July 30th, 2023
NEGOTIATING PHYSICIAN EMPLOYMENT CONTRACT TERMS by Jim W. Vogele
I frequently field questions about physician contract negotiations. Negotiation is perhaps a classic example of “more art than science,” yet there are some basic precepts amenable to generalization. This short article provides some general insight into physician employment contract negotiations.
This article is not legal advice and of course you should speak to a physician contract review attorney if you have questions about negotiating contracts. If you need assistance with your Washington, Oregon, Montana or California physician contract, I am always happy to help. I provide legal advice to physicians in these four states where I am actively licensed to practice law.
If you are moving to one of these states, by the way: Welcome and congratulations. While I now based in the great Pacific Northwest, each time I mention my jurisdictions of practice I count myself fortunate to have lived and worked for substantial periods of time in each of these western states. Although I resided only briefly in Washington for a summer job, I have spent over a decade in Oregon, California, and Montana (where I grew up). With an additional three years in Cambridge, Massachusetts, several summers in Wyoming, and a summer in Alaska – and geography has treated me kindly. There are many great places to live in America, with the west coast and Montana certainly among them.
PHYSICIAN CONTRACT OVERVIEW
I have written elsewhere on this website about the contractual provisions most frequently found in physician employment contracts. In many respects, physician employment contracts are similar to any other formal employment contracts. A typical white-collar executive or tech-industry contract, however, won’t include references to the Stark Law or Anti-kickback Statute or reminders of HIPAA obligations and equitable call schedules. But any formal employment contract will address the terms and conditions of your employment, such as the job title and location, the expected term (duration) of the relationship, and the job duties, compensation and benefits you will receive. Formal employment contracts will also generally include definitions of termination for cause, even if the agreement is at will (the at-will concept most often is inapplicable in Montana, but that is a topic for another time). In the case of physician contracts, typically an “at will” or “without cause” or “for any reason” termination provision will include notice of termination requirements specifying that each party must provide an ample notice (e.g. 60, 90, or 120 days) of any “without cause” termination.
By and large, there are many similarities in physician employment contracts across the country. When I am reviewing and consulting on Washington physician contracts, I see many of the same provisions generally seen in Oregon physician contracts, California physician contracts and Montana physician contracts (albeit due to Montana’s Wrongful Discharge Act and California’s prohibition against noncompete and nonsolicitation provisions, contracts in those jurisdictions will differ in discrete yet important respects). In the course of my work, I do see physician contracts from other jurisdictions, e.g. Colorado, Minnesota, Florida, New York, Arizona, Michigan – you name it – and these contracts address standard topics that must be covered in the healthcare provider profession, or profession qua business, if you prefer (it is both).
When it comes to negotiating physician contract terms, however, context matters significantly, regardless of the jurisdiction in which you may be working. I find that a number of my clients have fairly basic questions about contract negotiations. Which is not surprising, because there is a big difference between a medical doctor and a juris doctor. If I were asked to diagnose, treat, or perform surgery on patients, well . . . it’s best not to even contemplate that. In any event, I would have more than a few basic questions. Contract negotiations, however? This is a topic with which I am very comfortable.
WHAT IS, OR MAY BE, NEGOTIABLE?
This is an important question. The answer is complex and depends innately on context. Consider, for example, your level of experience and training, your desired practice environment, your geographical practice location and personal income requirements (or aspirations). An equally expansive set of considerations apply to the employer, of course, and there is no cookie cutter template to fit every situation. Sometimes, however, there may be some room for flexibility on the employer’s part. On the other hand, there are aspects of their employment contracts on which the employer is unlikely to budge. Employers are working within many constraints, of course, including financial and market and organizational factors, along with the law (always) and notions of basic fairness and equal treatment wherever it is possible. Indeed, equal treatment under the Equal Pay Act is a legal as well as an equitable consideration and employers must always be cognizant of the consistent treatment of similarly situated employees. Add to this, the employer’s legal obligations under the Stark Law and the Internal Revenue Code for non-profits, along with a host of other laws, rules, and regulations in the heavily-regulated healthcare industry, and it’s a lot.
An example of a contract provision that is typically not subject to negotiation?
Consider the ubiquitous arbitration clause. There is still plenty of litigation over arbitration clauses and their validity in particular instances, but in most instances if an employer has chosen to include an arbitration provision for dispute resolution purposes (i.e. generally the employer’s attorney has in their physician employment contract review or drafting process recommended same), the employer will not alter that requirement. First, there are many legal requirements necessary to impose an enforceable arbitration clause, so changes could throw the whole thing out of whack. Second, employees subject to arbitration clauses would expect that others are subject to the same requirements within the organization. Third, there is a reason why employer attorneys recommend arbitration clauses, i.e. the typically favor employers.
Often the room for movement in negotiation may be nuanced textual issues. Does a restrictive covenant include an overbroad restricted area definition or lack a waiver in fairness from the provision under certain circumstances, such as the employer termination the employment relationship without cause? Regarding the latter, I can tell you that I have seen an egregious example of an employer abusing a restrictive covenant in this context, i.e. by encouraging and inviting a potential employee to relocate across many state lines only to, soon after employment commenced, trigger a without cause termination (due to the employer’s own contract problems) and then refuse to be reasonable about enforcement of a noncompete. While I cannot share details due to attorney client privilege and confidentiality (sacrosanct obligations of every attorney and part of the reason why one engages an attorney in the first place), such incidents do occur occasionally and it is wise to contemplate worst case scenarios, even though they are rare. If the physician who came to me after the fact had engaged a physician contract review lawyer upfront, this situation could likely have been substantially mitigated. And indeed, even once the termination had occurred, we would very likely have a had a strong, winnable common law breach of implied covenant of good faith and fair deal challenge to enforcement of the restrictive covenant, but the physician for various understandable reasons chose not to pursue that option.
Regarding restrictive covenants, as you may know, in the 2020s in America there is a fairly sweeping movement to limit and/or eliminate noncompete agreements, which has long been the state of the law in a few jurisdictions including California. But this process will likely take years to play out. Stay tuned for further developments in this area, both nationally and on a jurisdiction-by-jurisdiction basis. Suffice it to say for present purposes that the Federal Trade Commission estimated in January 2023 that elimination of noncompetes would increase American workers’ income by $250 to $300 billion per year.
I have read and heard all the arguments in favor of noncompetes. And I have also worked for years on the ground in the litigation, the arbitration, and in all manner of negotiations and machinations around noncompetes. My conclusion is that noncompetes are bad for employees; they are unnecessary for the economy to function efficiently and profitably; and they are contrary to the end of innovation. Well-established trade secret laws and common law protections exist (including, for example, the “intentional interference with contractual/economic relations” and “breach of duty of loyalty” torts) that are sufficient to protect legitimate employer interests. And there are obviously legitimate employer interests and concerns. We don’t want to be Pollyannish about how the world works. Nonetheless, happy employees are less likely to want to leave or to compete with an employer in the first place. And that should be a primary motivating consideration for employers in lieu of imposing contractual handcuffs.
Other fine points of potential negotiation may be found in the interstices of a contract, for example with proposed additions to a contract, such as more detail on expected work schedules (the parties’ agreements regarding schedules continues to be addressed most often in communications beyond the four corners of the contract, despite the ubiquity of contractual integration clauses). Speaking of integration clauses, those will state that the contract terms supersede any prior agreements, oral understandings or essentially anything that comes before the fully-executed-and-dated physician employment agreement. You should assume that the integration provision in your contract is enforceable. It will be found in the “boilerplate” or “black letter law” provisions near the end of the body of your contract. Those boilerplate provisions are another example of terms that are almost never subject to negotiation. Given the seemingly infinite variation in employment contract formats, however, I cannot say that I have never seen a black letter law provision that couldn’t or shouldn’t be changed. But that is rare.
Note also here that you might be thinking: This attorney just said above that there are substantial similarities in contract termination from one employer to the next and across the entire country. That is true. There differences are in the details. And there are many, countless variations from one contract to another when it comes to details.
Other examples of provisions that may be subject to negotiation include compensation and benefits. You may have already accomplished what you can on those points before ever speaking to a physician employment contract attorney or other adviser, but there may be room for movement on these important issues, at least before positions are anchored. Data bases such as the MGMA physician compensation data, which I use and consult, can be useful here and of course most employers are relying upon them at least in part, but there are a multitude of factors in play and simply pointing out national or regional averages or median numbers and trends may or may not be useful in practice. “Factors in play” include regional market considerations, the national and local economy, the employer’s specific staffing needs, past practices of an institution or entity and of its competitors, whether you are working with a non-profit or for-profit employer model, and what you bring to the table in many respects, along with a host of other considerations.
The discussion above simply scratches the surface of the issues that may be, or won’t be, subject to negotiation. You will want to speak to a physician contract attorney in your area for specific discussion. If you’re planning to practice medicine in California, Oregon, Washington, or Montana, I am available to consult with you on the process.
WHEN TO NEGOTIATE?
The time to negotiate is before you sign a binding physician employment contract.
While that was an attempt at humor, it also makes a serious point. Below is a more serious attempt to explain. And I should also note that there are stages along the way in your career when you will have opportunities to negotiate. But this article and my practice focus on the employee-employer relationship, and not on partnership/shareholder negotiations. You may or may not be considered an employee as a partner or shareholder. Depending upon the facts as interpreted under various laws, such as Title VII, e.g., a partner or shareholder may certainly in some cases be considered an employee; and you may or may not have an agreement entitled partner employment agreement or shareholder employment agreement once you acquire an equity interest in a medical practice or ancillary services entity.
Our focus is on employment here, here, however, and once you have completed the interview process and have been preliminarily ‘vetted’ by a potential employer, that employer may extend an offer to you. Interestingly, the protocol for how your offer is delivered is less standardized than you might expect. Some physician employers will email an offer (i.e. the in-house recruiter, office or practice manager, perhaps even the CMO, will send an email); other employers will send a formal offer via letter or letter of intent (“LOI”); and some employers will simply make an oral offer, which, if you accept it in principle, will be followed by a formal written contract, whether a close-to-final document or perhaps a model or template contract, with blanks to be filled in later.
One practical tip: In working with a physician employment contract lawyer, always include your offer letter when you send your physician employment agreement for review. The offer letter may well contain points that are not expressly addressed in the contract itself; providing the offer letter to your physician contract review attorney will make the process more efficient. I have on many occasions found it necessary to inquire about certain details of an employment relationship that were not addressed in the contract, only to learn that the issue was indeed addressed in an offer letter. I mentioned “Integration” clauses above – but note that while every important point should be included in a fully-integrated physician employment contract, things don’t always work that way in the real world. If you need assistance or elaboration on this point and schedule an employment contract review with my office, I will explain.
The employment contract you receive can be entitled “Physician Employment Agreement,” “Physician Employment Contract,” “Professional Services Agreement,” and so forth and so on.
If you have not discussed specific terms prior to receiving an offer, then your receipt of an offer typically is the time at which negotiation is appropriate, with the offer of course providing the benchmark for any counter offers or requests you may make. Sometimes your initial step toward negotiation will be to send a request for various points of clarification, i.e. requests for an employer to clarify certain terms in your physician employment contract. I can help you identify those points and assist you in framing communications with the employer. As discussed in the next section, however, how you negotiate depends upon various considerations of context and expense.
HOW TO NEGOTIATE?
There are few possibilities here.
I provide assistance to a good number of physicians who do not wish to engage in their own negotiations with potential employers for a variety of reasons. I have heard on more than one occasion from folks contacting me about a physician employment contract negotiation that many physicians are not very good negotiators. This is interesting, because one would think that a cadre of intelligent, articulate, and well-educated professionals would be solid negotiators by definition. But I don’t think there is any single profile of physicians in that regard, frankly; some physicians, and this applies to all of us, including lawyers, are strong negotiators and others are not; and oftentimes the issue will be more one of proclivity rather than of capability.
Regardless, as opposed to my handling negotiations directly, most often my clients are simply looking for assistance in conducting their own negotiations. Often there are only a few issues of concern; other time there are many issues to address including both negotiation requests/demands and points of clarification regarding contract terms that may be ambiguous (not infrequently ambiguity is due to unclear drafting on the employer or employer’s attorney’s part).
In any event, the most common means by which I help with physician and other healthcare provider contract negotiations will be in (1) identifying points that are potentially subject to negotiation, and (2) assistance with framing a negotiation letter to the employer (typically email, but same difference). Regarding the latter, sometimes I will draft the letter in its entirety and other times the physician will draft a letter and I will edit. One advantage to the approach where I am simply assisting with a negotiation letter is that this adds little to the cost of a physician contract review. I might, for example, charge for a half hour or 45 minutes of my time to prepare or assist with preparation of a short negotiation letter. On the other hand, my involvement in direct negotiations with the employer can be significantly more time-consuming; it’s still not that expensive, as it will typically involve only a few hours of my time (we’re not talking days of billable time). But I’m always sensitive to avoiding unnecessary expense in working with residents and fellows who have been working hard for years with little financial reward so far. In any event, either approach is fine with me. The correct approach for you will depend upon your goals, your budget, and your own comfort level in employment qua business matters.
Physician employment contract negotiations can be a necessary part of obtaining a fair and equitable working agreement with your employer. Having said this, however, don’t feel bad if you review your contract and really have little if anything to quibble about. This happens all the time and I love to see it. Many employers strive to make the hiring and contracting experience efficient, attractive and generally painless for prospective employees. If you are working with such an employer, don’t feel as if there is something wrong with you if you can’t find much to complain about. If that is the case, you can relax a bit in the legal department and look forward to a rewarding experience moving forward, focused on your work and your patients and less on the terms and conditions of your employment. And if you do have concerns up front, be they major or minor, note that this is what a consultation with a physician contract review attorney is all about. Your questions and issues are my daily work and I’m happy to help.