Whether you’ve just finished residency or you’re an experienced physician looking to make a move, before you add your John Hancock to that physician employment contract, it’s important to know exactly what you’re signing. Here are the top things every physician should know about physician employment contracts, including the key components, what you need to pay attention to the most, and where to get help.
1. A physician employment contract is about more than just money
Joshua Irvine, managing attorney for Irvine Legal, a firm that specializes in healthcare contracts, says physicians need to start by understanding the document they’re signing, which means looking beyond the salary and main information at the beginning.
“I’ve had lots of calls with fellows and even experienced mid-career physicians where they just simply look at the money and that’s it. They ignore the fact that there are 19 other pages,” he says. “When you decide to make a move later on in your career, one of the first things you should do is look at your current contract to see what a transition is going to look like.”
2. Not all physician employment contracts are the same
The employer type also determines the type of contract you’ll receive, Irvine explains.
“There are direct hospital employees, and then there are surgical groups or professional groups that have a second simultaneous contract with the hospital, so each entity is paying part of their money. There could be obligations that the physician has with both entities in return,” he says. “The traditional employee contract isn’t that much different than a medical group contract, but when you get into the triangle contracts, those are a bit hard for people to understand.”
3. Some contract components merit more attention than others
Although every part of the contract is important, there are several components you should pay especially close attention to:
- Term: What is the contract term? Does it expire or automatically renew?
- Credentials, licensing, and job expectations: Are there clear definitions of what you’re allowed to do, what you’re expected to do, and what you’re expected to maintain?
- Compensation: How much will you get paid and how often? What are the potential bonus structures, if any? What will be your PTO and extras such as continuing medical education (CME) allowances?
- Benefits: What benefits will you receive? (Note: contracts don’t often include a lot of details about benefits because these can change from year to year and are generally the same for all employees.)
- Malpractice: How much malpractice insurance coverage does the employer provide? Will they provide tail coverage (insurance that covers claims reported after your policy expires or is canceled)?
- Severability clause: What are the grounds for termination? What is the notice period? (90 days is typical, but some have as few as 30 days’ notice, while others could be as much as 210 days’ notice.)
4. What an injunction is
Irvine says most physicians become confused by an injunction in their contract.
“An injunction or injunctive relief is a mechanism in a contract that means the employer can go to court to stop the party from doing something while it’s determined whether or not they actually did violate a rule,” he explains. “Some physicians think that clause means they automatically lose or that they are subject to a lawsuit. A lot of times those clauses simply mean there’s an employer right to get a preliminary pause on what you’re doing while a court determines whether or not it’s valid.”
5. How the noncompete clause will affect your ability to work in the future
Most physician employment contracts include a noncompete clause, depending on state law (for example, California does not allow noncompete clauses). It’s important to review and understand this, especially if you decide to take a new job a few years down the road.
“Physicians think an employer is generous when they don’t have a noncompete clause, but it could just be that the state where they’re located doesn’t allow it,” Irvine says. “The second you take your next job, you could be slapped with the clause and be surprised if you’re not paying attention.”
Some contracts may also restrict a physician’s ability to moonlight or work outside the contract.
“Employers will have a clause that says you need to have prior written consent to work outside. Physicians misinterpret this and think it means the employer is trying to control their life,” Irvine explains. “Really, they’re trying to make sure they don’t violate federal kickback statues by allowing referral patterns the company doesn’t know about.”
6. How negotiable a physician contract really is
An employer’s character influences how negotiable the contract is, according to Irvine.
“Some people assume smaller groups might be more negotiable, while others assume big groups are negotiable,” he says. “The reality is all of them have a different personality.”
While you probably won’t be able to negotiate everything, even if the employer is willing to listen, the White Coat Investor suggests having your BATNA (best alternative to negotiated agreement) in mind. In other words, decide the minimum you’re willing to accept in the contract.
SEE ALSO: Physician contract negotiation: A comprehensive guide for specific questions to ask in a negotiation with an employer.
7. Sign-on bonuses are taxable just like salary
Many doctors don’t realize sign-on bonuses are taxable, Irvine says.
“Doctors get obsessed with getting sign-on bonuses and they’re like, ‘Hey, I got my $30,000 sign-on bonus.’ I say, ‘Great. Just so you know, your paycheck will only show $16,000, because of the tax withholding,’” Irvine says. “It’s really just considered salary.”
Because a sign-on bonus is considered supplemental income, it’s subject to federal taxes and may also be subject to state and local taxes, depending on where you live.
8. What you need to do if there is a contract dispute
Not all contracts spell out the policy for handling a contract dispute, but many require giving the employer written notice of the issue and then allowing them 30 days to fix it, Irvine says. Human resources policy manuals may list more information, including arbitration or mediation if an issue comes up.
“Disputes happen in any relationship, so I ask physicians to think about worst-case scenario. If this job isn’t as perfect as you think, how is this going to play out? Helping them to see those things will reveal some of the weaknesses in the agreement on both sides,” Irvine says.
It’s also important to be aware of governing law, especially if you’re working with a private equity group that buys medical groups and practices.
“For example, you might be working in Florida, but your employer as a legal entity might be owned by a company in Colorado. You might have to address any of your grievances in a court in Colorado,” Irvine explains.
9. What matters most to you personally
Even if the contract seems complicated, some clauses may not affect you as much as you think, so it’s important to think through the implications.
“I’ll talk with a physician about a noncompete clause and simply ask, ‘If you quit, are you going to stay in this local area or not?’ Half of them say they want to stay, and then we’ll dig into what that means. The other half will say they’d probably go back to their parents a couple states over. I say, ‘Great, then why waste time arguing about this thing that won’t matter?’” Irvine says.
10. The difference between a contract and a promise
It’s important to understand what can be included in a contract and what usually isn’t.
For example, if you’re joining a private practice and have been told you’ll become a partner in the future, Irvine says you’ll be disappointed if you expect to see that in writing in a physician employment contract.
“The harsh reality is it’s really a promise to make a promise in the future. It’s not really enforceable today, and they’re not going to get into the details today,” he explains. “If you’re signing on as an employee now with a future promise that you can become a partner, that’s great, but I’ve never seen an employment contract that gets into any real detail about partnership because it’s two to three years down the road.”
11. Where to get help with a contract
Irvine says he often sees doctors who come to him with a problem after they have already signed a contract. Unfortunately, there is only so much an attorney can do at that point. It’s important to get help from an experienced healthcare attorney before you sign on the dotted line.
“I’ve seen business lawyers try to impress doctor clients by trying to rip apart a contract, but they don’t ever deal with healthcare contracts, so they don’t know what the regular terms are and what’s standard. They make the doctor look like an idiot on day one,” he says.
“Ask your recruiter to help you find a healthcare attorney or look at a resident and fellow network for recommendations. Ask those people who’ve gone before you who they used.”
A physician can expect to pay anywhere from $400 - $1,000 for a physician employment contract review, but Irvine says the fee is worth it.
“Although that’s a lot of money, especially for a resident who is coming out of training, it could cost them tens of thousands of dollars later if they don’t get the advice and help at the beginning,” he says.
Fully understanding a physician employment contract can help you protect yourself when you’re taking a new job, especially if you’ve just finished a residency or fellowship.