The Fine Print of Physician Employment Contracts

November 8, 2011

What you need to do, see, hear, and understand before signing anything.

"We'd like to offer you the position."

When you're job searching, that phrase is cause for celebration. But don't get too swept up in the moment. And whatever you do, don't sign a contract without paying attention to its fine print.

Emergency physician Gary Katz learned that lesson the hard way.

When he and his wife decided to move from Virginia to Ohio to raise their family, he was greeted with an unexpected sendoff from his employer.

"I learned that I was responsible for the tail coverage," Katz says. "It was not an issue I had paid attention to at the time I signed the contract."

But the check he had to sign as a result - to the tune of $10,000 - did get his attention.

"I felt disappointed in my own lack of preparation," he says.

Katz, who is the current emergency department medical director at Memorial Hospital Union County in Marysville, Ohio, doesn't blame his former employer for his omission. Instead, he blames it on his youth and inexperience. It was his first employment out of residency, and he says, he didn't follow the proper precautions.

"I didn't do my homework on the front end and so I didn't like writing the check, but I knew it was my responsibility to do so."

Things might have been different, he says, if he had a healthcare attorney review the contract.

"I think had I made that investment upfront they could have pointed out that outstanding risk so that it could have been a more calculated endeavor rather than one left to chance."

Your potential employer, like Katz's former employer, is probably not trying to trap you in a bad contract, but they do value their interests over yours - and your employment agreement will reflect that. It's critically important to understand what you're signing, and why you're signing it. Otherwise, you could lose out on time and money.

To help, here's our guide to successfully navigating the contract review process - and to avoiding major missteps along the way.

Consider retaining an attorney

You wouldn't buy a house without a proper inspection. Your employment is just as big of an investment: treat it that way. These contracts are all about the details, San Antonio-based health law attorney Jim Kelso says. A lawyer will pick up on the nuances of a contract that a physician won't.

"For the major terms of the offer a physician is going to know exactly what's reasonable for their practice," he says. "They know what their friends have gotten ... they have a pretty good understanding of what general flavor the contract should have. What they don't understand are some of the details that begin to tip the scale over from a reasonable offer to an unreasonable offer."

Unfortunately, that scale is tipped more than you might think. Kelso says about 30 percent of contracts he reviews need amendments, and 70 percent require clarifications.

"You want both parties to understand what the deal is," he says. "And most specifically you want to understand what the deal is not."

Be sure to take the time to look over your contract thoroughly, and retain a lawyer to help you review all the documents before you sign.

Termination

The last thing you want to think about when starting out in a new practice is how your time there might end - especially that it could end badly. But costly unpleasant departures happen all the time. To prevent this kind of parting, there's some key fine print in the termination clause to watch out for.

It's fundamentally important to ensure the "termination without cause provision" includes an adequate notice period, says Daniel Bernick, a Pennsylvania-based attorney specializing in healthcare contracts and vice president of The Health Care Group and Health Care Law Associates.

"You want to try for 60- or 90-days notice so that if you are terminated, you have the opportunity to find another job before your compensation ends," he says.

For a primary-care physician, an additional three months of work required by the contract could amount to $40,000 or more.

Kelso also urges physicians to watch out for "anything that would allow for immediate termination that's extremely subjective and whimsical."

That includes vague language throughout this section and lack of specificity when it comes to the actual terms of the contract.

And, he says, look beyond what's written in the contract. If your employer has an aggressive business model or high turnover rate - think twice before signing.

"These people are concerned about the bottom line," Kelso says. "They'll terminate people with cause; they'll terminate people without cause."

Non-competes

If included, a non-compete bars physicians from practicing within a designated geographic area for a set period of time after leaving their former employment.

Steven Hacker, dermatologist and author of "The Medical Entrepreneur," a book counseling physicians on the business side of medicine, says the fine print in a non-compete clause can be disastrous for physicians. Worst-case scenario, he says, it could force a physician to leave town if he wants to continue practicing medicine.

"A contract should be structured with a reasonable non-compete that is not too burdensome," he says.

Whether a non-compete is "reasonable" depends on where the practice is located. It should cover a smaller geographic distance in more populated areas, a larger distance in less dense areas.

Hacker says a non-compete of five to 10 miles is valid, as is a one- to two-year duration.

The non-compete should also include an address from which the geographic scope is measured, Kelso says, so that both parties are clear on its parameters.

Take note, non-competes are non-enforceable in a small number of states. Make sure your attorney is well-versed regarding the regulations in your area.{C}

Benefits/compensation

Compensation, benefits, and vacation time look great. Should you sign off on this part of the contract? Not necessarily, says Hacker.

Younger physicians need to pay special attention to the compensation model outlined in the contract. Sometimes, he says, it's unfairly stacked against them.

"Typically physicians are salaried with a productivity bonus. As younger physicians, they may not have that productivity," Hacker says. "Alternatively, they may be given all the volume of all the least financially rewarding patients and procedures."

Alternatively, more established physicians need to ensure the compensation offer reflects their prior experience, says Kelso.

"Compensation and benefits should be much clearer for established physicians," he says. "The transition to the partnership track should be much shorter."

Bernick says the contract should include a paragraph or a side letter discussing the future buy-in arrangements for the physician.

"Joining a private medical practice you should get some idea of what's coming down the pike."

Malpractice/malpractice tail

Malpractice is one of the biggest stressors physicians face. Ensuring that your contract includes adequate coverage will give you peace of mind and financial security.

"Some contracts don't provide the coverage limits," Kelso says. "You really want to have an understanding of what the coverage limits are."

As Katz learned, other fine print crops up in the malpractice tail clause. Tail insurance protects a physician if he is sued for something that took place at his previous employment after he has moved on to new employment.

"A lot of employers are trying to push [tail coverage] on to the employee. It can be very expensive," Bernick says. Make sure you are aware what tail coverage cost you are taking on before you sign.

A fair contract, Kelso says, is one that states the tail will be paid by whichever party (employer or employee) terminates the contract without cause, or precipitates the agreement to be terminated for cause.

The fine print - not on paper

During the contract process, pay attention to the employer's negotiating style. It says a lot about the organization and what it would be like working with them in the future.

"If they take a very tough position and don't negotiate, that can be their style and the way they do business," Bernick says. "If they have a certain way of dealing with your initial employment contract, you should expect that that same approach will be used in terms of your future buy-in."

On the other hand, if the employer is clear about the contracts terms, and they are accommodating to the physician, that probably reflects positive leadership, Kelso says.

"Understanding how you're treated as somebody who's negotiating with the group will go a long way to giving you insights on how the group will treat you if things get difficult down the road."

Aubrey Westgate is associate editor at Physicians Practice. She can be reached at Aubrey.westgate@ubm.com.

This article originally appeared in the November 2011 issue of Physicians Practice.