Are you a physician who is about to negotiate your first contract? Don’t worry – you’re not alone! Many physicians feel uneasy when negotiating contracts, but it’s important to remember that it’s a negotiation process. You should always aim to get the best deal for yourself and your practice. In this blog post, we will discuss five tips for negotiating your physician contract.
Tip 1: wRVU targets (if your contract is productivity based)
A contract that offers a base salary of $400,000 with an wRVU target of 5,000, this means that $80 is paid per wRVU. Assuming that the physician is paid the same amount per wRVU over the target, the total comp at 10,000 wRVUs would be $800,000 per year.
If a similar contract was offered with a base salary of $500,000 with a wRVU target of 7,000, this might look more appealing. But when you break it down, this means that approximately $71.42 is paid per wRVU. So in the same example of 10,000 wRVUs (assuming the same amount is paid for production over target), the total compensation would be approximately $714,260 per year.
Accepting a lower base, but higher wRVU payout in this example ended up providing:
Make sure that you have a clear understanding of how much production you can expect before agreeing to a production requirement. Many factors could contribute to this such as resources at the hospital, location, number of partners, days in OR (if you are surgically based), etc.
Tip 2: Reference MGMA data or national averages
Most contracts are significantly under the national averages, especially if you are a productive physician performing in the 75th or 90th percentile. Here is a real example where we helped a neurosurgeon increase his compensation by $400,000 per year:
Contact before the negotiation:
This surgeon was producing in the 90th percentile at 15,000 wRVUs per year. He would make $850,000/year, when the national average for his specialty at the 90th percentile was $1,500,000/year ($99.81/wRVU). Since the hospital is paying the overhead to employ the physician, it is unlikely that they would ever pay the full 1.5M, but this physician should be paid much closer to the average then the original contract.
After negotiating, here was the result:
Now if this surgeon continues at 15,000 wRVUs, his total compensation would be around $1,200,000 per year, which is significantly higher than his original contract. He was also tied to a very academic focused hospital where typically compensation is less.
Tip 3: Have a clear understanding of how the contract can be terminated
This should be negotiated up front and we have seen this end very poorly if it is not discussed properly up front. Generally, a contract will include termination at will or without cause by the hospital with somewhere between a 30–120-day notice. This means that the hospital can terminate you at any time with a short notice. If this is negotiated up front, then the only cause for termination would be for compliance reasons, falling under production, etc. In other words, you would have to break rules or do something wrong to give them cause to fire you. If the hospital tried to terminate you without cause, it would be a breach of contract and they would owe you compensation for the remainder of the contract.
You should also review what happens to the contract if the hospital is purchased, or a merger occurs. The best outcome we have seen with this is making sure that the contract stays in force if there is a merger or acquisition, and it is taken over by the new control group.
Tip 4: Understand the restrictive covenant and location
The restrictive covenant is in place to protect the hospital but should also not restrict the physician from practicing elsewhere. The first step is to understand what locations that you will be practicing at, and this may be a negotiation on top of other points. We have seen where there is no location specified and the hospital is able to send the physician to any location in a geographic area. This could be difficult if you have a family and kids and are expected to drive long distances that you were not expecting. It is always a good idea to get the specific locations that you will be practicing in the contract.
The restrictive covenant generally is specific to any location where you have practiced. For example, it may be that you cannot practice within 25 miles of any locations you were at for 2 years. This could make a big difference if you were at one location, or at multiple locations that were miles apart. This also makes a big difference if you are in a large city vs in a rural area. If this is not thought out in advance of agreeing to a contract, you could end up having to relocate your family to a different city if the restrictive covenant does not allow you to practice nearby.
Tip 5: Understand the malpractice insurance
There are two types of coverages: occurrence coverage and claims made.
Occurrence coverage covers the physician for any event while employed, regardless of when the claim is made. This means that even if you have already left the job and a claim is made, this will still be covered. With occurrence coverage, no tail coverage is necessary.
Claims made coverage means that the physician is covered for any claims made while the physician is employed. So, if a claim is made for something that happened while employed, but the physician has left for a new job, it would not be covered. This means that tail coverage is necessary. This is where the negotiation can help determine if the physician or hospital is responsible for paying for the tail coverage. Since claims made is less expensive coverage than occurrence, the negotiation should be to have the hospital pay for the tail coverage. If this is not negotiated up front, we have seen physicians have to pay a significant amount for tail coverage.
It is also important to consult with a contract attorney on the legal matters but making sure that you properly negotiate your contract could end up saving you not only millions of dollars, but also a lot of time and headaches that could come along with not understanding your contract.
Equilibrium Wealth Advisors is a registered investment advisor. The contents of this article are for educational purposes only and do not represent investment advice.
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