Your first contract: Do you know what it really says?

Your first contract: Do you know what it really says?

Dive into the details before you sign

February 2018

THE CONTRACT says that your first job will be paid according to an RVU compensation plan with a two-year income guarantee. Do you have any idea what that means?

If you’re like most residents and fellows, the answer may be no. That doesn’t surprise Roderick J. Holloman, JD, one of the attorneys acting as counsel for Physician’s First Contract, a company that reviews physician contracts for as little as $275.

Mr. Holloman, who also has his own legal firm based in Washington, D.C., that specializes in physician contracts, has reviewed thousands of such contracts during his career. He understands that residents and fellows are overly eager to sign a contract because they are hungry to start earning money. “They see the debt they’re in and they want to get out,” he says.

“Your compensation could fall off a cliff once an income guarantee is over.”

Holloman~ Roderick J. Holloman, JD
Physician’s First Contract


But Mr. Holloman, who is married to a physician, urges doctors to understand what’s in a contract before they sign. And even if a potential employer tells you that its contracts can’t be changed (the language is boilerplate, employers often say, and has already been approved by their legal department), you need to understand how the contract may affect you one, two or more years down the road.

What’s the biggest misunderstanding doctors have with contracts?
Physicians sometimes do not grasp that the dollar figures in a contract are not guaranteed for the life of that contract. Health care systems tend to pay physicians based on work relative value units (RVUs), which measure the physician’s allocation of effort.

When you’re hired based on an RVU model with an income guarantee, the contract usually says that for the first one to three years, you’re going to be guaranteed a certain income, no matter your RVU productivity. After that, however, your compensation will be adjusted at least annually based on your RVU production. Physicians need to understand that means your compensation could fall off a cliff once an income guarantee is over. They don’t appreciate that long-term income is contingent on how many patients the practice sees.

Do contracts stipulating RVU compensation sometimes need to be changed?
Here’s one recent example: A hospital wanted to expand its cardiology service with on-site interventions, so it built a lab and hired an interventional cardiologist. The hospital paid that physician using an RVU model with a two-year income guarantee and a non-compete agreement. After that two-year period, RVU productivity would determine compensation.

My concern was that this practice was essentially a start-up, so if the venture didn’t work out, it wouldn’t necessarily be the physician’s fault. The physician might be ready and willing to see patients, but the practice would just not work out. It’s not fair to penalize the physician through the noncompete for a failed corporate effort. I argued that if the physician’s compensation dropped because of the RVU model, the physician should be able to give notice of termination, and the non-compete should not apply.

It took almost a year to iron out the negotiations. The physician actually began employment before the issue was completely resolved, but the entire practice ultimately failed. At that point, the group let that doctor out of the non-compete.

How often can contracts be changed?
It depends partially on the physician’s specialty. With an emergency medicine physician or a hospitalist where physicians work in shifts and do exactly the same thing but at different times of the day, it’s difficult to materially change the terms of those contracts. You can sometimes add specifics, like the number of patients on a census before backup is called. But when it comes to compensation, there’s usually no changing those terms because the shift rate is the shift rate.

In a specialty like neurosurgery, on the other hand, you’ll likely have more flexibility. Particularly if you’re looking for a specialist in a difficult-to-recruit area like South Dakota, that physician is going to have more leverage.

Can you negotiate lifestyle concerns?
Physicians may want the contract to state that call frequency will not exceed a certain number of days, or that they don’t want to work weekends. We’re having success in negotiating those types of issues.

How are concerns about patient volume addressed?
If a contract for pediatricians says that a physician is expected to see three patients an hour, an astute pediatrician may say that’s not realistic. That’s especially true for an initial patient consult, which could easily run an hour if the parents have a bunch of questions about a sick newborn. So if the practice is telling you it expects you to see 30 or 35 patients a day, that may not be realistic. It may boil down to a philosophical issue, because physicians practice differently. One physician may be fine seeing patients every 20 minutes, while another might want to allocate 30 minutes to make sure the practice doesn’t feel like a mill. Usually there’s flexibility to specify expectations. But if a practice insists it doesn’t do 30-minute consults, it may not be a good fit for you.

What about hospitalists?
Hospitalists are usually pretty concerned about census count and whether there are any backup call obligations. You might try to negotiate that, if your census rises above 18 or 20 or 21 patients, you will have backup relief to treat the surplus. That’s something we often have success changing. Groups often have an informal system in place to cover spikes in patient census, but they may not mention it in the contract.

But if something is not written in the contract, it doesn’t exist, right?
Physicians often rely on understandings they reach with key personnel when they sign a contract. But personnel changes happen all the time, and the new person who comes in is going to refer to the contract. That new person is not necessarily going to honor a prior agreement you had with the former medical director or CEO.

What other contract details should physicians focus on?
Sometimes physicians take jobs based on practice location because it’s close to where they live. They don’t understand that the contract may allow the employer to change the very thing that enticed them to sign. You may be agreeing that the employer can assign you to any of its locations. So you might take a job because it’s 15 minutes from your house, and then six months later be reassigned to a practice an hour and a half away. The good news is that even larger health care systems are often willing to specify in their contract that you will work in one practice location.

Should you have a lawyer review the contract?
Even if the contract can’t be changed, you want to make sure you understand what’s in it. Attorneys may charge as little as $350 to $400 for a basic review, so I definitely think it’s a smart investment.

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