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Negotiating physician employment agreements
You have finally completed your residency or fellowship, and now you have a job offer. With some trepidation, you decide to read the employment agreement that has been emailed to you. You quickly realize that you do not understand much of it. All those legal terms! You lament the fact that medical school never taught you about the business of medicine. What are you going to do? The choices are actually quite simple: You can take the time to educate yourself or you can hire an expert. This article will review some of the basic principles of negotiating as well as some of the critical issues found in physician employment agreements today.
Whether you represent yourself or hire someone to do it for you, it is important to understand some of the basic principles of negotiating. These principles generally are applicable whether you are buying a house or negotiating your employment agreement.
Negotiations
The most important principle is preparation. For example, many physicians negotiate their salaries during the interview process. Consequently, it is imperative that, before you negotiate your compensation, you know the range of salaries in your area for your specialty. It is also important to know whether salaries are usually guaranteed in your market, or whether production-based salaries (which are based on the amount of your billings) are the norm. Never go into an interview unprepared!
Always try to gain leverage in your negotiations. The easiest way to accomplish this is by having multiple offers, and subtly letting your suitors know this. Allow adequate time to negotiate; the more time you have, the easier it is to negotiate. Establish your objectives and try to anticipate the objectives of the other party. Determine your best-case and worse-case scenarios, as well as the most likely outcome. Do not negotiate against yourself and try to get something every time you give something. Define the nonnegotiable issues, and do not waste time on them. Keep cool and be flexible.
The first question you must answer when you receive an employment agreement is who is going to negotiate it. Many new physicians hire attorneys to help them with their employment agreements and employers expect as much. It is best to engage an attorney before you begin your job search so you can get a better understanding of how the attorney can help you. Most attorneys do not charge a prospective client for such information. However, many physicians wait until they actually receive an offer before contacting an attorney. It is not uncommon for physicians to negotiate their salaries during job interviews even if they eventually hire an attorney to help them. This is usually attributable to a lack of negotiating experience and an eagerness to determine whether a job offer is viable. Keep in mind that an attorney often can negotiate a better starting salary than you, so try to resist the temptation to negotiate your salary during the interview process.
Compensation
With compensation in mind, what are some of the important issues? Today, many physician employers are converting to production-based compensation models. Consequently, it is important for new physicians to obtain guaranteed base salaries during their first few years of employment while they are building their practices.
On occasion, new physicians initially are offered production-based compensation models, which also allocate a share of practice overhead expenses to them. This is a very dangerous compensation model for a new physician. Under such a model, it is possible that a new physician could have a negative balance in his/her cost center at the end of the year, and actually owe his/her employer money.
Some physicians may be offered income guarantees by hospitals. There are several different types of income guarantees but they are frequently categorized together even though they differ significantly. The most common income guarantees offered to physicians are physician recruitment agreements (PRAs). Under a PRA, a hospital usually guarantees that a physician who relocates to the service area of the hospital collects a minimum amount of monthly revenue for 1-2 years, which is known as the guarantee period. The hospital also guarantees to pay certain monthly expenses of the physician during the guarantee period. This arrangement is actually structured as a loan by the hospital to the physician, and requires the physician to execute a promissory note with the hospital for the amounts advanced to the physician by the hospital. The promissory note is forgiven if the physician continues to practice in the service area for 2-3 years after the guarantee period. This type of guarantee provides an excellent opportunity for a new physician to establish a solo practice. A variation of this model involves a third party such as a medical group. Under this model, the hospital continues to guarantee the revenue of the new physician and pays the medical group the expenses it incurs as a result of hiring the new physician. These expenses are known as incremental practice expenses. The medical group also becomes a signatory to the promissory note. Other health care entities also have begun to offer PRAs to physicians. For example, an independent practice association in California recently entered into a PRA with a gastroenterologist.
Keep in mind that the promissory note executed by the physician may affect the credit of the physician, especially if he/she wants to obtain financing for a home purchase. Also, a hospital may seek security for the performance of the promissory note by collateralizing the personal assets of the physician instead of just his/her practice assets; this should be avoided.
The other type of income guarantee is provided to hospital-based physicians such as pathologists, radiologists, anesthesiologists, etc. Under this type of guarantee, a hospital ensures that the physicians receive a minimum threshold of collections. This type of guarantee may be necessary to attract hospital-based physicians to a hospital which has a low-income and/or Medicaid population. This is not a typical scenario for a gastroenterologist.
Some practices create incentives for physicians by offering a variety of bonuses. Most often these bonuses are production based but sometimes they are based on such quality issues as patient satisfaction. The most common types of production bonuses are based on attaining a level of collections above a dollar threshold or exceeding a minimum level of relative value units (RVUs).
To summarize, new physicians should always try to get at least a 2-year income guarantee. They should never allow an employer to allocate overhead to them during the first 2 years of employment. In addition, they should always try to negotiate realistic production-based bonuses.
Benefits
Fringe benefits are an integral part of a compensation package for a new physician. Most physician employers offer a generous package of health insurance, retirement, reimbursable expenses, and paid time off. These benefits should be clearly delineated in the employment agreement or employee handbook. A very common question about health benefits is when they become effective (the first day of employment, 30 days after employment, the first of the month after employment, etc.). This is significant because Consolidated Omnibus Budget Reconciliation Act (COBRA) is quite expensive. Another issue is whether health insurance also will cover the physician’s spouse and dependents. Most physician employers cover only the physician, not his/her spouse and dependents. If a new physician has a spouse who already provides family health benefits, it may behoove the physician to negotiate an allowance in lieu of health benefits.
Paid time off of 10-20 days are commonly given by physician employers to new physicians. Some employers also provide 5 or more additional days of paid time off for Continuing Medical Education (CME). Of course, once a physician goes onto production-based compensation, paid time off usually is not provided.
It is very important that a physician employer offer a retirement plan. Oftentimes, there is a matching contribution by the employer. However, it is not uncommon for there to be a year waiting period for eligibility in the retirement plan. Retirement plans vary significantly so it is advisable for a new physician to meet with the employer’s human resources department to get the details of the plan offered; the physician may want to confer with a financial advisor after obtaining this information.
Most physician employers reimburse licensing and DEA fees, medical staff dues, and board certification expenses. There is often a CME allowance as well. In competitive markets, some physician employers also offer innovative benefits such as student loan repayment programs, fellowship and residency stipends, and forgivable loans for housing. Sometimes these benefits are not included in the employment agreement; you may have to ask for them.
Indemnification/noncompetition
In addition to compensation and benefits, there are several other issues which are commonly found in employment agreements. Perhaps the most controversial is the issue of indemnification. The legal concept of indemnity allows a physician employer to recover damages and defense costs from a physician employee in certain circumstances. For example, if a physician employer has a $1,000,000/$3,000,000 malpractice policy covering itself and each of its physician employees, and if a physician commits malpractice and the award is $2,000,000, the employer may seek to recover the $1,000,000 deficit from the physician. In California, for example, the physician employer would be prohibited from seeking the deficit from the physician employee, but in most states, it is permitted. Because insurance policies usually do not cover physicians for damages, expenses, costs, etc as a result of an indemnification action, there is no practical way for a physician to protect himself/herself from the consequences. It is very important that physicians not sign any type of agreement with an indemnification clause in it without consulting an attorney first.
Another controversial issue is noncompete restrictions. In many states, a physician employer can restrict a physician employee from competing with it after an employment agreement is terminated. The noncompete prohibitions usually last for 1-2 years and extend over a geographic area, which often causes a terminated physician to relocate. Importantly, noncompete clauses are generally enforceable in most states.
Tail coverage
Malpractice tail coverage often can be an issue as well. For many years, physician employers routinely paid the cost of tail coverage for a physician employee after termination of employment. Tail coverage is necessary because most malpractice policies are claims-made insurance instead of occurrence insurance. This means that the insurance is applicable when a claim is filed versus when a malpractice act or omission occurred. Because of the significant cost of tail coverage, many physician employers attempt to transfer this financial responsibility to physician employees. Depending on a physician’s specialty, tail coverage can be quite costly. Consequently, it behooves physicians to carefully negotiate this issue. If a physician employer is unwilling to provide tail coverage, a compromise may be proposed whereby the physician employee is responsible only for the cost of tail coverage if he/she terminates the employment agreement without cause or if the physician employer terminates the employment agreement for cause. Conversely, the physician employer would be responsible for the cost if the physician employer terminates the employment agreement without cause or the physician employee terminates the employment agreement for cause.
Equity accrual
Finally, new physicians always should ask whether there is an opportunity to obtain equity in the organizations that hire them. Many for-profit physician employers provide such an opportunity to new physicians after 2-3 years. However, timing is just one factor. Importantly, the cost of the buy-in is critical especially to new physicians with student loans. Recognizing this problem, the trend today is for physician employers to have nominal buy-ins. Notwithstanding this trend, some physician employers also own ambulatory surgery centers and the buy-ins for these entities must be at fair market value and cannot be financed by the center or its owners under the law. Consequently, the buy-in for ambulatory surgery centers is usually substantial and requires a physician to obtain outside financing.
In conclusion, when evaluating the viability of a physician employment opportunity, salary should be only one factor considered. Fringe benefits, the opportunity for equity, and the fairness of the employment agreement also should be weighed heavily by a physician. It is important for a physician to be comfortable with his/her peers and work environment. Selecting the right job opportunity can be challenging. However, the process will be much easier if you remember the basic principles of negotiating.
You have finally completed your residency or fellowship, and now you have a job offer. With some trepidation, you decide to read the employment agreement that has been emailed to you. You quickly realize that you do not understand much of it. All those legal terms! You lament the fact that medical school never taught you about the business of medicine. What are you going to do? The choices are actually quite simple: You can take the time to educate yourself or you can hire an expert. This article will review some of the basic principles of negotiating as well as some of the critical issues found in physician employment agreements today.
Whether you represent yourself or hire someone to do it for you, it is important to understand some of the basic principles of negotiating. These principles generally are applicable whether you are buying a house or negotiating your employment agreement.
Negotiations
The most important principle is preparation. For example, many physicians negotiate their salaries during the interview process. Consequently, it is imperative that, before you negotiate your compensation, you know the range of salaries in your area for your specialty. It is also important to know whether salaries are usually guaranteed in your market, or whether production-based salaries (which are based on the amount of your billings) are the norm. Never go into an interview unprepared!
Always try to gain leverage in your negotiations. The easiest way to accomplish this is by having multiple offers, and subtly letting your suitors know this. Allow adequate time to negotiate; the more time you have, the easier it is to negotiate. Establish your objectives and try to anticipate the objectives of the other party. Determine your best-case and worse-case scenarios, as well as the most likely outcome. Do not negotiate against yourself and try to get something every time you give something. Define the nonnegotiable issues, and do not waste time on them. Keep cool and be flexible.
The first question you must answer when you receive an employment agreement is who is going to negotiate it. Many new physicians hire attorneys to help them with their employment agreements and employers expect as much. It is best to engage an attorney before you begin your job search so you can get a better understanding of how the attorney can help you. Most attorneys do not charge a prospective client for such information. However, many physicians wait until they actually receive an offer before contacting an attorney. It is not uncommon for physicians to negotiate their salaries during job interviews even if they eventually hire an attorney to help them. This is usually attributable to a lack of negotiating experience and an eagerness to determine whether a job offer is viable. Keep in mind that an attorney often can negotiate a better starting salary than you, so try to resist the temptation to negotiate your salary during the interview process.
Compensation
With compensation in mind, what are some of the important issues? Today, many physician employers are converting to production-based compensation models. Consequently, it is important for new physicians to obtain guaranteed base salaries during their first few years of employment while they are building their practices.
On occasion, new physicians initially are offered production-based compensation models, which also allocate a share of practice overhead expenses to them. This is a very dangerous compensation model for a new physician. Under such a model, it is possible that a new physician could have a negative balance in his/her cost center at the end of the year, and actually owe his/her employer money.
Some physicians may be offered income guarantees by hospitals. There are several different types of income guarantees but they are frequently categorized together even though they differ significantly. The most common income guarantees offered to physicians are physician recruitment agreements (PRAs). Under a PRA, a hospital usually guarantees that a physician who relocates to the service area of the hospital collects a minimum amount of monthly revenue for 1-2 years, which is known as the guarantee period. The hospital also guarantees to pay certain monthly expenses of the physician during the guarantee period. This arrangement is actually structured as a loan by the hospital to the physician, and requires the physician to execute a promissory note with the hospital for the amounts advanced to the physician by the hospital. The promissory note is forgiven if the physician continues to practice in the service area for 2-3 years after the guarantee period. This type of guarantee provides an excellent opportunity for a new physician to establish a solo practice. A variation of this model involves a third party such as a medical group. Under this model, the hospital continues to guarantee the revenue of the new physician and pays the medical group the expenses it incurs as a result of hiring the new physician. These expenses are known as incremental practice expenses. The medical group also becomes a signatory to the promissory note. Other health care entities also have begun to offer PRAs to physicians. For example, an independent practice association in California recently entered into a PRA with a gastroenterologist.
Keep in mind that the promissory note executed by the physician may affect the credit of the physician, especially if he/she wants to obtain financing for a home purchase. Also, a hospital may seek security for the performance of the promissory note by collateralizing the personal assets of the physician instead of just his/her practice assets; this should be avoided.
The other type of income guarantee is provided to hospital-based physicians such as pathologists, radiologists, anesthesiologists, etc. Under this type of guarantee, a hospital ensures that the physicians receive a minimum threshold of collections. This type of guarantee may be necessary to attract hospital-based physicians to a hospital which has a low-income and/or Medicaid population. This is not a typical scenario for a gastroenterologist.
Some practices create incentives for physicians by offering a variety of bonuses. Most often these bonuses are production based but sometimes they are based on such quality issues as patient satisfaction. The most common types of production bonuses are based on attaining a level of collections above a dollar threshold or exceeding a minimum level of relative value units (RVUs).
To summarize, new physicians should always try to get at least a 2-year income guarantee. They should never allow an employer to allocate overhead to them during the first 2 years of employment. In addition, they should always try to negotiate realistic production-based bonuses.
Benefits
Fringe benefits are an integral part of a compensation package for a new physician. Most physician employers offer a generous package of health insurance, retirement, reimbursable expenses, and paid time off. These benefits should be clearly delineated in the employment agreement or employee handbook. A very common question about health benefits is when they become effective (the first day of employment, 30 days after employment, the first of the month after employment, etc.). This is significant because Consolidated Omnibus Budget Reconciliation Act (COBRA) is quite expensive. Another issue is whether health insurance also will cover the physician’s spouse and dependents. Most physician employers cover only the physician, not his/her spouse and dependents. If a new physician has a spouse who already provides family health benefits, it may behoove the physician to negotiate an allowance in lieu of health benefits.
Paid time off of 10-20 days are commonly given by physician employers to new physicians. Some employers also provide 5 or more additional days of paid time off for Continuing Medical Education (CME). Of course, once a physician goes onto production-based compensation, paid time off usually is not provided.
It is very important that a physician employer offer a retirement plan. Oftentimes, there is a matching contribution by the employer. However, it is not uncommon for there to be a year waiting period for eligibility in the retirement plan. Retirement plans vary significantly so it is advisable for a new physician to meet with the employer’s human resources department to get the details of the plan offered; the physician may want to confer with a financial advisor after obtaining this information.
Most physician employers reimburse licensing and DEA fees, medical staff dues, and board certification expenses. There is often a CME allowance as well. In competitive markets, some physician employers also offer innovative benefits such as student loan repayment programs, fellowship and residency stipends, and forgivable loans for housing. Sometimes these benefits are not included in the employment agreement; you may have to ask for them.
Indemnification/noncompetition
In addition to compensation and benefits, there are several other issues which are commonly found in employment agreements. Perhaps the most controversial is the issue of indemnification. The legal concept of indemnity allows a physician employer to recover damages and defense costs from a physician employee in certain circumstances. For example, if a physician employer has a $1,000,000/$3,000,000 malpractice policy covering itself and each of its physician employees, and if a physician commits malpractice and the award is $2,000,000, the employer may seek to recover the $1,000,000 deficit from the physician. In California, for example, the physician employer would be prohibited from seeking the deficit from the physician employee, but in most states, it is permitted. Because insurance policies usually do not cover physicians for damages, expenses, costs, etc as a result of an indemnification action, there is no practical way for a physician to protect himself/herself from the consequences. It is very important that physicians not sign any type of agreement with an indemnification clause in it without consulting an attorney first.
Another controversial issue is noncompete restrictions. In many states, a physician employer can restrict a physician employee from competing with it after an employment agreement is terminated. The noncompete prohibitions usually last for 1-2 years and extend over a geographic area, which often causes a terminated physician to relocate. Importantly, noncompete clauses are generally enforceable in most states.
Tail coverage
Malpractice tail coverage often can be an issue as well. For many years, physician employers routinely paid the cost of tail coverage for a physician employee after termination of employment. Tail coverage is necessary because most malpractice policies are claims-made insurance instead of occurrence insurance. This means that the insurance is applicable when a claim is filed versus when a malpractice act or omission occurred. Because of the significant cost of tail coverage, many physician employers attempt to transfer this financial responsibility to physician employees. Depending on a physician’s specialty, tail coverage can be quite costly. Consequently, it behooves physicians to carefully negotiate this issue. If a physician employer is unwilling to provide tail coverage, a compromise may be proposed whereby the physician employee is responsible only for the cost of tail coverage if he/she terminates the employment agreement without cause or if the physician employer terminates the employment agreement for cause. Conversely, the physician employer would be responsible for the cost if the physician employer terminates the employment agreement without cause or the physician employee terminates the employment agreement for cause.
Equity accrual
Finally, new physicians always should ask whether there is an opportunity to obtain equity in the organizations that hire them. Many for-profit physician employers provide such an opportunity to new physicians after 2-3 years. However, timing is just one factor. Importantly, the cost of the buy-in is critical especially to new physicians with student loans. Recognizing this problem, the trend today is for physician employers to have nominal buy-ins. Notwithstanding this trend, some physician employers also own ambulatory surgery centers and the buy-ins for these entities must be at fair market value and cannot be financed by the center or its owners under the law. Consequently, the buy-in for ambulatory surgery centers is usually substantial and requires a physician to obtain outside financing.
In conclusion, when evaluating the viability of a physician employment opportunity, salary should be only one factor considered. Fringe benefits, the opportunity for equity, and the fairness of the employment agreement also should be weighed heavily by a physician. It is important for a physician to be comfortable with his/her peers and work environment. Selecting the right job opportunity can be challenging. However, the process will be much easier if you remember the basic principles of negotiating.
You have finally completed your residency or fellowship, and now you have a job offer. With some trepidation, you decide to read the employment agreement that has been emailed to you. You quickly realize that you do not understand much of it. All those legal terms! You lament the fact that medical school never taught you about the business of medicine. What are you going to do? The choices are actually quite simple: You can take the time to educate yourself or you can hire an expert. This article will review some of the basic principles of negotiating as well as some of the critical issues found in physician employment agreements today.
Whether you represent yourself or hire someone to do it for you, it is important to understand some of the basic principles of negotiating. These principles generally are applicable whether you are buying a house or negotiating your employment agreement.
Negotiations
The most important principle is preparation. For example, many physicians negotiate their salaries during the interview process. Consequently, it is imperative that, before you negotiate your compensation, you know the range of salaries in your area for your specialty. It is also important to know whether salaries are usually guaranteed in your market, or whether production-based salaries (which are based on the amount of your billings) are the norm. Never go into an interview unprepared!
Always try to gain leverage in your negotiations. The easiest way to accomplish this is by having multiple offers, and subtly letting your suitors know this. Allow adequate time to negotiate; the more time you have, the easier it is to negotiate. Establish your objectives and try to anticipate the objectives of the other party. Determine your best-case and worse-case scenarios, as well as the most likely outcome. Do not negotiate against yourself and try to get something every time you give something. Define the nonnegotiable issues, and do not waste time on them. Keep cool and be flexible.
The first question you must answer when you receive an employment agreement is who is going to negotiate it. Many new physicians hire attorneys to help them with their employment agreements and employers expect as much. It is best to engage an attorney before you begin your job search so you can get a better understanding of how the attorney can help you. Most attorneys do not charge a prospective client for such information. However, many physicians wait until they actually receive an offer before contacting an attorney. It is not uncommon for physicians to negotiate their salaries during job interviews even if they eventually hire an attorney to help them. This is usually attributable to a lack of negotiating experience and an eagerness to determine whether a job offer is viable. Keep in mind that an attorney often can negotiate a better starting salary than you, so try to resist the temptation to negotiate your salary during the interview process.
Compensation
With compensation in mind, what are some of the important issues? Today, many physician employers are converting to production-based compensation models. Consequently, it is important for new physicians to obtain guaranteed base salaries during their first few years of employment while they are building their practices.
On occasion, new physicians initially are offered production-based compensation models, which also allocate a share of practice overhead expenses to them. This is a very dangerous compensation model for a new physician. Under such a model, it is possible that a new physician could have a negative balance in his/her cost center at the end of the year, and actually owe his/her employer money.
Some physicians may be offered income guarantees by hospitals. There are several different types of income guarantees but they are frequently categorized together even though they differ significantly. The most common income guarantees offered to physicians are physician recruitment agreements (PRAs). Under a PRA, a hospital usually guarantees that a physician who relocates to the service area of the hospital collects a minimum amount of monthly revenue for 1-2 years, which is known as the guarantee period. The hospital also guarantees to pay certain monthly expenses of the physician during the guarantee period. This arrangement is actually structured as a loan by the hospital to the physician, and requires the physician to execute a promissory note with the hospital for the amounts advanced to the physician by the hospital. The promissory note is forgiven if the physician continues to practice in the service area for 2-3 years after the guarantee period. This type of guarantee provides an excellent opportunity for a new physician to establish a solo practice. A variation of this model involves a third party such as a medical group. Under this model, the hospital continues to guarantee the revenue of the new physician and pays the medical group the expenses it incurs as a result of hiring the new physician. These expenses are known as incremental practice expenses. The medical group also becomes a signatory to the promissory note. Other health care entities also have begun to offer PRAs to physicians. For example, an independent practice association in California recently entered into a PRA with a gastroenterologist.
Keep in mind that the promissory note executed by the physician may affect the credit of the physician, especially if he/she wants to obtain financing for a home purchase. Also, a hospital may seek security for the performance of the promissory note by collateralizing the personal assets of the physician instead of just his/her practice assets; this should be avoided.
The other type of income guarantee is provided to hospital-based physicians such as pathologists, radiologists, anesthesiologists, etc. Under this type of guarantee, a hospital ensures that the physicians receive a minimum threshold of collections. This type of guarantee may be necessary to attract hospital-based physicians to a hospital which has a low-income and/or Medicaid population. This is not a typical scenario for a gastroenterologist.
Some practices create incentives for physicians by offering a variety of bonuses. Most often these bonuses are production based but sometimes they are based on such quality issues as patient satisfaction. The most common types of production bonuses are based on attaining a level of collections above a dollar threshold or exceeding a minimum level of relative value units (RVUs).
To summarize, new physicians should always try to get at least a 2-year income guarantee. They should never allow an employer to allocate overhead to them during the first 2 years of employment. In addition, they should always try to negotiate realistic production-based bonuses.
Benefits
Fringe benefits are an integral part of a compensation package for a new physician. Most physician employers offer a generous package of health insurance, retirement, reimbursable expenses, and paid time off. These benefits should be clearly delineated in the employment agreement or employee handbook. A very common question about health benefits is when they become effective (the first day of employment, 30 days after employment, the first of the month after employment, etc.). This is significant because Consolidated Omnibus Budget Reconciliation Act (COBRA) is quite expensive. Another issue is whether health insurance also will cover the physician’s spouse and dependents. Most physician employers cover only the physician, not his/her spouse and dependents. If a new physician has a spouse who already provides family health benefits, it may behoove the physician to negotiate an allowance in lieu of health benefits.
Paid time off of 10-20 days are commonly given by physician employers to new physicians. Some employers also provide 5 or more additional days of paid time off for Continuing Medical Education (CME). Of course, once a physician goes onto production-based compensation, paid time off usually is not provided.
It is very important that a physician employer offer a retirement plan. Oftentimes, there is a matching contribution by the employer. However, it is not uncommon for there to be a year waiting period for eligibility in the retirement plan. Retirement plans vary significantly so it is advisable for a new physician to meet with the employer’s human resources department to get the details of the plan offered; the physician may want to confer with a financial advisor after obtaining this information.
Most physician employers reimburse licensing and DEA fees, medical staff dues, and board certification expenses. There is often a CME allowance as well. In competitive markets, some physician employers also offer innovative benefits such as student loan repayment programs, fellowship and residency stipends, and forgivable loans for housing. Sometimes these benefits are not included in the employment agreement; you may have to ask for them.
Indemnification/noncompetition
In addition to compensation and benefits, there are several other issues which are commonly found in employment agreements. Perhaps the most controversial is the issue of indemnification. The legal concept of indemnity allows a physician employer to recover damages and defense costs from a physician employee in certain circumstances. For example, if a physician employer has a $1,000,000/$3,000,000 malpractice policy covering itself and each of its physician employees, and if a physician commits malpractice and the award is $2,000,000, the employer may seek to recover the $1,000,000 deficit from the physician. In California, for example, the physician employer would be prohibited from seeking the deficit from the physician employee, but in most states, it is permitted. Because insurance policies usually do not cover physicians for damages, expenses, costs, etc as a result of an indemnification action, there is no practical way for a physician to protect himself/herself from the consequences. It is very important that physicians not sign any type of agreement with an indemnification clause in it without consulting an attorney first.
Another controversial issue is noncompete restrictions. In many states, a physician employer can restrict a physician employee from competing with it after an employment agreement is terminated. The noncompete prohibitions usually last for 1-2 years and extend over a geographic area, which often causes a terminated physician to relocate. Importantly, noncompete clauses are generally enforceable in most states.
Tail coverage
Malpractice tail coverage often can be an issue as well. For many years, physician employers routinely paid the cost of tail coverage for a physician employee after termination of employment. Tail coverage is necessary because most malpractice policies are claims-made insurance instead of occurrence insurance. This means that the insurance is applicable when a claim is filed versus when a malpractice act or omission occurred. Because of the significant cost of tail coverage, many physician employers attempt to transfer this financial responsibility to physician employees. Depending on a physician’s specialty, tail coverage can be quite costly. Consequently, it behooves physicians to carefully negotiate this issue. If a physician employer is unwilling to provide tail coverage, a compromise may be proposed whereby the physician employee is responsible only for the cost of tail coverage if he/she terminates the employment agreement without cause or if the physician employer terminates the employment agreement for cause. Conversely, the physician employer would be responsible for the cost if the physician employer terminates the employment agreement without cause or the physician employee terminates the employment agreement for cause.
Equity accrual
Finally, new physicians always should ask whether there is an opportunity to obtain equity in the organizations that hire them. Many for-profit physician employers provide such an opportunity to new physicians after 2-3 years. However, timing is just one factor. Importantly, the cost of the buy-in is critical especially to new physicians with student loans. Recognizing this problem, the trend today is for physician employers to have nominal buy-ins. Notwithstanding this trend, some physician employers also own ambulatory surgery centers and the buy-ins for these entities must be at fair market value and cannot be financed by the center or its owners under the law. Consequently, the buy-in for ambulatory surgery centers is usually substantial and requires a physician to obtain outside financing.
In conclusion, when evaluating the viability of a physician employment opportunity, salary should be only one factor considered. Fringe benefits, the opportunity for equity, and the fairness of the employment agreement also should be weighed heavily by a physician. It is important for a physician to be comfortable with his/her peers and work environment. Selecting the right job opportunity can be challenging. However, the process will be much easier if you remember the basic principles of negotiating.