Employed Doctors: Physician Contracts Risks & Protections

Jonathan Appino

Hey, thanks for having us, man. Always good to see you.

Cheng-Huai Ruan, M.D.

It’s so wonderful to talk about contracts. And I say that with a pinch of salt. And the reason is because us physicians, we don’t like talking about contracts. It makes us uncomfortable. We start getting palpitations and I’m like, especially since right now. So my wife, she’s an OB GYN, and she’s up for contract renewal. She was like, she couldn’t negotiate anything. I’m like, I don’t know what you want to negotiate. She’s like, I don’t know either. And so it becomes sort of this mess in our brains, right. But can you just kind of give us an introduction of how doctors should think about contracts and contract negotiation in general?

Jonathan Appino

Yeah, absolutely. So to your point, I mean, it’s not something that has formalized training for you scientists, right? In your process, you guys go through a decade and you learn everything about the practice of medicine, and maybe even a session or two on business side, but not too much. And so when it comes to getting a contract, a lot of new grads, they’ll get that contract and it’s got that dollar figure in there. And some say, oh my gosh, that’s great. And they sign it and they’re done, right. But they don’t know where to go, or they don’t have time to have it reviewed, or to your point, if they want to review it, they might do it themselves. And then say, it looks okay, or they may have somebody review it. So there’s so many things that go into the equation on what to look for, if you’re doing it yourself, or if you’re having a firm do it, or a lawyer in the state that you’re working in. 

There are so many things that go in. And I think at the end of the day, as long as they understand the terms, right? They understand the risk, whether or not they change anything or negotiate anything, as long as they’re clear on what their obligations are, the expectations for both parties and then the terms of the contract and their risk on how to get out of it if they need to. I think that makes the most sense as far as how they should look at it. So I often say, contracts are for expectations. So expectation from the physician to the employer is you’re going to give me money and benefits. And then the expectation from the employer to the physician is you’re going to give me your expert opinion and your time. 

And I think as long as those two things are very, very clear in the document and very clear between both parties, then the rest of it is, what happens if we terminate and insurance, which is important of course, in restrictive covenants. But I think as long as those expectations are clear back and forth, that’s how they should go about looking at the formal contract.

Cheng-Huai Ruan, M.D.

Yeah. Got it. And then you have such a great resource page that I just recently tapped into on your website, which by the way, it’s the link in the description of this video for those who want to access it. So it’s a bunch of different resources on that page. You can just put, save my spot for free and then you’ll get access to the resource page. And I find that to be very helpful in case we don’t cover some of the things I want to cover about on this talk. So guys, go ahead and do that. So let’s talk about the anatomy of a contract. What does the anatomy of a contract look like? And should we just start from the beginning to the end or are there different sections that we should go into first?

Jonathan Appino

Yeah, it’s so funny that you use that term as a clinician. Our original deck that we had, that we use to go over everything, it was called the anatomy of physician contracts. And we literally had a skeleton with all the different piece parts of what a contract could look like. And although they could be very detailed, right? We’ve seen 76 page employment contracts, and we’ve seen one page contracts. And both of those are nightmares. A typical contract is anywhere from eight pages on the low end to 25 to 30 pages on the high end. And there’s a lot of details that can be in them. The main parts of the contract are something about the schedule, right? Maybe you call it duties and services or schedule or expectations. We think that that should be very granular, very clear on what the expectation of the physician’s time is. Obviously having something on compensation, right. 

Very detailed on all terms of compensation from base salary or bonus or signing bonus or those types of things. Understanding termination, so if things don’t work out, how do the parties transition out? So, no cause terminations or for cause terminations. Restrictive covenants are obviously a huge portion of a contract. Making sure that the malpractice insurance is very clear and very understood is an important piece. All of those things can be core pieces of a contract. And then of course, there’s all the other recitals that set the expectation. And there’s the miscellaneous sections that have some of the local state provisions in it that also come into play. But those are kind of the core things that would be part of a contract. Sometimes we see benefits baked into the contract and sometimes we’ll see a reference to the benefit and then a separate document for the benefits.

Cheng-Huai Ruan, M.D.

Gotcha. Gotcha. I feel like a lot of doctors I’ve talked to go directly to the compensation section first and then everything else is sort of around that, right. Is that what you see for most people you’re dealing with or is that best practices or should we do something else differently?

Jonathan Appino

No, I mean, like I said, it’s all about risk. So the number might look really good or the number might look really bad. And that doesn’t mean that that’s a good deal or a bad deal. If we’re seeing radiologists start around 400,000, maybe somebody is going to get an offer for 300,000. Well, that’s disappointing, but maybe the partnership tract is only one year here and the partners are making two, three times that amount, okay? And taking 12 or 14 weeks of vacation. Maybe there’s another contract, same physician, same radiologist making more money than we would expect, but there’s a whole risk, right. 

They can’t quit the contract or their schedule is gonna be terrible. They’re taking a whole bunch of calls coverage. They don’t know if they’re gonna work nights or they’re gonna be shipped around or they have a restrictive covenant, or they have to buy their tail insurance. So yes, you’re right. Going to that compensation schedule and the number is what a lot of physicians do. We obviously don’t feel like that’s a good frame because the number’s good or bad, high or low or average, doesn’t tell the whole story on the contract. 

And so, although I do suggest that the physicians go to that section and look to make sure that that’s within their expectation, if they’ve got expectations of where they think they’ll be, or where they think they’re valued or what they need to earn to live the lifestyle they want, and it just doesn’t line up, then maybe it’s not the right contract and they shouldn’t even pay to have it reviewed. But if it’s somewhere in the realm, in the range and they think they want to discuss it, then I think, yeah. Understanding the entirety of the contract, which is much more than just the number of the compensation is super important.

Cheng-Huai Ruan, M.D.

That’s really important because I think a lot of doctors get hung up on the compensation part. And then if it doesn’t meet that litmus paper, like nothing really happens. So you talked about risk earlier, and this is an interesting term because when you say risk to a physician, it means, I think a different thing to most people. So risk to physician is a risk of malpractice, it’s risk of not doing the right thing for the patients, but what you’re talking about is risk into walking into a contract that may not support the lifestyle that you really want, right?

Jonathan Appino

Yeah. Yeah. Or, I mean, risk with finances, risk with competence where you can’t work, risk where you maybe can’t even quit the contract or the amount of time necessary isn’t sufficient or is too significant. Yeah, there’s just, understand that risk to benefit equation is super important.

Cheng-Huai Ruan, M.D.

Gotcha. The other problem, I think, is that physicians don’t have other contracts to compare to, unless they’ve been offered multiple contracts in multiple locations. But we’re talking about maybe three, four, eight at the most, right. And so I don’t feel like that’s a good benchmark. I like benchmarking, which basically looking at the industry standards and compare if it’s above or below the normal or expectations that are there, right. So how can doctors sort of tap into the resource of comparing contracts, whether this is part of the industry or not, is that even possible?

Jonathan Appino

There’s nothing that would compare, I mean, every contract is so unique and so different. And every story is so different. I mean, and there’s databases, as far as the money goes, the compensation, like MGMA or Sullivan Cotter, or, there’s all kinds of other great resources for what the numbers look like. But even those are perfect. For example, you might have, if you look at the Midwest dataset for surgery. Well, the Midwest dataset for like MGMA encompasses many states. And so you’ve got the small town in Nebraska with no surgeons or one surgeon taking call one and two, and then you’re also comparing it to Omaha, where maybe there’s groups of 12, or you’re comparing it to Minneapolis, a town of almost 5 million people. Or you might be comparing it to a medium sized city in a different state. 

So everything from Kansas to Nebraska, to Iowa, to Minnesota, to, I think Michigan, are all included in that Midwest region. And if you’re comparing small rural town in Iowa to Detroit, it’s kind of hard to do so because every situation is different. So there’s big data sets that are great to look at and they’re looked at as the industry gold standard. Because there has to be something that can kind of be a universal application. But there’s also other ways to look at how to compare one to the other. I think having a lots of offers to your point is a good way, talking to your peers, talking to a company that does a lot of contract reviews, that understands what are the trends we’re seeing, what’s the real time data. 

Because even though we might have good benchmarks from MGMA or Doximity, or Medscape on physician compensation surveys, they’re always delayed, because it takes them a while to aggregate the data, to do the surveys, to analyze it, to publish it. And so in July we just got the 2020 data set from MGMA and the other companies. We’re seven months into 2021, we just got 2020, which is a pandemic year. So it’s hard to evaluate everything on a real-time basis with some of the national big data sets as far as the compensation. But as far as like comparing the other parts of the contract, it just comes down to understanding, educating the physician themselves and understanding what’s typical and normal. 

Like for example, termination clauses, a typical no cause termination is 60 to 120 days. So, you can look at that with any contract, right? An independent contractor deal or a California employed contract, or a partnership opportunity in Manhattan. 60 to 120 days is just the typical norm for all situations. So 30 would be out of the norm. 180 would be out of the norm. There might be certain provisions, some states don’t have non-competes, some states do allow non-competes. Some states have a county based non-compete or some have a radius restriction or a term provision on those. 

Some states have patient compensation funds for malpractice insurance. So all those, there’s benchmarks for compensation that you can look at that may or may not be perfect. They are at least there, but there’s no benchmarks for some of those things. That’s where it just comes down to educating yourself as a physician to understand what’s normal or typical by doing a lot of reading and hopping on conferences like this, or hopping on our free seminars or giving a company like us a call to kind of go through it. So you know, here’s what we’re typically seeing, here are the trends, here’s the market norms.

Cheng-Huai Ruan, M.D.

Great, so the other thing that I hear all the time is, so I’m usually the guy that my friends text when they’re getting a contract. And I’m no expert, but I’ve seen a lot of them, probably over a hundred by now. And one of the things I always get is that, hey, this practice gave me a contract where they told me that it’s non-negotiable. Is that really true or are there always things you can sort of negotiate in the contract?

Jonathan Appino

So we hear non-negotiable all the time. And we always, is it not negotiable, yes or no? The answer is maybe, right. It depends, I mean, if you’re the 26th hospitalist going into a program and everyone has a standard contract, it may honestly be not negotiable. Or if you’re the only subspecialty pediatric surgeon and they’ve been trying to find this person for two years in a hard to recruit area. It’s probably more negotiable if you say, look, these are things that I’m not going to sign the contract for. We’re not gonna let you walk away, maybe, over something that’s maybe typical standard for everybody else there. 

It all depends. But I will tell you, we always talk about the big difference between negotiation and clarification. So if an employer says, here’s your contract, it’s not negotiable. Does that mean that you should have it looked at? Or does that mean that you should just sign it without asking a lot of questions? We think absolutely not. So again, it’s about understanding the expectations and the risks. So even if it’s a non-negotiable contract, even if the compensation is not going to change, no matter how much you pay a firm to negotiate it, or how many questions you ask or what your frame is on the specialty, it might not matter, but it doesn’t mean that you shouldn’t have a lot of questions from everything, from benefits and when they start to averages for compensation and expectations on your RVU productions or your collections to understanding the malpractice insurance. 

Even if you have to buy your tail insurance, understanding that and what it’s going to cost, if, and when you do leave and how you can leave is still important. So even if you can’t negotiate it, it’s non-negotiable per se, it doesn’t mean that you shouldn’t have everything looked at, understand all of your obligations in the contract and have a, still a very robust discussion and due diligence process with the employer. Again, knowing that we’re not gonna say, I want this changed, or I would request this to be modified. But again, there’s a big difference between asking for changes and asking for clarification.

Cheng-Huai Ruan, M.D.

Okay, that’s really good to know because I don’t think most contracts are very clear to physicians because we don’t speak lawyer. We don’t speak a lot of the languages and it’s so hard to know what to focus on, and we can’t diagnose a contract. And so when we talked about in negotiation versus clarification, the clarification part, how do you analyze a contract of all the specific things in different sections that require reading in between the lines or are there any sort of red flags that need clarification in the contract?

Jonathan Appino

Absolutely, so sometimes, we talked about clarification, maybe they say, here’s our contract, it’s not negotiable. And maybe you’re a pediatrician. And maybe the contract in section four, it says your schedule. It says, the physician shall work full time, a minimum 40 hours a week. Physicians shall take call at the group. Okay, next section, section five, very common. That’s the language on the schedule. So it’s not negotiable. They said they’re not going to change that section. But should you ask them more details on the schedule? You have children, I have children. I know that my pediatrician’s office opens early, thank goodness, and they stay open late, thank goodness. And they’re open holidays and weekends and they’re to help the parents who need care for their children. 

So again, the contract doesn’t say you’re working every other Saturday. It doesn’t say you’ll come in early on Thursday and stay late on Friday. It just says you’re working a minimum 40 hours a week. So that’s a perfect section that requires a lot of clarification. Maybe they’re only open eight to five. Well, I would ask them, have they ever considered Saturdays or late? Maybe you wanna do your 40 hours over four days, is that possible? Again, the contract doesn’t have a schedule, right? Maybe you want to come in and do urgent care every single day at six o’clock so you can be done by three o’clock. So again, is it negotiable, no. Should it be clarified and should you ask lots of questions, maybe get a copy of the call schedule so you can see the expectations. 

Maybe ask them if a physician quits or leaves or retires, what happens to me? So if I’m in a surgical group of four and somebody has a baby and goes out and somebody else retires, now we got two. So call goes from one to four to one to two, do I get paid for that? So again, contract’s not gonna change, but lots of clarification on what happens to me, if, and can we do it this way? So that’s just an example on where something may not be worded in the contract. But again, it’s not always what it says, but what it doesn’t say. Same thing with malpractice insurance, one more example. So, we’ll see in malpractice insurance, people say, well, do I have to buy my tail insurance, right, common question. And we’re seeing a lot of times now the company will procure a malpractice policy for the physician. Okay, great, so you’ve got covered. And then it’ll say the word if, if the policy is a claims-based policy, then here’s what happens. Doctor buys tail, group buys tail, split the tail, vest over time, whatever. If, so the contract might be non-negotiable, so does a physician have to buy their tail or not? Well, we don’t know, because we don’t know what kind of policy it is.

Cheng-Huai Ruan, M.D.

Oh, interesting, I see what you’re saying.

Jonathan Appino

Question is, What kind of policy is it? And now we can talk about how much the tail would cost if the physician has to buy it. They may have a slot policy or a modified claims policy or an occurrence policy. So there might be a state-based program. So it all depends on, again, what it does say, but what’s left out and small words like if, or after the initial term we’re seeing in termination sections. So there’s all kinds of little nuances that a untrained eye wouldn’t pick up on. And again, negotiable or not, we don’t know, but definitely to be discussed and understood by the physician that are signing the contract.

Cheng-Huai Ruan, M.D.

Clarified.

Jonathan Appino

Yeah, absolutely. There’s just too much on the line with the amount of time and the amount of money that a physician has trained him or herself to have these skills, the amount of dollars that a physician will earn over their career and the risk on what could happen to your career or your family if something doesn’t work out. Not restrictive convenance, tail insurance could cost over a hundred thousand dollars. Two years into your career, you don’t have the money. I mean, there could be so many things that need to go on. So yeah, there’s a big, big opportunity to clarify things, whether they’re negotiable or not.

Cheng-Huai Ruan, M.D.

Yeah, so that brings up my next point on clarification, because I think that to look at a contract we physicians really have to understand what we want in the first place. So as doctors we tend to overestimate the things that we want to do. That’s just part of our nature, right? And so when someone’s looking at contracts and even just two weeks ago, I was a father of two, now I’m a father of three. Things change all the time. And so, and I think that physicians have this sort of mindset, oh, I can just grind through it. I’ll do it and all. I’ll do for the family and stuff like that. But I would call out and challenge people who are listening to this, that you want to plan out for the future, right? And so whenever there’s a contract sitting in front of you, you look at what the end term is, right. And figure out where you are and what do you want to be in that life. Now, are there specifics of a contract and say that, hey, this is the end of the contract and we can potentially renegotiate an extension or are there some contracts that are so rigid that this is like an automatic renewal? What does that look like, yeah.

Jonathan Appino

So most contracts that we see at Contract Diagnostics are automatic renewals. So they’re evergreen in nature, the contract starts, the initial term might be two years and then automatically renews every single year thereafter. So are those negotiable, absolutely. We feel, depending on how you’re doing, now, they may just have a compensation plan. They modify the RVU rate based on MGMA median every other year and just update it, right? So maybe you don’t need to negotiate it, but there might be ways to negotiate additional things. Resources like a nurse practitioner, or a better technology, or new equipment in the lab, or fill in the blank. Half a day off, admin time, different schedules. 

There might be ways to negotiate other things than the finances. But the one thing that we see way too often is a physician that has a contract, they may or may not get it looked at. They sign it and they go. Everything is great. They enjoy their job, they love the patients. They’re well thought of in the community. They’re making the money that they feel is appropriate and fair, and they just stay. And the contract was up and up and up and they hire more people. And maybe the new people are making more because they never raised their hand and say, can we talk about my pay? We’ve seen physicians sit in jobs for four to eight years without any merit increases, without any changes to compensation. 

And they’ve hired new physicians, since they hired the other physician and paid them significantly more. We’re working actively right now on a renegotiation campaign with a physician who is currently making a hundred, I think it’s $170,000 plus a smaller bonus based on some quality metrics. Well, we feel that the, and they’ve hired other people at higher rates. He hasn’t had a raise in six years. Now, we look at the numbers that he’s producing and we think the compensation piece should be somewhere in the 260 range, so a significant delta.

Cheng-Huai Ruan, M.D.

It’s huge.

Jonathan Appino

So we’re renegotiating with the employer and the employer who was kind of like, they were just on cruise control. Oh, we thought that Dr. so-and-so was fine and was happy. We had never really looked at everything. He hadn’t raised his hands and they never thought to go back and look at someone’s contract that started eight years ago. And so I think, their initial offer when they looked at updating his contract was significantly more, 240. So we’ve sold from 170 to 240, plus an incentive pay, plus a quality bonus. So this position’s pay may go up by 50 to 70 grand a year by just asking the right questions. Which again, if a physician just sits and lets the contract auto-renew every year, they may not think of raising their hand and say, I’d like to talk about something. 

Unless there’s something wrong, many physicians don’t feel like there’s a reason to go in and poke administration. And again, it’s not just about the money or the salary. Maybe it’s negotiating part-time work. Maybe it’s negotiating a call schedule. Maybe it’s negotiating a nurse practitioner, a PA to help out with things. So maybe it’s about being able to do remote, telehealth on Fridays. And so you need a thousand bucks worth of equipment and some understanding from the nurses on how to schedule remote patients. So, it’s gonna be all kinds of things that physicians can renegotiate if they’re proactive in the process, not just signing the contract, letting it automatically renew forever on itself, and then accept whatever the employer offers every second year or third year or fifth year or whatever the employer does it on their own.

Cheng-Huai Ruan, M.D.

Right, I think these are the things that everyone needs to know on any contract, right? Because I guarantee you half the people listening to this, if not all of them, have gotten out their contracts and looking at exactly the things you’re talking about. Oh yeah, I’m gonna ask this question for sure. And I’m thinking back to a lot of contracts that I’ve seen and you’re right. There’s a lot of if clauses that are in there, that makes me a bit uncomfortable. But thank you for clarifying that. And so I’m gonna do a little here, change up all the things. We’re gonna take a quick minute break and the next section is going to be from the employer’s side. So I own a practice, I want to create contracts for my providers, what does that look like? So hang in tight, we’ll be right back.