Physician Contract Negotiation Tips
By Bishoy Gad MD, MS, MBA
After spending the 4 years in medical school, and then additional time in residency and often fellowships, most trainees feel appropriately trained to practice medicine. The challenge is that very little time in a resident’s education is devoted to some of the most important aspects of this profession; finding a job that is the best fit and developing the foundation for a strong practice for the future.
In some specialties, 70-80% of newly hired physicians change jobs within their first two years of practice. The majority of mentors to young physicians are academics who have not changed jobs for many years. However, a large portion of physicians in the United States are in private practice
There are a variety of practice models available for potential employment opportunities. They can essentially be broken down into three major groups: private practice, hospital employment, and academic medicine. There are other practice types and hybrids of these types, but for simplicity we will discuss these major practice types.
There are a variety of ways to be in private practice; either as a solo practitioner, a member of a single specialty group or a member of a multispecialty group. Solo practitioners essentially function on their own and manage their own billing and collections. These physicians must have a good understanding of their market, ancillary sources of income, staffing, and efficiency to survive. A single specialty group is typically a group of specialists who may hire adjuncts that complement their practice. There are many benefits of being a member of these groups. There are economies of scale, increased leverage in dealing with hospitals and insurance companies, and can be powerful academically. Being a member of a single specialty group gives the physician an opportunity to make additional income from ancillary sources such as imaging, durable medical equipment, ownership of a surgery center, ownership of physical or occupational therapy, and so on. Typically there is equity involved and the shares should be purchased if the practitioner is interested in partnership and ancillary sources of income. Purchasing of equity is commonly known as a buy in. The buy in can often be multifaceted depending on what assets are purchased.
Multispecialty groups are typically larger groups comprised of general practitioners such as family medicine doctors and internal medicine doctors. These groups often will hire specialists to capture some patients that are being referred out of the group for common services. There may or may not be equity involved in employment. Often there are also ancillary sources of income, however these sources are divided among a larger number of individuals. Being a member of such a group does have benefits for specialists including an automatic referral base that will assist in starting a practice.
Many private practice groups will offer a stipend for the first few years of practice until the physician is able to sustain himself or herself on the revenue produced by their practice. Some groups offer this as a stipend payment, and others will offer it as a loan. It is imperative to understand the basics of finance and how these particular practices collect in order to avoid unnecessary losses. This includes having discussions with the practice manager and/or collection agents and the group prior to joining. The benefit of this practice type is the high income potential as the practice develops, in addition to being able to use the practice and many practice related purchases as business expenses- such as a car, cell phone, computer, and educational expenses.
The second major type of practice is hospital employment. Typically, but not always, a new physician is given a salary and potentially a bonus. Given that hospitals are often non-profit or not-for-profit organizations, they are required to see a certain amount of patients who are either uninsured or cannot pay. Often physicians who work in this setting are measured by work relative value units (wRVUs). Medicare assigns wRVUs they will give credit per office visit, hospital visit or procedure. For example in 2015 the number of wRVUs for a level 4 new patient outpatient encounter was 3.17. Typically physicians are paid a multiple of the number of wRVUs they produce. That multiple is typically determined contractually and usually varies by specialty. Often, a set number of wRVUs is expected to be hit by the physician annually. After this threshold is hit, the physician, depending on the structure of his or her contract, may be eligible for a bonus based on production. A recent Merritt Hawkins survey found that 74% of physician search assignments offered a bonus with 52% of those being based on wRVUs. The benefit of this practice type is that the doctor is not responsible for managing overhead and other employees. Typically these jobs will pay more than private practice stipends will initially. However, long term these jobs from an income standpoint typically will not pay as much as practice jobs because there is no access to ancillary income. In addition, be aware of the leadership of these hospital systems. Nine of the top 10 most economically efficient and clinically effective hospital systems were owned by physicians.
The third major practice type is that of an academic doctor. Many of these opportunities are functionally hospital-employed physicians, and while there may also be a threshold for production as in standard hospital employed positions, an emphasis on other metrics is often placed. For example, additional payment may be tied to education of medical students or residents. There may be additional compensation for academic tenure or productivity in research. The benefit of this type of work is often the flexibility of schedule in order to be able to engage in non-clinical activities.
There are still other practice types as well. Those include employment by a health maintenance organizations (HMOs), locum tenens positions, military employment, and administration. Of course there are a variety of practices that do not fit in these clean categories. Many single specialty surgery groups are large enough where they have affiliations with academic centers and do place value on education and research, but also have an interest in production as well as opportunities for obtaining ancillary income. It is important to have a very good understanding of what the practice goals are prior to joining the group.
There are two major types of malpractice insurance: claims-made and occurrence-made. Claims-made insurance is the less expensive form of insurance that many groups and practices may offer. Essentially, in order to be covered, the physician must carry the insurance policy both when the claim is made and when the event occurred. For example if a new internist works for a practice in the month of July and performs a lumbar puncture for meningitis, quits the job in August losing her claims-made insurance, and gets sued in September, she is not covered for that claim. At this point she is essentially putting her assets at risk. It would be prudent for the doctor to obtain additional insurance coverage where the prior claims-made insurance policy lapsed. This additional coverage is known as tail coverage. The cost of tail coverage often is 150% to 300% of the cost of an annual claims-made malpractice insurance policy and can be over $100,000 for some specialists. The new employer may also purchase nose coverage which covers incidents that occurred before the beginning of employment for which a claim has not yet been made.
Occurrence-made insurance is more expensive than claims-made insurance. Often, many larger systems will carry this insurance because they are self-insured. Occurrence-made insurance implies that if the physician carries this particular type of insurance at the time the event occurred regardless of when the claim is made the physician is covered by this insurance. Returning to the previous example the physician performs a lumbar puncture in July, leaves her job in August, and gets sued in September. She is covered by her prior employers’ malpractice insurance.
There are other considerations when evaluating malpractice. Some institutions have a policy of trying to remove named individuals in a lawsuit and essentially will have the lawsuit placed against the institution. This has obvious benefits, as lawsuits and settlements are reportable to the national provider database (NPDB). In addition, the state of practice has a large bearing on malpractice. States with tort reform often have lower malpractice rates than others. All these are important considerations when evaluating job opportunities.
It is important to be mindful of location when looking at employment opportunities. Planning on an exclusive colonoscopy practice in New York City is not a novel concept. Depending on the saturation of a region, the services of a subspecialty may be commoditized to a degree and will be reflected in a physician’s salary and benefits package.
Opportunities may be different in different areas of the country at different times. Retirements and relocations of other doctors as the particular skill set of the new physician may affect the availability of positions and potentially the quality of the contract that can be obtained. If there is a great need for a particular type of service in a particular area, compensation and benefits packages tend to be more lucrative.
Tips on negotiating
Probably the most important thing to realize is that if something is not explicitly written in the contract, it will not happen. The concept of a handshake or verbal promise does not hold the same weight it did in prior generations. The practice manager handling the contract negotiation may be fired the day after a new physician signs his or her contract, thereby nullifying any verbal promises made previously. Negotiating the terms of the contract can be extremely uncomfortable, especially if it is with people the prospective employee may view as a mentor. Hiring an attorney to review the contract or an intermediary/negotiator to help with the terms of a contract may be beneficial [8, 11]. It is critically important that the details of the contract and the details of the employment opportunity are outlined explicitly prior to signing any contract.
There are many definitions to value. From a compensation standpoint, a variety of sources report medians for a physician’s income. Some of those include the Medical Group Management Association (MGMA) the American Medical Group Association (AMGA), and many recruitment firms. For example, according to the compensation 2013 publication by the AMGA the median pay per wRVU for an internal medicine physician was $47.47. Depending on the practice type this number can vary. Practices that are based on collections are not necessarily concerned with wRVUs. Academic practices may offer payment based on academic appointments. Payment also varies by region as well as population density. More rural areas tend to offer larger salaries for hospital employed physicians due to their challenges with recruitment. However that does not mean that a physician cannot earn more being employed in a large city, It might just be more difficult to find. Even if a doctor finds a job that is willing to pay two million dollars per year, the terms of employment and the people the physician will work with are also of great importance.
Understanding value will give the physician confidence in his or her negotiation. It is important to have a plan on which terms of the contract are negotiable, and which terms are not. If an impasse is reached or the employer or partners are unwilling to negotiate on certain terms that are of critical importance, an option may be to politely walk away.
Partnership and employee morale
Discussion of contracts, compensation, and markets are important, but an item that should not be neglected is the overall picture of the practice and the relationship between partners and/or fellow employees at a workplace. Everyone has different tolerances for different types of environments. Some thrive in very high stress, high pressure environments, and find it thrilling. Others thrive in more relaxed environments. It is important that the physician understands himself or herself in order to select the proper practice that fits their personality well. It is important to talk to and meet as many people as possible to determine the overall morale of a practice or employment opportunity.
The search for employment is one of the few times a surgeon may yield significant power. It is important to be thorough in an employment search and honest about expectations of specific contract terms. The contract negotiation period is the time that will determine the foundation of the future practice. Understanding the basics of business and contracts is critical to creating a job opportunity that is right for you.
The intention of this article is not to be a step-by-step guide on how to find the right job. However it is an introduction to basic concepts that will assist in making a more informed decision. This article is not a substitute for a mediator or an individual experienced at reading terms in a contract and also no substitute for an attorney reviewing the language of the contract.
Bishoy Gad, MD, MS, MBA is a board-eligible Orthopaedic Surgeon currently at New England Baptist Hospital for an adult reconstruction fellowship who trained at the Cleveland Clinic for residency. He has a special interest in healthcare process and delivery improvement. He currently serves as the chair of the practice management committee for the American Academy of Orthopaedic Surgeons' Resident Assembly.
1. Dyrda, L. 25 Key Concepts for Young Orthopedic & Spine Surgeons to Build a Successful Practice. 2012; Available from: http://www.beckersspine.com/spine/item/11832-25-key-concepts-for-young-orthopedic-spine-surgeons-to-build-a-successful-practice.html.
2. Orthopaedic Practice in the US 2014, in AAOS, A.D.o.R.a.S. Affairs, Editor. 2015: Chicago.
3. Soyer, A. The solo practice: Strategies for success. AAOS Now, 2010.
4. Collon, D. Super Groups: Are They the Future of Private Practice? AAOS Now, 2013.
5. Coberly, S. Relative Value Units. 2015.
6. RVU BASED PHYSICIAN COMPENSATION AND PRODUCTIVITY: Ten Recommendations for Determining Physician Compensation/Productivity Through Relative Value Units. 2011.
7. Heiney, J.P., An examination and discussion of unintended consequences of being an employed physician. J Orthop Trauma, 2013. 27 Suppl 1: p. S17-21.
8. Henley, M.B., Finding your ideal job and negotiating your contract: where to get the information and numbers you need to know. J Orthop Trauma, 2012. 26 Suppl 1: p. S9-S13.
9. Malpractice Insurance. 2016.
10. Fleeter, T. The Hidden Cost of “Tail” Insurance. AAOS Now, 2012.
11. Harolds, J., Tips for a physician in getting the right job, part XIX: introduction to employment contracts. Clin Nucl Med, 2015. 40(2): p. 128-30.
12. Porter, M.E., What is value in health care? N Engl J Med, 2010. 363(26): p. 2477-81.
13. Vaudrey, B.S.a.L., Sara, Compensation 2013: Evolving Models, Emerging Approaches: Results from the AMGA 2013 Medical Group Compensation and Financial Survey American Medical Group Association, 2013.
12/7/2019 09:44:51 pm
It's good to know that anything not explicitly written in a contract will not happen. If I were signing a contract for my employment, I'd want to be sure I was signing a fair deal. I'd probably want to have a professional review it.
Leave a Reply.