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Look carefully before you sign that first contract

Before committing, residents should scrutinize pay, non-compete clauses and partnership options

From the December ACP-ASIM Observer, copyright © 2001 by the American College of Physicians-American Society of Internal Medicine.

By Christine Kuehn Kelly

Red flags in the contract process
Need contract help?

You felt a rapport with the partners, the practice seemed well-run, and your family loved the new city. So when the practice handed you a contract, you were ready to sign on the dotted line.

Not so fast. "Time and again, residents don't read contracts before they sign," said Lee J. Dunn Jr., JD, a Boston health care attorney. "Yet you never have as much power as when you walk in the door. That's the time to make changes." Experts say that failing to scrutinize the terms of a contract can lead to nasty surprises that range from a hefty partnership buy-in to excessive call duty. Accepting a job offer too quickly can also mean you may soon be polishing up your resume again. Unclear expectations by job-seekers account for half of all job changes doctors make, pointed out Donald Lloyd, president of The Starlight Group, a health care consulting firm in Monroe, Ga.

Fortunately, many points of a contract are open to negotiation, particularly when a practice is wooing you. "If something isn't equitable in the contract," Look Carefullysaid Gregory A. Hood, FACP, a general internist who recently switched jobs and joined a group practice in Lexington, Ky., "the practice probably didn't think it through" and may be willing to change its position.

Here are some areas experts suggest you examine during the interview process—and as you review the contract with your attorney.

Sizing up your paycheck

After years of living paycheck to paycheck, any offer that triples your current pay is bound to look good. Compensation for physicians is particularly complicated, however, so experts say you need to slow down and ask some pointed questions.

For example, how will the practice structure your income initially, and what salary can you realistically expect in three years? Most practices pay their physicians using one of three methods: guaranteed salary, production or a combination of the two. While physicians who work for large institutions like HMOs or academic medical centers are most likely to be paid a straight salary, most other physicians will earn at least part of their pay based on the services they perform.

  • Straight production. If you will be paid based on production, ask about the practice's ratio of capitated vs. fee-for-service patients, how you will be compensated for the time you spend on hospital visits, and whether you will be performing higher-paying procedures or referring them to another physician in the practice.

    Remember that your patient panel will affect your ability to pay your share of the overhead. If 95% of your patients will come from HMOs, you shouldn't be expected to pay the same amount of overhead as senior partners treating patients from better-paying fee-for-service and indemnity plans.

    Because most new physicians are not expected to be fully productive for at least a year, practices will typically guarantee your salary and lower your overhead to start. If you have a nurse working with you, however, you will likely be expected to bring in enough revenue to cover at least her salary and benefits.


  • Production and salary. According to salary surveys by The Health Care Group, a physician practice management firm in Plymouth Meeting, Pa., 64.3% of physicians were compensated using a formula of salary plus production bonus. Under these arrangements, income can be tied to quality indicators including patient satisfaction scores, utilization reviews, productivity and practice management contributions. Practices also might take a percentage of physician pay, put the money into a pool and distribute it based on each physician's efficiency.

    Because your first year's compensation can be structured in several ways, experts suggest consulting with an accountant to help decide which method is best for you. For example, you could be offered an income guarantee for a year or two until you build a patient base. As soon as your collections exceed the guarantee, you receive a portion of the excess.

Looking beyond pay

Although compensation may be the first thing on your mind, experts say that other issues are just as important. Here are a few key issues to discuss:

  • Partnership. Although most contracts won't specifically offer you partnership, they should specify when a new doctor will be considered for an equity position (typically after one to three years). Contracts should also describe how the practice will determine a buy-in price.

    Partnership buy-ins are typically structured in a number of ways. New partners commonly fork over a portion of annual compensation or buy a percentage of the existing partners' assets. Alternately, some buy-in deals involve a "low/no-pay" option, in which you build sweat equity by working as an employee. But beware: Experts say that sweat equity arrangements should last no more than two years.


  • Benefits. While 96% of all practices provided paid vacation time and 93% provided health insurance in 2001, far fewer covered hospital staff fees (76%) or provided disability insurance (54%), according to surveys by The Health Care Group.

    Experts suggest looking for benefits that go beyond traditional health coverage and malpractice insurance. Extended benefits can include professional memberships and life insurance. These add-ons can put an additional $20,000 to $30,000 in your pocket.


  • Ancillary staff and logistics. What labs and radiology services does the practice use? Will nurses or physician assistants be available to you? What kind of an office will you have? These factors can affect your work environment—and your revenue.

Leaving the practice

Though the honeymoon hasn't even begun, you should discuss separation before you enter a working relationship. Ask about the terms for leaving the practice or employer.

For example, will you be allowed to take patient records with you? Will you be able to notify your patients of your departure? If you will be working for an institution and it goes through a merger or closes, your contract might allow the organization to assign employees' contracts to another hospital. If this is the case, negotiate an expiration clause in your contract.

Most contracts will allow the practice to terminate you either "with cause" or "without cause." "With-cause" terminations typically result from significant breaches of professional behavior such as criminal activity. "Without cause," on the other hand, is much more ambiguous and doesn't require employers to name any particular reason for firing you.

To protect yourself from a hasty termination, ask for a clearly defined notice period in the contract. This will give you an opportunity to find another job-or modify behavior that caused the termination. If a practice pays you based on productivity, make sure the contract states that after you leave, you will be paid all the income you generated while employed.

During any gaps in employment, you'll need adequate insurance coverage. Liability insurance covers you while you are with a practice, but it stops when you leave that group. A "tail policy" will provide coverage for incidents that occur before you leave but are not litigated until months or years later.

Most contracts today include noncompete clauses that restrict the geographic area in which you can practice after you leave. The good news is that courts do not universally enforce the clauses. California and Massachusetts, for example, do not enforce noncompete clauses.

Courts don't generally enforce clauses that are too expansive (language that prohibits you from practicing within 10 miles in a rural area or one mile in an urban environment) or are detrimental to a community. James Wall, an attorney with Bell, Davis and Pitt P.A. in Winston-Salem, N.C., said that a court might determine that the public needs another specialist in a rural area.

While the law may eventually be on your side, most lawyers say you should try to change or eliminate noncompete clauses before you sign on the dotted line. Even if you successfully fight a noncompete clause, they point out, you still have to pay huge court costs. Even worse, you could earn a reputation for being litigious.

While practices are unlikely to remove the clause altogether, you may be able to negotiate a six-month grace period that would let you to leave the practice without penalty during that time. Institutional employers often have a probationary period and may permit the grace period.

You may also be able to change the contract language to restrict you from competitive practice only if you—not the employer—decide to terminate the relationship. Alternately, the contract could stipulate which competing physician groups or hospitals you may not join.

Final negotiations

When you're examining the terms of a contract, experts say it's critical to retain legal counsel familiar with medical contract law. Attorneys point out that promises are not binding unless they are in the contract.

To find the right person, get recommendations from your attendings, local lawyers, medical societies and College chapters. Expect to pay $500 to $1,000 for legal help, depending on the length of the contract.

When you finally decide to accept an offer, take some time to negotiate a few last key points. "We recommend you focus on just one or two areas that are important to you, such as vacation," said Stephen Thomas, western region vice president for the physician staffing firm Merritt, Hawkins & Associates. You can then tell the practice that as long as the requested changes are made, you're ready to commit.

Once negotiations are complete, you'll have a document you and the practice can use as a template for a successful relationship. "That's the best kind of contract," Mr. Thomas said, "one you can put in the filing cabinet and forget about."

Christine Kuehn Kelly is a Philadelphia-based freelance writer specializing in health care.

Red flags in the contract process

  • Subjective contract language such as "reasonable call" and "behavior not in the best interests of the practice."
  • Pressure to sign today or without advice of counsel because "our doctors always sign this standard contract."
  • An excessively long partnership track.
  • Refusal to provide access to current and former staff physicians.

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Need contract help?

The College's "Physician Employment Contracts" guide provides information including how to find the right practice and negotiate contracts. A copy is available to members at www.acponline.org/pmc/employment_contracts.htm. Also available is the College's "Practice Data on Working Hours, Patient Visits and Income," online at www.acponline.org/counseling/pracdata.htm.

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