or more, depending on whether the agreement is connected to a practice sale.

"But remember, that is a double-edged sword," Burke says. "If the system commits to a year, you're also committing to a year, and if you leave early, you've breached your contract. While an employer may decide not to go after you for 'public relations' reasons, they may decide to do so, and they will be able to obtain damages if they can show them."

Schedule, Call and Locations

No matter what a physician is promised, it is important to get it in writing in the contract; otherwise, issues like schedule, call and location can become real problems.

"You want to try and get in (the contract) what you were promised, especially with a health system," Burke says. "Let's say (the system is) all over an area, and you only want to work at one or two places; you might want to put in your primary location and that you have to mutually agree on other locations."

Burke says scheduling also is important for FPs who elect to work part time.

"If you're (a) part-time (worker), you want to try and make sure that your schedule is defined so that (the employer) doesn't take advantage of you," Burke says. "So, you either want to have an aggregate limit on the number of hours you have to work or put the schedule in there.

"Obviously, if there's an emergency at 1 o'clock, you're not going to leave, but if they start scheduling you with patients until 3 in the afternoon all the time, you can at least go to them and say, 'Look, I'm only supposed to work until 1, and you're only paying me until 1, and I'm working a lot more.'

"So, it gives you a way to go back to them and tell them that it is not working," he says. "If a physician is being paid hourly and working extra hours, at least he or she is being compensated; however, if you are being paid a set salary or a per-session stipend, these extra hours are often not taken into account."

Related ANN Coverage
Primer on Payment Reform: Rewarding Value Over Volume

More From AAFP
Family Practice Management: "Evaluating Employment Agreements"
(July/August 2012; Members/Subscribers Only)