Negotiate your physician contract: An expert answers your questions [webinar follow-up]

Last month, CompHealth hosted a webinar on how to effectively negotiate your physician contract. Panelist Jon Appino, principal and founder of Contract Diagnostics, recently returned to answer some participant questions that came up during the webinar.

If you have the option to choose between employed or being a 1099 independent contractor, is one better than the other?

Jon: I think its great for people who want to be independent contractors over W2s. There are a lot of really important things that a physician would know or anybody that’s on a 1099 independent contractor versus a W2 so I think asking the question, is this possible, is always the first step. Right? And then figuring out, what does it mean for you. So, if you are an independent contractor you likely don’t have benefits so you have to buy your own benefits. You may buy your own malpractice insurance so you have to take into account all those costs. There are taxes that an employer typically pays that as a 1099 contractor you wouldn’t have paid. The compensation should be different because the employer is – you’re not employed, so they’re paying you your overall compensation is less and your out of pocket is more for certain things. Now, you have benefits like tax codes and retirement plans and everything else and there would be more flexibility, but those are things I think a physician should take into account. Do I want to file quarterly taxes? Do I want to pay all of my taxes and estimates instead of having my employer withhold them? Do I want to worry about all of my benefits? Those are just some of the questions that a physician should ask if they’re looking at doing a 1099 versus a W2 job.

Can you negotiate malpractice coverage?

Jon: So, malpractice insurance is super important, one of the things that every physician should understand in their contract. First off, when you negotiate with it you need to figure out what type of policy it is. Make sure you understand the limits in the states and what the hospital staff regulations are and of course what they’re purchasing for you as far as the malpractice insurance. And then if you need to negotiate, which you may not, then they provide a comprehensive plan and there’s no need to negotiate it. But if you do need to negotiate who pays tail coverage it’s important to know who pays it in general, who pays it in certain termination circumstances, if there’s a termination without cause or a termination for cause, by which party, if it’s not renewed. Those are all situations that there might be carved out that the physician could bounce based on risks. So, if the physician terminates they’re choosing to leave. If the employer terminates without cause the physician didn’t make that choice, so there’s certain situations where it might be fair for the employer to pick up tail. The other request that you could also make is having your tail vest over time. So, maybe the physician, they’ll say no, we’re not going to pay your tail and maybe you say, ok, what about after three years, would you then pay it because the employer has made some money and they can afford to pick up their tail after that, so there might be some additional ways that you can negotiate it but every situation is different but it’s definitely one of those components in a contract that you want to fully understand.

Are noncompete clauses something that you can negotiate?

Jon: Again, another one of those sections that’s important to fully understand is that you can’t practice medicine or that you can’t practice your specialty. Is it based on your current location or is it based on potential future locations? Is it from one location or multiple locations? Again, which way is it enforced, is it enforced no matter how the agreement ends or all the uncertain circumstances. So, the first step is understanding what exactly it says and understanding your responsibilities with the restricted covenant. And once you understand that the restricted covenant is there and what you can and cannot do, we definitely think that you can negotiate, whether that’s taking it from multiple locations to a primary location, whether that’s having it only be in effect after a year because you’re not going to have a patient following of 2,000 for the first year so maybe their damages will  be less if you leave earlier versus later. Maybe it’s only in certain circumstances so if they terminate you for cause or if you terminate without cause, maybe those would be instances where the noncompete would be fair to be validated and enforced versus not.  I think it’s important to understand how other physicians have noncompete so if you’re a hospitalist you may feel its unfair to have a noncompete because patients don’t go to the hospital because of the hospitalist team. If you’re an orthopedic surgeon that is world class then maybe it’s different because then patients will follow you. So, I think it’s important to understand how a hospital or an organization may apply the noncompete to different specialties across the hospital and make sure that everyone has the same thing. If they’re tell you it’s nonnegotiable it’s important to understand that nobody has something different and what they’ve done in the past to enforce it. And just because you have something in your contract and you go to terminate doesn’t mean that you can’t negotiate out of it, so you might be able to negotiate out of a non-compete at the time of termination depending on what the options that employer is willing to allow.

How do you understand what fair market value is and is there any room to negotiate?

Jon: So, how do you determine fair market? That is such a complex question. I typed in a question into one of the new AI systems today to figure out what a physician might make and it was completely wrong, so how an AI system might generate what fair market is might be different than what MGMA would say, which is different than Sullivan Cotter or different than AMGA, all these different tools have different values in terms of what they assign to be the median or the 75^th percentile. But those are just numbers. Now, how to assign what is considered “fair” and what’s compliant with fair market value, it seems that a lot of organizations define it differently. We’ve had organizations define it as the 75^th percentile of MGMA, we’ve had organizations define it as the 90^th percentile of MGMA, we’ve had organizations define it as the 120^th percent of the 90^th percentile, and the some look at a tri-blend with different surveys as well. We are just working on a negotiation with a surgeon now and the employer is saying we need to keep everything under the 90^th percentile for a rolling three year period, and what their 90^th percentile is different than what our 90^th percentile is, so how do you say you’re right and you’re wrong. It's a very interesting question and I don’t know if there’s ever a copy paste answer for all the physicians out there but I do think it’s important that they understand what their value is whether that’s finding data with MGMA, which is still delayed. It’s early 2023 and we’re still using 2021 MGMA data, so the data is delayed even though it’s branded as 2022 data said it was captured in 2021. So there’s a big delay in the data so it’s important that a physician gets real time data. One of the things that we offer our contract diagnostics is real time compensation data so they know what the trends are today and last month and the month after, not what was the trend a year ago or maybe longer ago which could have even been post covid so the numbers were even still a little finicky. It’s important that physicians understand fair market but it’s just so variable based on a lot of things that there’s really no easy answer for the question.

How and when should you ask for a raise?

Jon: Some of my sleepless nights are spent because I talked to a physician that said, “Jon, I’ve been here for seven years and I haven’t had a raise. Should I have one?” It keeps me up at night and it just pains me. We talk to too many physicians who haven’t had a raise for four years or six years, I think the last stat I saw said 38% of physicians haven’t had any changes  to their compensation in four years, and so that’s a big number. Do we think that there should be something baked in? Of course. I think that should happen on the front end, so if somebody is offering me $300,000 to do a job as a specialist, I would say, ok, maybe $300,000 is ok year one, but I’d like $315,000 year two and $335,000 year three, or whatever the numbers show up to be fair. I think you can bake those into contracts. I do think that a physician – any employee - shouldn’t just sit back in their career and kind of blend in and see their patients and have a great time. I think that they should raise their hand every other year and say, can we talk about my performance, can we talk about my compensation, can we talk about updates? I think they should take a proactive approach in that. So, proactive on the front end by negotiating compensation raises in and also a proactive approach on the backend with leaning into the position and asking your manager or your boss or your report for a meeting to get coaching to figure out what you’re doing great and then of course to request more for compensation. We rarely do see something baked into a contract that says, “tied to inflation, this is your percent increase, or every year you’ll have a 3% increase, we don’t usually see percentages and inflation tied, but we have seen more of it, but that’s not something that we typically see, but I definitely think all physicians should try to look for compensation increases over the years.

If a healthcare system says they're not going to negotiate the salary, should you walk away from that opportunity?

Jon: Well, it could be a fantastic salary or it could be not a fantastic salary. I think the first thing, again, going in and understanding what the physicians market value is in that market for that job and then if they say, this is how we set pay for everybody, if it’s a fair offer then I think you have too look at other points of risk in the contract; noncompete, malpractice insurance, what’s the benefit package look like, before we just throw it away. You could be paid $50,000 less but have $70,000 more in benefits and an extra week of vacation, so maybe that job that pays less is actually better. I think not just looking at the number but taking the whole package into account will be important. But I do think just clarifying, so everyone is paid the same? It is. When was the last time that you guys updated the compensation package? And if they say, well, we haven’t updated it for four years, and if the physician has data I think that's a great time to say, ok FYI, you guys are paying less and I’d like to make sure I’m working with top talent and therefore we need to pay more so when are you going to look at it again. I think having that open and honest conversation with them is important.

How common is it to see student loan forgiveness in physician contracts?

Jon: That’s a great question. We’re seeing more and more student loan forgiveness. There’s a lot of changes with the public student loan forgiveness program that I think physicians should be aware of depending on if you’re working at a nonprofit and trying to put in your years of service there. But we’re seeing student loan forgiveness programs come back, we kind of saw them go away but we’re seeing them come back a little more, I think just because of the press that’s been around student loans. But again, if an employer is using a “fair market number” to pay a physician, most of the times all those things would be taken into account. They would take in the salary, the signing bonus, any relocation, and student loans into a total number. So, if they’re offering you student loans it’s probably coming from somewhere else. I think it's important for a physician to understand how they’re paid and what the clawback is if the physician would leave, but we are seeing student loans offered more. But if a physician is not offered it on the front end then the employer most likely does not have a program. Oftentimes employers have programs where they just pay the student loan company directly or they just give you the money and it’s drafted and integrated. If it’s not offered, we don’t see a lot of people add it, but if it is offered we sometimes do see the ability to negotiate it, but we are seeing more and more employers putting that type of package together for physicians in the total compensation.

What should you do if you've started a new job and it doesn't match the terms of the contract?

Jon: It’s a great question and I would always say if a physician feels there’s been a breach of contract they should contact a state based attorney to look into it and see if they’ve got a case with their employer. But unfortunately, most of the time those level of details are not included in a contract, it doesn’t say the census averages 18 or less, or call is 10 days a month or less. The contract will be more generic; you’ll take an equal of on call. Well, equal means you might take more if people leave and you may not get paid for it and they haven’t breached the contract. Maybe your expectations were off because of the number of people in the department. I think if there’s a breach of contract they should contact their state based attorney but I think understanding what they should ask and how they should ask up front. Again, if they’re not going to change their contract is one thing but understanding what would they do if a physician left, how would they allocate that extra call. Would they ever open a Saturday clinic because right now you’ve been told it’s Monday through Friday but the contact doesn’t say Monday through Friday it jut says fulltime which is undefined. I think all those stem to having the contract fully reviewed on the front end and understanding which questions you should ask of the right person at the right time. But if there is a breach of contract that is clearly stated in the contract, you will not take more than 10 days of call per month and they’ve got you scheduled for 15 without your permission, I think they should reach out to a state based attorney if they want to have a potential breach of contract issue, but it’s always just a good idea to go directly to the employer of course, assuming that you want to stay working there, and say, hey, my contract says 10 days, I’m willing to do 10 days. Hopefully you can work it out with the employer without having to get the lawyers involved.

What are the top three things physicians need to pay attention to in a contract?

Jon: Is your malpractice covered? What type of policy and do you have to buy tail insurance? Are there any restricted covenants as far as what you can or can’t do if the employment ends? And then how to get out of it. What’s the termination clause, can you leave in 30 days, can you leave in 90 days, is it 180 days? I think those would be the first – outside of making sure you feel your time is valuable with compensation, those would be the top three things to look at.

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