Hidden Dangers in Physician Employment Contracts

; Reed Tinsley


December 03, 2012

Editorial Collaboration

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Leslie Kane: Hi. I am Leslie Kane, Executive Editor of Medscape Business of Medicine. Getting a new job is exciting for most doctors, but even though you are looking forward to the opportunity, it is still important to be wary of what might be in the physician employment contract. There may be some elements that, if you overlook them, could rear up and cause problems for you down the road. To talk with us about hidden dangers in the physician employment contract is Reed Tinsley, a certified public accountant and certified healthcare business consultant from Houston, Texas. Welcome. Thank you for talking with us today.

Reed Tinsley, CPA: Thanks for having me.

Ms. Kane: How common is it for doctors to get a job and sign a contract, think that everything is fine, and then get zapped by something that is in the contract that they were unaware of?

Mr. Tinsley: It is very common. I think one of the biggest hidden dangers in any employment situation is whether that employer really needs you. What I find with new physicians is that that part is lacking due diligence, just because someone says, "I need you here. We're very busy." Many times, physicians show up at offices and twiddle their thumbs for a year. That hidden danger appears when that doctor, after a year, wonders what is going to happen to his compensation. Is it going to go down if it is based on productivity? Is he still even going to be around? The employer may say, "Sorry, we made a bad decision" and the doctor gets thrown on the street.

My best advice is, before you sign the agreement, make sure that the group or employer needs you, whether it be a hospital or a medical group. For example, most hospitals have to do a community-need study. If you are being recruited by a hospital, get a copy of that and look at it. If you are joining a group, ask the other doctors before you, if there are other younger ones, how their practice has been building. What has the group done to help build their practice? If you are satisfied with the answers, then you can get into the contract issues that you need to know about before you sign the agreement.

Ms. Kane: You talked about negotiating an employment contract. I would imagine that if this is a job that a doctor really wants, he would feel like he has no leverage and cannot negotiate. What should he do?

Mr. Tinsley: I have been on both sides of the fence, and when I work with an employer who is recruiting new physicians, I always tell him that this is the protocol: The new physician is going to get counsel (someone like me or an attorney) and identify potential problem issues, and they are going to present those issues to you, so don't get upset about it. Many employers get upset when younger physicians come back and say that they want some things changed in the contract. It's part of the process. When I'm on the other side, working with a physician who is joining a group, I tell him to make a list of his issues, go to the employer, and very politely say that those are the issues he wants looked at in the contract and addressed. You don't go in and say, "I want these changes," because that is not a good way to start a relationship.

Ms. Kane: After something has been written into a contract and it has been signed, is there anything that can be done to change it?

Mr. Tinsley: Generally, not in the first year. I have a situation right now where a physician was recruited and received a salary. It's obvious that he is struggling building a practice. In the second year, he rolls into a pure productivity formula, and he will take about a $200,000 pay cut based on where his practice is now. So you should have discussions about the second year. But once that signature is in, rarely does it get changed in the first year.

Ms. Kane: So it's really important to get that contract right.

Mr. Tinsley: Absolutely.

Ms. Kane: Are there any words of caution or advice that you would give to physicians?

Mr. Tinsley: Again, I am going back to the due diligence part. Remember that a contract is just on paper. The start of the relationship is when someone, whether it be a recruiter or employer, tells you that they need you and want to develop that program. You have to be sure that it is the right fit. You get so excited about a job opportunity that you sometimes lose sight of doing due diligence. This is especially important when you are going into a big urban area because there is lots of competition out there. And again, whether or not someone needs you, the relationship can become skewed.

I will give you a perfect example. I worked with a solo general surgeon who recruited a new general surgeon with an income guarantee from the hospital. The decision point was, do I get the new person a lot of patients and take away from me or do I just let him build his own practice? This doctor went out and gave the other physician a lot of business. What happened was that his own revenues declined. They went with the income guarantee, and because of all the business he was giving the new surgeon, they started having to pay back to the hospital under the income advances, whereas it should have stayed with him and in the practice. It really caused a problem financially. It also caused a switch in the relationship between the 2 doctors; the surgeon was saying, "I need to keep all this business now. It's time to go build your own practice."

One of the hidden issues that new doctors need to understand is that every employer expects you to build your practice. You are not trained to build your practice. You get no training for that, but they expect that. However, most new physicians think that they are going to come out and piggyback on the efforts of the existing physicians. Right there, that is a conflict, and it is important to realize it. I would even ask the employer during the interview process what the expectations are of you to build a practice. Again, due diligence. I cannot tell you how important that is.

Ms. Kane: That is terrific advice, and I appreciate you taking the time to speak with us today.

Mr. Tinsley: Thank you.

Ms. Kane: I am talking with Reed Tinsley, healthcare business consultant from Houston. I am Leslie Kane from Medscape. Thank you for joining us.