Today new physicians should expect to be offered lengthy employment agreements before they start their first post-training job. I enjoy assisting physicians with their contracts at this stage of their career because the document forms the foundation on which their medical career is based. Agreeing to overbearing terms can stifle their professional and financial development. Although I tailor each agreement to each physician’s goals and needs, the following three provisions are must-haves in each agreement.
Non-competes. If you plan to establish a career and personal life in a particular city, an overbearing non-compete provision could have a devastating personal and financial impact, particularly if you take a 100% loan-to-equity mortgage on your new house, putting nothing down, and the house has no time to appreciate before your contract ends. If you have to sell your house and move to a new city shortly after agreeing to such a loan, you’d pay your realtor a commission to sell the house, and other expenses, such that you’d have to delve into whatever savings you have (as you pay your student loans) just to get out of your mortgage. As such, you need to make sure that you have some options to stay in the same general metro area if the employment agreement ends.
Non-compete provisions generally have three components: a) time, b) geography, and c) scope of work. We also often see carve-outs or exceptions to the general prohibition.
Time is actually the least important at this stage in a physician’s career. A young physician simply can’t afford to not have a paycheck or to have a gap in employment. So a six months prohibition is, for all intents and purposes, as burdensome as a 2-year prohibition. (I usually draft prohibitions at 2 years when I represent groups).
Geography is perhaps the most important element. Typically the prohibition is an x-mile radius from a certain point. If the point is any office of the employer, and the employer has 30 locations in the area, the young physician should try to limit that to the area immediately around his or her “primary location” (which should be defined by address and not be subject to change without the physician’s consent). A good negotiator should be able to limit the area to one that protects the employer’s interests but that would allow the young physician to stay in the general area.
The prohibited scope of work impacts some specialties more than others. It’s important to analyze the specific language. Is the physician prohibited from “practicing medicine” or “practicing X specialty” or simply from “competing with the Employer”? The language leads to additional questions. What is “competitive” activity? For example, if your employer doesn’t do house calls, and you want to start a concierge practice, would doing so violate the agreement? How would moving to a desk job — like medical director for a payer — be handled? Knowing the physicians’ long-term goals are helpful in analyzing these terms.
Exceptions can be key. Increasingly health systems’ template non-compete provisions will approve you leaving and competing (and renting office space in their medical office buildings and referrals to their hospitals and diagnostic facilities) but won’t allow you to be employed by a competing health center. Others carve out entities that may not actually be competitors, like the veteran’s administration hospitals. Another exception type addresses the reasons that give rise to the non-compete. When representing young physicians, I argue that the non-compete should not apply if the employer terminates the physician without cause during the first year. It’s simply not fair to the physician to be let go for no reason that early in his or her career after passing up other opportunities. The non-compete should not apply if the physician has to terminate for cause or if the contract ends for certain reasons, like bankruptcy, merger or loss of accreditation. Another exception is a buy-out: essentially the physician gets the opportunity to buy-out the prohibition.
Tail Coverage. The second most-important provision involves tail insurance. That’s the insurance that picks up to cover suits from patients once you leave your employer. It covers you for claims filed against you after you left but for work you did at the employer. It’s not needed if the employer provided you occurrence insurance (that covers you forever). But if your employer chooses the less-expensive route and buys you “claims made” insurance while you are employed, it doesn’t cover you after your employment ends. In that case, a “tail” policy is needed to cover you for lawsuits filed after you left that employer but for work you did while employed there. Employment contracts often state that the physician has to buy tail coverage when the agreement expires or terminates. It’s not hard to find a policy, but it is expensive. Depending on the specialty, claims history and length of practice, it can be tens of thousands of dollars. This acts as a hurdle to leaving the practice and working elsewhere, like a quasi-non-compete, if you can’t afford the premium. Like with non-competes, I like to make the tail obligation apply only when the physician leaves without cause or is terminated for clearly-stated cause.
Compensation. It’s unbelievable to me how many young physicians agree verbally to their compensation without even having seen their employment agreement. Too-low compensation from the beginning of a physician’s career can have exponential consequences over the course of his or her career. Physicians need to see the written scope of duties and other contractual provisions before agreeing on the pay. A good healthcare lawyer has the MGMA salary survey and can help physicians understand how to approach the salary offer. Also, physicians need an experienced healthcare lawyer who understands things like wRVUs, MACRA and MIPS, as the physician’s compensation may be based on these factors. General employment attorneys or contract attorneys can do clients a disservice because they don’t fully understand how healthcare reimbursement, productivity measures and collections work. No matter the compensation structure, the following need to be understood: 1) are you guaranteed a salary for a certain number of years and, if so, what happens thereafter? 2) under what conditions do you get a bonus, and under what conditions do you have to repay a bonus, and are the conditions fair and obtainable? Also in the compensation section, make sure that the employer cannot unilaterally amend the agreement to lower your pay – unless the process for doing so is required by law and is procedurally fair.
Focusing on these three areas will go far in establishing a solid platform on which new physicians can build their careers.
Ann Bittinger has assisted physicians for nearly 20 years with their employment agreements. She offices in Jacksonville, Florida, where her company, The Bittinger Law Firm, is based. www.bittingerlaw.com.