Understanding physician employment contracts

Physician employment compensation and contracts can be difficult to understand. Whether seeking employment with a group physician practice, a hospital, health system, academic medical center or in another setting, a physician must understand employment contracts to be able to discuss options. 

In Season 1 of the “Making the Rounds” podcast, AMA Senior Attorney Wes Cleveland provides expert tips for every stage of the contracting process. Following is a handful of highlights.

As an employed physician, your contract should include a detailed description of what is expected from you. This includes the type of medicine being practiced, the number of hours you are expected to work, your availability and on-call hours, outpatient care duties or administrative duties.

Although it seems basic, understanding your duties and obligations upfront will help set the tone for a successful employed relationship.

Find out more with the AMA about why you should beware of “physician duties” in your hospital employment contract.

There are two types of compensation models a contract can have:

• Fixed compensation is a set salary not dependent upon a physician’s performance—a model often used for new physicians.
• Variable compensation models use formulas to account for a physician’s performance when determining salary; more experienced physicians typically receive this type of compensation.

You should fully understand and be comfortable with how your compensation is structured. If not, ask someone to walk through it with you using numeric examples. Before you agree to an employment contract, you should be familiar with the median salary range for a physician in your specialty in that geographic location. If you do not know what your skills are worth in the local market, you will not know if the compensation offered by the practice or employer is fair.

Also, check whether your compensation is tied to performance benchmarks, such as patient visits, productivity, billing or collections. Make sure you have a clear understanding of what is expected of you and what factors affect your income.

Learn about four employment contract red flags that young physicians should watch for.

Benefits can add substantially to your base compensation and how content you are in your new position. Learning what benefits are included in your compensation is an important step in understanding your employment contract. Examples of benefits include payment of your licensing fees and dues to professional societies, time off, funding to complete continuing medical education requirements, medical liability insurance, disability insurance and medical student-loan repayment.

It is important to understand how these benefits work and what may be required of you to access them. For example, in return for your employer paying your student loans, are you expected to live in the area for a certain number of years? Another example is liability insurance—is it part of your benefits package, and what are the terms of the coverage?

No matter how smooth and cordial the discussion of your employment contract goes, you should insist on getting all of the terms of your employment or practice membership in writing. This significantly reduces the potential for mistakes and misunderstandings. 

While hiring a lawyer to review a contract is an added cost, the consequences of signing a long-term contract you don’t understand can be much more taxing on your career and your pocketbook. 

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An experienced health care attorney in the state in which you plan to work can help you identify and resolve problematic contract provisions before they become an issue.

Your state medical society may be able to provide a recommendation for a trusted attorney in your area. You can also find a physician mentor who has been through this process. Their perspective may help you avoid common pitfalls.

Also consult this handy checklist for evaluating prospective employers (PDF).

Employed nonsupervisory physicians have the protections of the National Labor Relations Act and enjoy an exemption from the antitrust laws when they engage in concerted action concerning the terms and conditions of their employment. Although the unionized portion of the physician profession remains small, because many hospital markets are highly concentrated and becoming more so, more physicians are seeing a need to engage in collective bargaining (PDF).

Find out what employed physicians should know about collective bargaining.

Explore all six episodes of the “Making the Rounds” podcast on employment contracts:

1. “Know Before You Sign”

   1. In this episode, Wes Cleveland provides tips on what to consider before you begin the contracting process.

2. “Letters of Intent”

   1. What are letters of intent? And when should you retain an attorney during the contracting process?

3. “Compensation”

   1. It’s all about money. Or is it? Wes Cleveland describes what to look for in compensation and benefit packages.

4. “Restrictive Covenants and Termination Clauses”

   1. What are letters of intent? And when should you retain an attorney during the contracting process?

5. “Duties and Liability Insurance”

   1. You may not know it, but you can negotiate your duties as part of your employment contract. And don’t forget to think about liability insurance! Wes Cleveland provides the details.

6. “Interviews and Negotiations: What to Do (and Avoid)”

   1. What are letters of intent? And when should you retain an attorney during the contracting process?

The Annotated Model Physician-Group Practice Employment Agreement (PDF) and the AMA Physicians’ Guide to Hospital Employment Contracts (PDF), both free to AMA members, help you understand contracts. Each resource teaches you to:

• Read and understand what contracts look like.
• Define common contract terms.
• Understand compensation models and benchmark data.
• Recognize fair benefits and compensation packages.
• Explain the business/legal consequences of contracts.
• Discuss working conditions, liability insurance and restrictive covenants in your contract.
• Understand what happens if the contract is terminated.

Although these manuals are not substitutes for legal advice from qualified health care counsel experienced in representing physician clients, they provide thorough descriptions of basic contract terms typically found in employment agreements. They also explain the significance of provisions and language that benefit the physician employee. You can use these resources to find examples of language that may be problematic.

Also, take time to learn about the “AMA Principles for Physician Employment” adopted by the AMA House of Delegates and designed to help physicians and employers address challenges such as contracting, conflicts of interest, payment agreements, and advocacy for patients and the profession.