You’ve been there.

You sign up for a new cell phone plan or cable package or apartment lease and think you have read all the important information only to discover that, in fact, you have not. A clause in the fine print or some careful wording allows the carrier or provider or landlord to change the rules when it suits them, no matter the consequences for you. Legally, you have no recourse because your signature is on the dotted line which, by law, means you read and understood everything in the contract.

Yes, we’ve all been there. It is such a helpless and frustrating feeling even for something small like a cell phone plan.

But imagine feeling the same sense of helplessness and frustration about your job.

ATTORNEY’S AND EMPLOYMENT CONTRACTS

In a previous post I asked the question: “Should you consult an attorney, experienced with health care contracts, to review your physician employment contract?”  

My short answer is “yes!”

I’ll take a moment to summarize a few of the points made in that post.

1. The physician employment contract and referenced documents, such as policy manuals and religious directives, can be dozens and dozens of pages long, and loaded with legal language.

2. The hospital or physician group had a team of lawyers looking out for their best interests in drafting the contract - you deserve your own advocate looking out for your best interests in the negotiation process.

3. The hospital or group’s contract dramatically impacts your present employment, but it also has a massive impact on your future employment opportunities.

You, as the physician, have the most at stake when considering the provisions of an employment contract.

Now, let’s focus on two of the critical hot spots of physician employment contract review.

COMPENSATION

The first one is is compensation. 

It is increasingly common for physician employment contracts to include productivity measures using relative value units (RVU’s), in the calculation for compensation.  Guaranteed salary contracts, where a set figure is guaranteed year after year, are still common at teaching and Veteran’s hospitals. But the productivity models are the more challenging to understand. 

When a productivity model is used, it is important to consider the calculation and the variables of that equation, the timing of compensation, and the penalty for underperformance as described in the contract.

1. Productivity Calculations: How are the RVU’s calculated? These systems can use a set figure per RVU or they can use a tiered structure.  If they use a tiered system, one question you may ask is do they apply the highest RVU value to all units or does each tier accumulate in a more progressive system with the first RVU units providing the lowest level of compensation, and the last RVU units providing the highest level? A simple misunderstanding of how a productivity system is structured can cause havoc to your financial expectations.
   One valuable way to ensure your understanding the structure is accurate, would be to request the volume, expense, and income report (without any identifying information) for a recently hired and similarly situated physician in the practice. It would be wise to review compensation figures for at least a full year of employment.  These real world numbers can assist you in making sure your understanding matches reality.

2. Timing of Compensation: When do you, as the physician, receive the productivity payment?  Some payouts are structured quarterly, with others being structured annually. Do you have enough base salary for an annual structure that may not pay out until February or March of the following year? And you need to understand the tax implications for productivity payouts so you can plan ahead with your tax professional.

3. Penalty for Underperformance: Some contracts include penalties for underperformance. The contract may read as if you get a guaranteed salary, but upon closer inspection, the contract may only guarantee a salary as long as you meet or exceed a certain level of volume.  If that RVU production is not reached, then the contract could enforce a provision that allows the hospital or group to claw back any unearned portion of the base salary.  

This sort of performance penalty can also be applied against “sign on” and moving bonuses that hospitals and groups provide. The contract may state, “the hospital reserves the right,” to demand part or all of your bonus back if you don’t produce enough in a given timeframe. You assume you will hit these targets, but what if you encounter an unexpected illness or have a short term disability that keeps you from doing all or part of your work? These seemingly innocuous situations can create a serious financial challenge for you if you don’t understand, and negotiate around, the possible pitfalls within compensation the compensation model.

Additionally, outside work or moonlighting restrictions can be burdensome.  The hospital or group could implement a blanket restriction preventing you from pursuing outside business activities, which would impact your ability to earn additional income through other ventures or moonlighting.  Some of these restrictions can even relate to compensation for per diem and speaking fees you might receive for presenting at a conference. In many cases, the contract will state that these are not allowed without first receiving written approval; therefore, if you have something in mind, you should discuss it with your potential employer before signing the contract. Knowing these limitations is important, and negotiating appropriate flexibility for your outside activities should be done on the front end of the contract negotiations. 

It is unwise to believe you can get the hospital or group to loosen their restrictions after the contract is signed.

CONTRACT TERMINATION

The second hotspot is termination of the contract. 

Each physician employment contract should have a section related to termination, and often it will use language such as “termination for cause,” and “termination without cause,” and “termination for disability.”  This is the governing language for how and when the contract can be ended as it relates to each of these situations.

For cause termination typically happens when one of the parties breaches a term or requirement of the contract.  Frequently listed “for cause” items include:

• Suspension by Medicaid/Medicare

• License revocation

• Criminal conviction. 

• Violation of the hospital or group’s policies and procedures

• Religious directives  

Some of these violations may seem much less serious, but they can just as readily place your employment in jeopardy. And these “for cause” terminations can impact you with future employers, creditors, and even licensing agencies too.

Without cause termination is included in contracts to show a way to end the contract on more or less amicable grounds for either party.  With these situations, there is not an issue of fault or breach of the contract, but rather an acknowledgment that the parties should have a legal way to end a relationship should unforeseen situations occur, such as a new job opportunity for the physician, or the hospital merging or selling to another entity.

A frequent provision included for “without cause” termination is a requirement of notice being provided to the other party. To balance this power, it is good to see the same time period required upon either party. For example, it would be less than fair if the hospital was only required to give you a 30-day notice for their without cause termination, but you were required to provide the hospital with 90-day notice if you wish to terminate the contract without cause.

Disability termination is an important section due to the fact that you, the physician, are often not involved in the determination process.  It is important to see how the hospital or group will determine disability. And it is critical to understand who selects the physicians who will evaluate your condition and determine the disability.  Does the hospital or group get to select a physician without your input? If you disagree with the determination, are you allowed recourse by having a second opinion? These issues may seem remote, but if you are facing a disability determination, these issues can make a huge difference on how fairly the process operates.

Non-compete clauses are another subject that deal with termination considerations of a contract. These clauses often restrict the physician’s future employment choices for a set period of time and for a set geographic region.  Many courts have held that these provisions cannot be for excessively long periods of time or for an overly broad area where competition simply wouldn’t be the motivating factor.  However, courts will uphold these provisions if they are drafted correctly. It is possible to negotiate with a hospital or group to allow you to stay in the geographic area after termination, but that often requires limiting future employment to teaching hospitals or other institutions that the hospital or group wouldn’t view as competition.

THE ADVANTAGE OF AN ATTORNEY

While I only discussed two hotspots in this post, you can see how the language in the contract goes beyond stating a simple salary and how the terms of the contract address multiple scenarios.  It is prudent to work with a knowledgeable attorney to guide you through the expectations, and potential negotiations, related to a physician employment contract. The knowledge and information your legal professional can bring to the table, can be beneficial in the negotiation stage when crafting a contract that works for you and respects your interests. 

NOTE: The content shared in this article should not be considered legal or financial advice.