Negotiating contracts and compensation for physicians

YOU’VE IDENTIFIED AN EMPLOYER that feels like a fit—and you’re pretty sure they like you, too. General discussions of compensation also seem to meet your expectations. It’s looking good! 

So, what comes next? 

The employer will memorialize an offer of employment in writing. Some employers will start with a letter of intent, with a contract to follow. Others provide only a contract. 

Either way, understanding the terms of the physician offer stage is critical. The letter of intent and the contract both aim to communicate, enumerate and memorialize key terms of your prospective employment. Ultimately, when you sign a formal employment contract, you’re agreeing to principles that will significantly impact your career for years to come. 

“The contract defines the rules of the road for however long you decide to be with a particular employer,” explains attorney Nicole Martell, J.D., attorney and partner with Di Pietro Partners in Fort Lauderdale. “You need to understand what the employer’s expectations are of you, what you can expect from your employer, what you’re entitled to and what your risks are.” 

That’s why the contract stage of your job search may be the most important one of all. Getting comfortable with the terminology and preparing yourself to evaluate and respond to employment documents is essential. 

First up (maybe): The letter of intent 

Employers know that you’ll likely have many options for employment. They assume you are interviewing with multiple employers— so if you’re a promising candidate, they don’t want to lose you to an organization that can move faster. They’re also talking to multiple candidates for each job and need to narrow the field as the recruitment process reaches the final stages. 

For all these reasons, many health care organizations present their top candidates with a letter of intent, or LOI, prior to offering a formal contract. The LOI’s purpose is to show you that the employer is interested in moving forward—and confirm that you are, too. 

“Signing an LOI shows the employer you’re serious enough,” says Michael Firestone, MBA, JD, with The Law Firm of Marvin Firestone, MD•JD, & Associates, LLPin San Mateo, California. “It’s a way for them to filter out the lookie-loos.” 

Firestone notes that preparing a contract can be labor intensive and, therefore, costly. Candidates may also incur expenses for contract review. By allowing candidates to signal their sincere interest, LOIs help employers and candidates alike avoid unnecessary costs. 

“Once an employer gets their attorney involved, it costs them money to have the attorney draft and then negotiate a full-on contract, with all the back and forth. They want to limit that to the most serious candidates,” Firestone says. 

While receiving an LOI is a reliable indication of interest from the prospective employer, they’re not universally used. Independent groups, for example, may make hiring decisions more nimbly, skipping the LOI step and proceeding directly to a contract if they’re hoping to hire you. 

Daniel DeFeo, D.O., owner of Osteopathic Family Medicine of Northern NJ in Wyckoff, New Jersey, says, “A letter of intent is essentially a promise ring. It says, we promise to hire you, and you promise to come work here. But as soon as we have a binding contract, the marriage will be complete. I don’t feel that the size of my practice really requires that promise ring. If I’m thinking about offering employment to a physician, usually I’ve already had a pretty good rapport with that person and think we can trust each other that it’s going to go forward from there.” 

“Not every practice or employer will start with an LOI. There shouldn’t be any alarm bells if an LOI isn’t provided,” adds Martell. 

While not every employer offers an LOI, if you do receive one, it’s important to evaluate it carefully. Even though it’s not the final employment contract, the LOI will have an important function in the negotiation, contracting and hiring process. 

A less-formal preview of the contract 

An LOI typically covers the same basic terms as the employment contract, but in a less formal way. Employers use it to confirm agreement on foundational terms before preparing a more comprehensive and complex contract. 

“I would equate it to an ‘online dating profile’ version of the agreement,” Martell says. “What are the key things that you need to know to make sure this is something you want to continue to pursue? Those are the things the LOI should provide.” 

For example, an LOI should include definitions of the position and duties, a general description of pay and benefits, work schedules and other important financial considerations, like relocation packages. Key restrictive covenants that will be part of the contract or are even immediately enforceable may be included, as might termination terms and future partnership opportunities. You’ll also likely see some sort of timeline for when you’d sign a full contract and when you’d start work. 

If anything in the LOI doesn’t match your expectations, the time before you sign is your opportunity to decide what you’ll try to negotiate and where you can be flexible. The LOI you negotiate and sign should provide you with enough information to decide whether you’re ready to move forward to the contract stage. 

“It’s not the exact terms you and the employer will be held to,” Martell says. “But it provides a bit more security of knowing—pen to paper— what the employer’s offering. It gives a baseline for negotiating and for you to know whether it’s worth your time to continue to pursue the position.” 

Is it binding? 

LOIs often have specific language stating that they’re non-binding. But “depending on how they’re worded, they can sometimes be binding. Some physicians may not realize that,” Firestone says. 

Even if the LOI is technically nonbinding, signing it indicates you agree with the general structure of the offer. Consequently, it may not be possible to re-negotiate important terms like salary or bonus pay after the formal contract is presented. 

“The LOI is like a skeleton version of the contract. You need to be sure all the key bones are there,” Firestone adds. “If the LOI’s compensation, job location or other key terms of the employment relationship aren’t what you wanted, it can be harder to get those changed down the road.” 

Keep in mind that your behavior at every stage of the recruitment process could affect your reputation. For example, you shouldn’t sign it unless your interest is as genuine as the employer’s.

 “A letter of intent may be non-binding, but it is still serious,” says Martell. “You’re indicating to the potential employer that they’re not wasting their time in having lawyers and HR people draft up a contract. That doesn’t mean that you’ll necessarily come to terms and sign a formal, binding contract. But especially given that the field [you’ll work in] can be very small, and given that people talk to one another, you should think carefully before signing an LOI. It’s not something that you would want to do lightly.” 

DeFeo says that when he was interviewing for jobs early in his career, he was unclear whether an LOI he signed was binding or not. That led to a delicate situation when his preferred employer contacted him to offer him a position. 

“I had signed the letter of intent with my second-choice employer after my first choice told me they weren’t hiring. I’d mailed it back, expecting to receive the contract in about two weeks. Then I received a call from my number-one choice. A position had opened, and they wanted to hire me. At the time, I didn’t understand if there was any legally binding weight to the letter of intent.” 

DeFeo says he thankfully was released from his commitment, but acknowledges had things gone differently, the situation might have undermined his reputation for negotiating in good faith. 

Firestone says, “If an LOI doesn’t explicitly say it’s non-binding, you may have a rude awakening if you try to get out of it. For example, some physicians receive multiple letters of intent and think they can sign all of them and be able to back out of them later. And then they might realize, oops, this is not as easy to get out of as I thought.” 

It’s also important to make sure you understand commitments explicitly stated in the letter, which can be binding even if the offer of employment isn’t. For example, some letters may require you to negotiate exclusively for a period of time. Confidentiality is another common requirement of LOIs—so think twice before, say, sharing details of an offer with another employer in the hope of gaining a negotiating advantage. 

“Generally speaking, the LOI is a little less formal, but not any less important,” Martell says. “There may be an NDA (non-disclosure agreement) that’s signed as part of the process, or there are confidentiality clauses, for example, or certain restrictive covenants that the company may ask you to keep confidential.” 

Time to bring in an attorney? 

Many physicians choose to wait for the formal contract before hiring an attorney. But given the impact that LOI terms will have on your eventual contract, plus the possibility that at least some of the LOI terms are binding, the presentation of an LOI may be the right time to hire an attorney. Bringing in legal advice before you sign the LOI helps ensure the comprehensive contract you receive corresponds with your expectations. 

“We want to make sure you’re asking the questions you need to ask at the LOI stage,” says Firestone. “Otherwise, what’s the point of proceeding to a full-on agreement if you can’t even agree on the preliminary structure of it?” 

Firestone adds that for some of the largest employers, the LOI may be the only stage at which customization can occur. 

“I’ve seen that with some large institutions, the LOI is where the meat of the relationship is, and the contract that they provide later is usually more standardized and universal across the board,” Firestone says. In situations like this, working with an attorney at the LOI stage can help ensure your final contract matches up with what you’ve negotiated in the LOI. 

Even if you decide not to seek legal advice at the LOI stage, having it once you receive the contract is crucial. 

“Once you get a lawyer to explain all the terms of the contract document to you, you might say, ‘Wait, that’s not what we talked about.’ The attorney can help you respond to the offer, to figure out which things are gaps we can bridge and which are deal breakers,” Martell says. 

DeFeo agrees. “It behooves physician candidates not only to read their contract, and read it multiple times, but to also have an attorney who specializes in medical contracts review it, because there may be language that a non-attorney won’t understand.” For example, he says, in the context of a legal document, even everyday words like “may” and “shall” may take on different or more specific meanings. 

As you’re negotiating, no matter whether you’re looking to change an LOI or a contract, having a lawyer also gives you a “bad cop” to take the blame for questions that might be contentious, keeping your relationship with your prospective employer cordial. 

“I can be the bad guy behind the scenes. The physician can save face with the employer and say, ‘my attorney is telling me this,’ and ‘I need to look out for that.’ That way, they’re not the one that’s being difficult,” says Firestone. 

If you’re concerned about the cost of legal help, attorneys who frequently work with early-career physicians often have flat rates or special fee structures for employment contract review. The cost typically ranges from $1,000 to $2,500, depending on your location and the number of document pages needing review. The peace of mind the review offers, plus the protection against future financial risk, could easily be worth many times that. What’s more, this first opportunity to work with an attorney could be the start of an important long-term relationship. 

“We’re trying to build up an initial relationship with the client and hope that this will be a long-term, 20-year, 30-year opportunity for us to work together,” Firestone says. 

DeFeo adds that physicians looking to hire an attorney for the first time should look for personal referrals from sources they trust— either physicians they know who’ve had good experiences with specific attorneys, or organizations in a position to make informed recommendations. 

“You can start with your state medical society, because they probably have some kind of legal representative,” DeFeo says. “And if they’re not adept in health care contract law, they should be able to refer you to an attorney who is.” 

Your first read-through of the contract 

Before reading your contract, know that it will be a time-consuming, detailed task—and probably a difficult one. 

DeFeo says you’ll probably need to read your contract through several times just to build a list of questions and gain an understanding of what’s proposed. He advises to be prepared to push through dense, unfamiliar, even abstruse (yet still very important) legal language that commonly appears at the end of the document—when your eyes may already be glazing over. 

“An attorney I know describes this as ‘the buffet principle.’ When you go to an all-you-can-eat buffet, they usually put the cheaper, more filling items up front and then the more expensive, desirable items at the back of the line. I feel that’s how most contracts are, too,” DeFeo says. “The compensation, the paid time off, all the things you’d most be interested in as an employee are usually up front. By the time you get to the back of the contract, you’re fatigued. But the back of the contract will have important stuff such as non-competes and requirements for termination. Even job responsibilities can be hidden in the back of the contract.” 

Firestone adds that clarity is the most important consideration with any contract, and your attorney’s goal will likely be to make sure you understand exactly what you’re signing. “The most important thing with a contract is just making sure it’s clear. That’s why we put together a list of clarifications [for the employer], to make sure the way we’re reading it is the same as the employer.” 

Reviewing compensation and benefits details 

While the LOI might have had broad information about what you’ll be paid, the contract will—or should—specify details about pay calculations and timing. For example, many physician employment contracts offer productivity-related compensation. Understanding how productivity pay is calculated and paid is critical. 

For example, Firestone says that productivity pay is often tied to collections, but that term can be confusing or even ambiguous. 

“The way they word it sometimes is ‘collections.’ But does that mean when they were actually collected, or is it your billings? Usually there’s a time delay in the collections. That could be a couple months, even up to six months, sometimes later, by the time the practice actually collects on the billings they’ve submitted.” 

Martell adds that you need to understand not just how much you’ll be paid and how it’s calculated, but how often any productivity pay will be paid out. “When will you receive productivity compensation? Are they only paying out annually? Are they paying out quarterly?” 

Some productivity pay may be based on relative value units (RVUs) instead of collections, and may be tied to benchmarks from sources like MGMA survey data. The contract should specify what standards your production will be compared against. You also should be sure to ask how you’ll track your own performance toward compensation goals, if that’s not spelled out in the agreement. 

The signing bonus is another area where significant details may be added versus what you discussed or what was bulleted in the LOI. 

“I’ve yet to see a signing bonus where they don’t prorate it for time spent,” says DeFeo. “Usually, you have to be there between two and five years. Same with student loan reimbursement. A lot of jobs will offer student loan assistance. But if you leave before a prescribed amount of years, they’ll retract or prorate the amount of student loan assistance they give you.” 

Your contract should also spell out how your benefits work. Your health insurance, retirement, continuing education allowances, paid time off and other perks have financial value that you should consider both when weighing and comparing the job’s total compensation and when planning your budget. 

DeFeo adds that it’s important to review your salary and benefits alongside other factors that should be spelled out in the contract, like your work schedule, call responsibilities and locations. 

“I’m always quick to tell students and residents that compensation is called compensation for a reason. It’s money you’re paid for the work you do. You’re not likely to find a job that’s both high paying and comparatively low stress. A lot of jobs offer salaries that are above the mean because the workload is probably above the mean. I think when people chase the money right out of residency without having any concern for the other aspects of the job, they can burn out very quickly,” he says. 

Termination clauses: What happens when you part ways? 

Termination clauses are another area to review carefully, to be sure you understand them. For example, the contract will spell out how much notice you’ll get if the employer terminates you without cause—you’ll want to be sure you’re comfortable it provides enough time to initiate a job move. You’ll also want to understand what constitutes “cause,” as well as what restrictions the contract may place on your post-employment options. 

It’s easy to underestimate the importance of these contract features when you’re excited about your new job. But even though it seems unlikely that you’ll want to leave your employer before the end of the contract, it’s critical to understand what happens if you change your mind. 

“You don’t want to be in a position where you’re trying to exit a situation and only just be learning what your obligations and restrictions are at that point, because you won’t have been able to plan properly,” Martell says. “You might be caught off guard and surprised by what your obligations are and how long you’re actually locked in for. So understanding the termination clauses is something that we spend probably more time than people expect on, and it’s for good reason.” 

If you’re earning pay based on productivity or other performance measures, the termination language of the contract should make clear when you’ll get paid for services already performed. 

“When do you get compensation if you decide to leave, but you’ve already produced for this employer? That’s usually a very big point of consideration,” Martell says. “If you leave at the beginning of the year, but you were due a payout from the past year, when do you get that? 

How do you get that? What are you actually owed?” 

Another termination-related consideration: malpractice tail coverage. Because malpractice claims can come in long after you’ve left a job, you’ll need some level of tail coverage for the work you did at the employer you’re leaving. It must be clear in your contract both that you will be covered and who is paying for it, Martell says. 

Restrictive covenants like non-competition (“noncompete”) clauses also require special attention. If you find you want or need to leave your job before the contract ends, these clauses may restrict your ability to work in a specific geographic area or for certain specific competitors. Depending on how they’re written and whether you intend to stay put in your local market, these clauses can limit your plans. 

“I have a colleague I was looking to hire,” says DeFeo. “Their contract stipulates two years [of non-competition] and a 10-mile radius. Well, I’m eight miles away, so I cannot hire this person. My previous job was two years and five miles, which I found much more reasonable.” 

Adds DeFeo: “You can make arguments on both sides about noncompetes, about what’s fair and what’s not fair. But at the end of the day, if you’re signing that contract with a noncompete, you have to think about your next steps too. Do you want to work at this job forever? What if things go bad? What if you want to leave?” 

Firestone adds that the enforceability of noncompetes varies but still needs to be carefully reviewed. 

For example, even in places where noncompetes are technically barred, some employers have created alternative contractual obstacles to make it harder for employees to leave and work for competitors. A qualified attorney with experience in physician contracts and your local market can help you identify “hidden” noncompetes and gauge how contract language could restrict you in the future (or negotiate an alternative that is less restrictive). 

Other restrictive covenants and key terms 

Other restrictive covenants that may appear in your contract include “no poach” language, which restricts your ability to hire employees of your current employer (e.g., in the event you set up your own practice or are involved in hiring at your new employer). Similarly, you may find the contract stipulates that you can’t contact patients after you exit your employer, or even let them know you’re leaving before you go—a restriction that could be very important to a future employer, or to yourself if you plan to set up your own clinic. 

Your contract could also include another restrictive covenant that prohibits working elsewhere as a physician during your employment. If you intend to moonlight to pay off student loans or even use your physician credentials in a research or technology role part-time, this type of language could prevent that. Working with your lawyer may allow you to negotiate a loosening of these restrictions. 

Another critical term to watch for and understand: integration clauses. Such clauses state (using language such as “entire agreement”) that nothing negotiated outside the contract is considered part of the agreement. Even if you have a commitment in writing—or even if it was part of the LOI—an integration clause excludes it from the employment agreement unless it’s specifically included. 

“Integration clauses are another reason to review the contract with an attorney,” says Firestone. “I always ask the client, ‘What have they promised you verbally or on a phone call, on in an email somewhere?’ Because once you sign this contract with an integration clause, all that other stuff evaporates. Unless it becomes part of the contract, it’s all but meaningless. If they’re promising something in the LOI, you need to be sure it’s included in the contract.” 

After all, anything that you’ve negotiated that specific to you could be the most important terms to spell out in the contract. Ideally, you’ll have thought your priorities through carefully, and understood what the employer can do to meet them, before the contract stage. 

“I believe most of the basics should have been negotiated verbally before the contract was worked out,” says DeFeo. Knowing what you are looking for going in, and bringing those ideas up before legal documents are prepared, minimizes surprises and disappointment for both sides. 

DeFeo adds that contracts are often more negotiable than early-career candidates may realize. “Some employers will tell candidates, ‘This is the standard contract that we offer to everybody. This is boilerplate, and we’re not going to make changes.’ But then you don’t have to sign it. Everyone’s situation is different. If you live in an area where that’s the only job that affords you the ability to work without having to move your family, you may have less flexibility. But for most people coming out of residency and training, you’ll have multiple options. You should be able to negotiate anything in that contract within reason.” 

“The reality is, it’s a two-way street, and I think sometimes that gets lost,” adds Martell. “Candidates should think about what’s important to them to get out of this position and this contract, so that they can also set expectations for the employer, because every single job candidate that comes to me is looking for something different and has different priorities.” •