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Pay issues to consider befire signing a contract

Some advice and warnings for residents searching for their first job in today's competitive market

From the April 1997 ACP Observer, copyright 1997 by the American College of Physicians.

By Jennifer Fisher Wilson

When Eric A. Weber, ACP Associate, was offered a job last year with a seven-internist practice in Hyannis, Mass., he felt ready to accept it. He had gone on nearly 15 interviews and been offered several other positions, and he was certain that the Cape Cod practice was right for him.

But before signing the contract, Dr. Weber had a lawyer review it and go over all its pay provisions. Looking back, he is glad that he had the contract reviewed professionally. "Medicine is more business than medicine," he said.

Dr. Weber feels that having a lawyer review his contract was such a good idea that he plans to hire a professional when his one-year contract comes up for renegotiation. While his current contract allows him to earn a bonus, he is afraid that he won't qualify for it under the provisions of his current contract and hopes to renegotiate the terms.

Other residents who face a widening range of job and pay options share his concerns. The payment provisions of employment contracts are more complicated than ever. But training programs provide little guidance, and many new physicians say they have little idea of what to expect in an employment contract. That's why experts suggest carefully examining a contract's pay provisions before you sign on the dotted line.

The particulars of how you get paid can make the difference between a job you love and a job that simply pays the bills. Gregory Solomon, ACP Associate, for example, was concerned that he would have to leave Montefiore Medical Center in the Bronx after his pay was cut during his first year of employment. But after rounds of sending out his resume and interviewing at internal medicine practices and medical centers throughout the city, he could not find the same teaching opportunities he had at Montefiore—or a guaranteed salary. Ultimately, he chose to remain at Montefiore, but only after he renegotiated his contract. Now he teaches half time and works in the hospital faculty practice the rest of the time. His income is more stable since only half—not all—of his salary is based on how much federal funding the hospital receives; the rest of his income comes from seeing paying patients.

Unlike Dr. Solomon, most physicians start their careers in private practice. In the past, typical contracts allowed new physicians joining an established practice to eventually buy their way into the practice, typically by applying part of their annual income into the practice until they earned their way to partnership.

While partnership options are still offered in many physician contracts, they are becoming less popular. Experts note, however, that such options may not be best for new physicians because partnership can be risky in today's tenuous health care marketplace.

As Dr. Solomon said, "You might join a practice with the promise that you'll be a partner in five years, and as soon as you sign the contract, you'll find out that it has been bought by a hospital, or another practice, or by Aetna, and boom, you're never going to be a partner." In such cases, physicians who opted for equity in a practice instead of additional income become reluctant—and often powerless—employees of the purchasing health plan or hospital.

Salaries and bonuses

With the move away from partnership comes an increase in the number of physicians working as employees—and changes in the way physicians are paid. Just six years ago, only 15% of physicians were salaried; by 1996, more than 60% of all positions offered to physicians provided either a straight salary or salary with a bonus, according to a survey by Merritt, Hawkins & Associates, a physician search firm. Traditional salary guarantees—where physicians are paid based on the revenue they generate but receive a minimum salary— are included in only about a third of new contracts, compared to 85% five years ago.

But because straight salary positions provide few incentives for physicians to practice more efficiently, many employers are implementing compensation packages based on a salary plus a bonus, said Mark Smith, vice president of recruiting at Merritt, Hawkins and Associates. "Almost all practices are in the process of or have just reconsidered their compensation plans. 'What can we do to stay competitive?' is often the question."

Bonuses—which can amount to 25% of annual pay—are typically based on quality indicators and withholds based on utilization of services. Quality indicators are based on patient satisfaction surveys, appointment schedules, charts and the number of patients seen. Physicians may also be rewarded for on-call duty and continuing medical education credits.

Utilization reviews reward physicians who, for example, order fewer tests and perform fewer procedures. Typically, a percentage of physicians' income is put into a risk pool or withhold and returned only if doctors use the amount of resources—such as diagnostic tests and drugs—deemed appropriate by the group practice or health plan.

But residents need to be wary of contracts that reward physicians for withholding patient care, said David Nash, FACP, director of health policy and clinical outcomes at Philadelphia's Thomas Jefferson University. "You need to make sure that you are not put in a position where the less you do, the more money you will make," he said.

In fact, say experts on pay, residents should determine exactly how they can earn a bonus. "Find out how many of the components going into it you can control and what depends on the performance of the whole practice," said Mr. Smith from Merritt, Hawkins & Associates. "If the bonus is based on profits from the overall group and you're in a 25-doctor group, you have less control over your bonus." To be sure you understand how the bonus structure works, Mr. Smith recommended asking someone in the practice to provide an analysis of the bonus structure showing what you would have to do to earn a bonus in your first and second year.

In addition, residents need to make sure that pay incentives in a contract will work in the local practice environment. "In markets where there is capitation, you don't want to be compensated based on productivity," warned Brian J. Smith, a health care partner at Arthur Anderson. As a rule of thumb, he explained, in a practice where physicians accept risk-based payments like capitation for the majority of patients, physician income should be about 75% straight salary and about 25% bonus-based. Another rule of thumb: Any practice where more than 30% of patients come from at-risk managed care plans should not base compensation for its physicians entirely on productivity.

No-compete clauses

Besides money issues, there are other contractual issues you should note. The no-compete clause, also known as a restrictive covenant, is very common, according to Dr. Solomon, who came across it frequently in his job search. The clause prohibits physicians under contract from practicing in the area for anyone else, even after leaving the practice. While practices are protected, physicians who leave such a contract can face serious career damage if they plan to remain in the community.

A contract without a restrictive covenant clause may have other components that are just as restrictive, according to Dr. Solomon. One clause forces physicians who leave a practice to resign their hospital admitting privileges. "If you leave your job with a practice, you'll be forced to resign the admitting privilege that you got through that job," Dr. Solomon said. A second type of clause forces a physician who breaks a contract to give up all the managed care contracts acquired through that job. And a third technique known as an anti-solicitation clause prevents physicians—once they leave—from pursuing managed care contracts with any health plans the practice contracts with. "All three [clauses] working together make it very difficult to get work should you leave your practice," Dr. Solomon said.

What are your options when dealing with no-compete clauses? If you find a position you want and the contract includes a no-compete clause, you can simply hope that you'll never have to break the contract. You can also negotiate, although you may have to agree to take a lower salary in order to change the restrictive covenant, said Dr. Solomon.

Negotiate

In any event, physicians and health care consultants emphasize that everything is potentially negotiable. While full benefits and malpractice coverage are standard, for example, physicians can negotiate for other perks. Mr. Smith from Merritt, Hawkins and Associates recommended requesting loan repayment in exchange for a lower salary, an option that is often used in rural areas to attract young physicians. Other possible perks include signing bonuses, moving expenses or continuing medical education expenses.

Residents should not be afraid to negotiate, according Warren H. Wallace, ACP Member, internal medicine residency program director at Northwestern University Medical School. "You're going to be a partner with the physicians in this practice," he said, "so it's important to be able to communicate your needs."

Finally, the experts say, follow Dr. Weber's example and hire a lawyer who specializes in health care before signing anything. Don't worry too much about legal costs; employment contracts are complicated, binding legal documents that should not be taken lightly. Don't assume that just because you have a good relationship with a practice that the contract is fair.

According to Dr. Solomon, who has started teaching a course on career choices for physicians, "Far too many doctors make the potentially catastrophic mistake of not using a lawyer during the job evaluation process.


Beyond dollars: eight tips to finding your first job

While the details of how you're paid are important, finding the right job—one that you'll stay in for more than a year—involves more than just pay. Experts say that residents should also consider the following factors when looking for that first job:

  • Have a plan. Before you even begin looking for a job, decide how many hours you want to work, the kind of patients you want to treat, how much responsibility you want to take on and the geographic location you and your family find acceptable. "The most important thing for residents is to do some introspection. Otherwise they become bewildered by the range of opportunities out there and paralyzed by the anxiety of trying to pick the 'best' job," said Warren H. Wallace, ACP Member, internal medicine program director at Northwestern University Medical School.
  • Start the job search early. Residency directors typically instruct their residents to start by the first half of their final year of training. According to Robert R. Corrato, ACP Associate, "Residents should look for a job with the same kind of seriousness as they study for an exam." Having watched his internal medicine residency peers go through the process last year, he saw that it's a task many residents underestimated. Without enough preparation, he said, residents may feel compelled to take the first job offered, and miss out on other opportunities because they never took the time to explore them.
  • Consider the structure of the practice. Will it allow you to build up a solid base of patients? Do the practice's partners appear interested in treating you as an equal? Do you feel like you fit in? Will it allow upward mobility? Negative answers to any of these questions should warn a resident that the practice is not a good fit, said Edward C. Lynch, FACP, director of the residency program in internal medicine at Baylor College of Medicine. "The whole issue of practice relationships within a group is very important to whether the position works out," Dr. Lynch said.
  • Ask about the future. Many group and solo practices are currently in flux due to pressure to merge with other practices or sell to a managed care organization. Ask a practice if it has plans to merge in the future.
  • Explore ownership issues. In practices that have already fallen under the ownership of a managed care organization, the practice is often at the mercy of the organization, said David B. Nash, FACP, MBA, director of health policy and clinical outcomes at Philadelphia's Thomas Jefferson University. "Residents have to recognize that their success will depend on the success or failure of the group they join. This is complicated and cannot always be determined in advance," Dr. Nash said.
  • Talk it out. Talk to other physicians in the community, to hospital administrators who work with the group, to local health care consultants and to the recruiter, if there is one, to get a feel for the practice's reputation. No matter how good a practice seems, "residents should have some skepticism," Dr. Nash said. Try talking in private with the most recently hired physician in the practice. This doctor is most likely to give an honest appraisal of the practice and possible insight on what to expect from the practice.
  • Look at the books. A practice's records may reveal details that cannot be gleaned from conversations. The practice should be comfortable showing records of its income over the past three years.
  • Ask about past doctors. The practices you're considering should also be comfortable if you ask to contact any physicians who left the practice in the past few years to find out why. Any physician who has left the practice offers residents key insight, Dr. Warren said, but the source should be evaluated cautiously, too. "Find out why it wasn't a good fit," he said.

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