Physician employment: 4 tips for successful contract negotiation

More and more, physicians are moving away from independent practice and gravitating toward employment with hospitals or other large organizations. Although this switch frees doctors of the burdens of running a business, it's critical physicians understand their rights and responsibilities before agreeing to an employment contract.

To help physicians better prepare for this process, FiercePracticeManagement spoke with FierceHealthcare advisory board member William Cors, chief medical quality officer of Pocono Health System in East Stroudsburg, Pa., and Dean P. Nicastro, a healthcare attorney with Pierce & Mandell in Boston. These experts offer you the following 4 tips for negotiating a satisfying and surprise-free physician employment contract.

1. Begin negotiations with your offer letter.
Before a physician candidate ever gets an employment contract to review, the potential employer sends him or her an offer letter. The physician is then asked to sign and return this letter, which not only outlines basic details of the position, but it also commits the physician to sign the employer's standard form of contract, Nicastro said.

"In most jurisdictions, an offer letter is a contract. What many physicians don't realize is that the ability to leverage and negotiate change to the standard form of contract is limited by what they agreed to in the offer letter," he said. "In an ideal world, if you're ever going to talk to a lawyer, you should do it when the offer letter arrives rather than waiting until you get the contract."

On the flipside, remember that anything you were promised verbally holds no legal weight, so be on the lookout to make sure the written provisions match what you were told, Nicastro added.

2. Read and appreciate what you're signing.
When physicians end up dissatisfied with the contract terms they agreed to, Cors (pictured) said they likely didn't read the contract closely beyond learning how much they would earn.

"Once you get beyond the base compensation and the basic core group benefits, there's probably room for misunderstandings at every step of the way in the contract," Cors said.

Even when physicians do understand the terms of a contract, they may have a tendency, during the courtship process with a potential new employer, to overlook the magnitude of some provisions under the idea that they'll never come into play, Cors added.

"I've seen two extremes," he said. "One is not reading or thinking, 'This isn't a big deal.' The other is that you get a lawyer and question every blasted section in the contract. There has to be some give and take."

In other words, make sure you understand and are comfortable with what you're signing, but don't try to demand an unreasonable number of changes.

3. Know the most important provisions to address.
While Cors admited that the opportunity for misunderstanding exists throughout most contracts, the following areas represent some of the top areas of physician upset:

Termination and coterminus clauses
Most contracts allow an employer to terminate an agreement with or without cause, commonly after the first 90 days. While these arrangements aren't uncommon, physicians should recognize that a "five-year contract" that allows termination without cause after a shorter amount of time effectively reduces the contract length to that smaller time period. So if you agree to 90 days, Nicastro (pictured) said, make sure that will be enough time for you to find a new position should the hospital enact that termination due to factors outside your control, such as budget restrictions.

Also be fully aware whether the termination of an employment agreement also terminates your privileges at the hospital, Nicastro warned.

"A lot of doctors just don't understand that one at all--that when they sign the agreement, they're basically signing away their medical staff privileges should the contract go away," he said. "That one is huge and creates a lot of bad feelings."

Restrictive covenants
While healthcare noncompete agreements are illegal in many states, physicians who are subject to them need to recognize what they're agreeing to. For instance, while agreeing not to practice within a 15-mile radius of the employer for a two-year period might not seem like a lot during the honeymoon period when the contract is signed, Cors said the ramifications are often much larger than physicians anticipate when such provisions are enforced.

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"Ensure the definitions and standards in that policy aren't so loose that they could be abused."
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Code of conduct and conflict-of-interest policies
If the hospital or healthcare institution you'll be working for has conduct and/or conflict-of-interest policies all employees are expected to follow, request to review these documents before signing your contract, Nicastro suggested.

One pitfall to watch out for is an overly broad definition of unacceptable physician behavior, he said.

"Ensure the definitions and standards in that policy aren't so loose that they could be abused by a supervisor who really wants to get rid of you because they don't like you, rather than you're not doing a good job or have done something wrong," Nicastro said.

When it comes to conflict of interest, the issue is really one of awareness, he said, so that you don't inadvertently breach your contract by engaging in potentially competitive activities you didn't realize were problematic.

Incentive-based compensation
According to Cors, the number-one area of physician misunderstanding and regret stems from incentive-based compensation. Extra time should be spent on this section to ensure the doctor understands what it takes to meet each target and how it affects pay. Too often, the discussion focuses too heavily on the doctor's base compensation and glosses over the details of how bonuses will work, he said. As a result, physicians end up disappointed when they don't receive the extra dollars they expected, Cors said, adding that he's become less of a fan of incentive-based compensation over the years.

"It is the incentive comp piece that is supposed to align the physician with the organization, but what happens … is it drives a wedge between the two of them because it creates such misunderstanding," he said. "Maybe you just pay docs salary and be done with the rest of it."

4. Recognize the contract's purpose.
As an independent healthcare attorney, one of Nicastro's recent projects was to work on the 2012 update of the Massachusetts Medical Society's Model Physician Employment Contract. One of the reminders included in the margins of that document, he said, is that good agreements establish good relationships.

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"If you don't have a good agreement in place, the relationship ultimately fails."
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"If you don't have a good agreement in place, the relationship ultimately fails," he said.

And if the relationship ultimately doesn't work out, "a good agreement provides a blueprint for a rational separation."

With these goals in mind, physicians should ensure that their employment contracts meet two key criteria, according to Nicastro.

"The point of reviewing a contract carefully is to: 1) make sure it contains everything you were promised verbally and satisfies all your expectations, and 2) it prevents any surprises from happening down the line and ensures you know what's expected of you."

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