Negotiating the Contract

Koushik Shaw, MD

Disclosures

January 01, 2017

Negotiations Can Be an Angst-Ridden Process

Negotiating the contract can be nerve-racking. Once you sign the contract, there's no going back. However, if you insist on changes, the employer may refuse to budge or might even withdraw the offer.

"The most intimidating thing I had to do during my residency and fellowship training had nothing to do with patient care. It was negotiating my first employment contract," a physician wrote in a 2016 blog[1] for the American Academy of Family Physicians.

The best way to deal with your employment contract is to take a serious, balanced approach. Read it very carefully, and have a healthcare attorney read it too; if you find some potential problems, ask for reasonable changes.

Will Employers Negotiate?

Most employers are not going to fight a limited number of changes that would make you happy. After all, they spent a great deal of time and money trying to recruit you, and they really don't want to start the process all over again.

Some large organizations insist on standard contracts and refuse to change even a comma. Smaller practices may be more accommodating, but when they're in highly competitive markets, such as large metro areas like the Northeast, they often stick to their guns, too. They can expect plenty of other candidates to apply for the job.

The main reason, however, that contracts are signed without any changes at all is that many new physicians don't want to go through all the anxiety. Physicians have reported feeling stressed, concerned, and anxious when it comes to negotiating salary and asking for contract changes.

Physicians have reported feeling stressed, concerned, and anxious when it comes to negotiating salary and asking for contract changes.

However, you should be able to keep the stress to a minimum by planning the negotiation process.

How to Prepare for Successful Negotiations

Screen out problem employers. This is the time to push aside all the data you've collected and listen to your gut. Does the employer seem genuinely fair, and does the job seem stable? If not, reject the job offer and move on to a new prospect.

Have an advocate in the organization. One good reason to establish a rapport with the people you interview with is to turn them into your advocates. Then, when management is weighing your request for changes in the contract, your internal advocates will be asking them to make an exception for you.

Bring up unusual requests early on. For example, start telling people during the interview stage that you are looking for a 4-day workweek. If they agree, be sure to get it in writing. Oral assurances mean nothing.

Hire an attorney. Don't try to review the contract on your own. Attorneys with expertise in physician contracts can zero in on potential pitfalls that might never have occurred to you. Also, they usually know which provisions can be changed and which cannot, reasonable salary levels, and how to negotiate the changes.

Q&A on Hiring an Attorney

At what point should I hire an attorney? Do this early in your job search. A contract offer could come up unexpectedly, and you need to be ready.

How do I find an attorney? Ask physicians who have recently gone through contract negotiations, contact your specialty society, or ask for recommendations on social media. There may also be attorneys at your medical school or residency program who may provide services at a discounted rate.

How much do attorneys charge? The going rate is in the range of $250 an hour or more. The work can take a few hours or as much as a dozen hours, depending on what services are provided. The attorney might only review passages that you've marked, review the whole contract, or draft a full rewrite.

Can an attorney get me more money? In some cases, attorneys can negotiate a higher signing bonus, extra moving expenses, or maybe even a higher base salary. But their main function is to identify hidden pitfalls in the contract that could harm you later.

Can the attorney do the negotiating for me? Usually, attorneys only give you advice and leave it up to you to negotiate the contract. Some attorneys, however, will negotiate on your behalf—but of course they will charge extra for that.

Should I hire non-attorneys? There are several large non-attorney contract services. They tend to offer lower rates and have won endorsements from some physicians. These companies argue that a full legal background is not necessary for this work and that it involves many nonlegal matters, such as reimbursement.

Take the Letter of Intent Seriously

After the verbal job offer is made and before the contract is drafted, the employer may send you a letter of intent, also known as an "offer letter."

The letter outlines certain key provisions that will come up in the contract—such as salary, job obligations, and termination provisions—but it is a much shorter document than the contract will be.

You may be asked to sign it, and many physician job candidates do sign after only a quick glance at it. This is a mistake.

"It is very common for physicians to treat a letter of intent as an unimportant formality," wrote Pennsylvania physician contract attorney Dennis Hursh.[2] He advised that the letter should be taken seriously, because the employer may regard any terms you agree to as no longer negotiable.

That said, a letter of intent can actually help you, because it puts in writing promises that the employer had only stated orally. In fact, if you haven't been given a letter of intent, you may want to ask for one. It might simplify contract negotiations later on. But be wary of the document you receive.

The Letter of Intent Can Be Used Against You

Although the letter of intent is generally not legally binding, employers use it to set provisions in stone as early as possible in the negotiating process. In a 2015 article,[3] Jonna Daleiden Eimer, a physician contract attorney in Chicago, recalled her experience with a letter of intent signed by a physician client of hers.

A hospital employer pushed the client to sign, stressing that it was nonbinding and final details would be hammered out later, Eimer wrote. But when contract negotiations started, the hospital's attorneys pointed to stipulations in the letter of intent as "the agreed-upon final terms of the parties and used this argument to refuse later changes," Eimer recalled.

"Now, I advise clients to negotiate the terms of their employment at the letter of intent stage," she wrote.

Negotiate the Letter of Intent

You can use the letter of intent to determine whether it's worthwhile to pursue further negotiations. If you and the employer are far apart on essential issues at this point, you may have to walk away from the job. It will save you the aggravation of negotiating a contract that the employer won't bend on.

Hursh gave an example of an issue where the two sides could be impossibly far apart. "If you expect to be paid $300,000 a year but the employer is expecting to pay $200,000 a year, there probably isn't any value in continuing negotiations," he wrote.

Rising use of letters of intent means you may have to look into issues that otherwise would first come up with the contract. It may be a good idea to hire a contract attorney at this point to review the letter of intent and advise on changes.

Dealing With the Contract

When the contract is sent to you, you should immediately send a copy on to your lawyer, but you should also read it very carefully. After all, these are the rules you would be working under as long as you're in the job (with some tweaking in future contracts).

The contract is typically eight to 30 pages long. The longer ones are generally better for you, because they contain more specifics instead of open-ended language that allows employers to do what they want.

Read the contract sentence by sentence at least three or four times. Detailed knowledge will make you a better negotiator—assuming that you, and not your lawyer, will be the negotiator. But even then, you'll still have to play an integral role.

Make a list of provisions that bother you, and prioritize them. Start with concerns that would be deal-breakers, followed by concerns that you might be willing to compromise on. Share this list with your attorney, who may come up with very different items, including contract pitfalls.

Some contract provisions are generally easier to negotiate. These include the start date; some aspects of the work schedule; and fringe benefits, such as a signing bonus and funding for continuing medical education (CME). Base salary, productivity bonuses, and issues around termination are often harder to change.

Base salary, productivity bonuses, and issues around termination are often harder to change.

Effective Ways to Negotiate the Contract

Call the employer and say that you have some concerns about the contract. Usually, they will want to hear you out. Send them a clearly written document showing the provisions you'd like to change and the new language you'd like to insert.

It will take at least a few days to get a response. While holding fast on many issues, the employer may back down on a few or offer some compromises, which will then require further consideration by you. You may be asked to discuss the matter in a phone call or a face-to-face meeting.

This is typically the moment of truth for you. If you continue to insist on a change that the other side has rejected, the chances of them changing their mind become very slim at this point. They may even announce that they're withdrawing the job offer.

Seeing a job offer disappear at this late stage can be distressing. Unless you've bought a house, you've probably never dealt with this sort of brinkmanship. But it's far better to walk away from an ill-fitting job than to accept it and suffer the consequences.

Pointers on Negotiations

Work from a script. If you negotiate by phone or in person, it's helpful to draft a few talking points on critical issues. Have your attorney review your script.

Be prepared for compromises. This isn't like buying a car, where you might never see the dealer again. These are people you can expect to be working with for many years to come. Continue to build strong relationships with them.

Don't accept reassuring verbal statements. You'd be right to doubt such assurances as "Our attorney always puts that in there" or "That won't apply to you." If a term is in the contract, it does indeed apply to you. Conversely, if a statement isn't in the contract, it doesn't exist.

Leave yourself an out. Have another job possibility in the wings. You might be interviewing for another job or even negotiating another contract at the same time. If you have no other prospects, you could apply for a locum tenens job to hold you over.

Understanding and Negotiating for Compensation

Fresh out of training, it's hard to get your head around compensation. The modest stipend you've been making won't prepare you for what you will earn now. This means you could either underestimate or dramatically overestimate what you think you'll get.

Some practices still base compensation on the physician's share of collections, which is a pretty easy concept to understand. Increasingly, however, payment even in practices is based on productivity.

Dealing With Relative Value Units

Productivity is measured in work relative value units (wRVUs), which have a specific value for each billing code. Because this approach ignores reimbursement levels, physicians with a lot of Medicaid or capitated patients can be paid quite well under wRVUs.

Employers set a target number of wRVUs for you by consulting the Medical Group Management Association (MGMA) benchmarks, which are based on current surveys of physicians. They then use a standard dollar amount to convert total RVUs into compensation.

You can access MGMA data through your recruiter, contract attorney, or other channels and make your own calculation of expected compensation. Compare that figure with what the employer is offering. If your figure is higher, you might have a good case for higher reimbursement.

The MGMA data have six applicable variables: practice ownership, group type, geographic region, demographics, number of partners, and call responsibilities. You can approximate your expected compensation by adding up these variables and dividing by six.

If someone else held the exact same job before you, you could ask the employer for this doctor's wRVU level. This figure would be more accurate than anything you could calculate on your own.

Any attempt to calculate your income will never give you the exact amount. Each employer uses a unique and quite complicated mix of base salary; productivity; and other measures, such as patient satisfaction and quality benchmarks. You should be able to find the exact formula in the contract.

Pointers on Compensation

Keep an eye on base salary. It should be based on a significant percentage of the MGMA median. This is important, because qualifying for the bonus will require you to reach a target figure that may be unattainable. Furthermore, the base amount may be hard to change in ensuing contracts.

Don't be swayed by your first-year salary. You'll probably be paid a guaranteed salary in the first 1-3 years, and it can be quite generous. But after you shift to a compensation formula, your income might actually fall. For those reasons, you should focus on the formula.

One-time payments don't reflect the long term. The employer may offer you a hefty signing bonus, cover your moving expenses, and even pay off part of your student loans. But these are one-time payments, and you might have to pay them back if you leave before the contract expires.

Keep your eye on productivity targets. The compensation formula is typically made up of a base salary plus a productivity bonus, which isn't paid unless you meet the wRVU target. The target can be set too high.

Higher compensation may mean extra duties. It may turn out that a salary that is $30,000 higher than other employers offer would require extra call, rounding in the hospital, driving to remote locations, or serving on committees. Read the fine print.

Income-based compensation can be knotty too. Many groups still base compensation on practice income minus expenses. Find out whether your income would be based on your own collections, or whether collections have to be divided evenly, even if you see more patients. And what constitutes expenses? Do they include new ventures of certain physicians in the practice?

Productivity formulas may shortchange some doctors. In a single-specialty practice, for example, surgeons performing a few very complicated surgeries per day might not generate the revenue of colleagues seeing 30-40 patients in the office, even though they work just as hard. In this case, a wRVU would be a fairer measurement.

Partnership Track in a Private Practice

When hired by a practice, you start as an employee but usually can expect to become a partner in a number of years. Some practices can deliberately make it hard to reach partner level. The contract can protect you by spelling out exactly what you need to do.

Practices may intentionally avoid setting down exact criteria so that they can freely make their own decisions, but this is unfair to you. Try to add specific criteria to the contract, such as setting a timetable for the transition and a list of costs included in buyouts.

Making partner usually means buying into the practice. The amount you pay should cover fixed assets, such as real estate and equipment, but not soft assets, such as goodwill, which is the estimated value of the patient panel and could be worth very little.

The amount you have to pay should be based on an outside financial analysis. And rather than paying the sum all at once, you should be able to make payments over time.

Other Aspects of the Contract

Some other possible provisions to watch out for in a contract include automatic renewal without your consent and allowing the contract to expire in the event of a buyout of the practice.

Be on the lookout for a delay in starting your health insurance coverage and other benefits.

Also be on the lookout for a delay in starting your health insurance coverage and other benefits, and pay attention to how the employer would resolve disputes between doctors and management.

Meanwhile, several key areas of the contract come up time and again in negotiations. These are covered below.

What Exactly Are Your Job Duties?

Pay attention to what the contract says about call coverage, office hours, time off, and CME requirements. Open-ended job descriptions, such as "full-time work," fail to define the number of hours you have to work, the number of patients you have to see, and how much work you'll have on weekends and holidays.

The contract might state that the employer will decide call arrangements. This is not good for you, because it allows senior physicians to shift their call duties onto the newbie. Call arrangements should be specified.

Similarly, a large health system may assign new physicians to outlying clinics, requiring a 20-minute drive each way. If you have to take these assignments, make sure your downtime doesn't impair your productivity measurement.

Look out for provisions that might limit your treatment and referral decisions. You may want to have a provision in the contract that bars the employer from interfering with your professional judgment or medical decision-making.

Tail Coverage

Employers typically cover your malpractice premiums, but they may provide claims-made policies. This means that if an incident occurred while you were working at the employer but the suit was filed after you left, it wouldn't be covered by the employer's policy.

If your next employer also has claims-made coverage, which is likely, you'd have no coverage for this incident. To fill this coverage gap, you would have to purchase tail insurance, which can cost tens of thousands of dollars.

The contract may not provide tail coverage, and employers are often reluctant to add it in, because then it would be easier for you to leave them.

Here is an instance where you could offer a compromise that would allay the employer's concerns that you might leave. For example, you might offer to pay two thirds of the tail in the first year, but then your employer would pay two thirds in the second year and the full premium in the third year and beyond.

Noncompete Clause (Restrictive Covenant)

If you leave before the contract expires, you might also be subject to a noncompete clause. Also called a "restrictive covenant," this contract provision bars you from practicing within a certain radius of your employer for a certain number of years.

You might have been told that employers are not likely to enforce this provision, but don't bet on it. The clause is barred in a few states, including California and Massachusetts, and such states as New York and New Jersey place strict limits on its use. But in most states, courts allow the noncompete clause as long as the radius and length of time are reasonable.

You may be able to have the clause removed from the contract, or at least have the radius or length of time reduced. Courts have struck down extensive radiuses, but there is no one universal limit. It depends on your specialty or whether you're in an urban or rural area.

Even when employers agree to drop the noncompete clause, however, there are other ways for them to make it hard for you to leave, such as forcing you to pay for your own tail coverage or making you return your signing bonus or moving stipend.

Termination

Many contracts use vague language to define your rights against being terminated without cause.

Employers can terminate anyone for cause—such as losing your license or being convicted of a felony—but the contract might also stipulate that you could be fired for any behavior "contrary to the best interest" of the organization.

Rather than allow such open-ended language, the contract should set out specific circumstances in which you could be terminated. Your attorney can provide a proposed substitution.

Next Step: Your New Job

After you sign the contract, you still have plenty more to do. You need to get your licensing and credentials set up, find a new home, and move. Maybe you have a spouse who needs to find a job in the area and kids who need to be put in school.

Then you'll need to start the job, which involves meeting your new coworkers and learning the ropes. The job search should have prepared you well for all of these changes.

This course is designed to help you get you a job you will enjoy for many years to come. Some new physicians have to go through several jobs before they find one they are comfortable in, but this course can help them, too. It can help ensure that their first job is the best choice that they could make at this point in time.

Finding a good job takes some effort, but it is manageable if you start on time, think through your decisions, do your homework, and present yourself in the best way possible.

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