What to look out for in Physician Employment Contracts
By: Varun Verma, MD
Published: Feb 28, 2023
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Physician employment contracts are sometimes incredibly complicated documents. It can be difficult to understand a contract, and it can be daunting trying to negotiate anything. Some of us simply focus on compensation and not much else. This is a mistake. Before signing a physician employment contract, every healthcare professional should take time to understand key sections of the contract. If you don’t have the bandwidth to do this yourself, there are lawyers who specialize in contract review. Additionally, Andwise has built a contract intelligence tool to highlight some clauses that will be of interest to most physicians so that you can have some awareness and make more informed decisions.
The contract term, compensation, benefits, non-competes, and duties/responsibilities are the main areas of concern for many of us. Compensation models can vary widely by specialty with some including only a salary, others include a salary plus bonuses based on productivity bonuses and quality performance bonuses may also be added, and others seem to be strictly based on productivity models with no base salary. It is also imperative to be aware of geographic non-competes when reviewing employment contracts. These can severely limit your ability to earn a living where your family is settled (think about your house, the importance of your kids in their current schools, your extended family and friends in the area, and/or your spouse/partner’s job).
Here’s a few other things to look out for based on my previous experiences being an employed hospital physician across a dozen healthcare systems:
1/ Termination without cause
Every contract will list a ‘Termination for Cause by Employer’ section that has many reasons your employer may fire you – lapses or ineligibility to renew your medical license, certain violations reported to your state medical licensing board, if you lose medical staff membership or clinical privileges at any partner hospital/clinic, if you’re convicted of a felony or serious criminal offense, if you are struck down with total disability and unable to perform your job role, and many other things. Read this section carefully, and act accordingly.
However, there is also another section that you should read carefully. Despite having a one- or two-year contract signed, there is usually a legal way for either party to terminate the relationship early that has nothing to do with your ability to do your work. Remember that this may be a blessing or a curse depending on your circumstance. Since you have no idea how day-to-day life as an employee may be just from a site visit and interview, you may find yourself unhappy, overworked, and keen to move on and find other opportunities. This kind of clause can help you escape your misery without having to ‘tough it out’ for the entire contract duration. Also, many unforeseen things happen in life such as marriage, divorce, illness etc. that may necessitate you having to leave your current job.
On the other hand – your employer may decide that although you’re technically competent, haven’t broken any of the bylaws, haven’t lost your license or failed a drug test and hence they can’t fire you ‘for cause’ … you may just not be a good match for their organization. Or something else may have changed on their end – maybe they need to slash the budget, close down your service line, or have decided to replace with you an advanced practice provider – this clause gives them the ability to get rid of you without having to keep you on for the full duration of the contract.
When negotiating the number of days – remember that getting credentialed at any new job can take some time (especially if you’re moving out of state). 90 days seems standard in many contracts I’ve seen, I would be wary of 180 day clauses because being forced to stay in an unpleasant situation will make it even more unbearable. However, I would be careful in trying to negotiate this clause down below 60 days because even if all your ducks are in a row for your new job - bureaucracy and delays within credentialing committees aren’t uncommon (and most places only have such teams meet only once a month). If you don’t rely on your clinical income to pay your bills and live life – and you value the freedom to walk away - then maybe a fewer number of days is ideal for you.
Look for something similar to this:
“Termination Without Cause by Either Party. Either Party may terminate this Agreement without cause by providing XX days written notice of termination to the other Party.”
2/ Who covers the cost of tail malpractice insurance
Tail coverage is liability coverage for physicians that extends beyond their previous ‘claims-made’ medical malpractice insurance coverage. If you had an ‘occurrence based’ malpractice policy in force while you were working, you will not need tail-coverage when you change jobs or retire.
The reason you need tail coverage is because States have different statutes of limitations to bring forward medical malpractice claims. You could get hit with a malpractice claim years after your employment. It’s likely in your best interest to make sure your employer will pay for this since depending on your specialty it can be very expensive. If your contract doesn’t specify who will pay – that isn’t a good sign, and it will undoubtedly create confusion, lead to disputes, and ultimately you may find yourself on the hook. One of my plastic surgeon friends had to split the cost of $38,000 with his former employer because the employment contract failed to specify who would pay and neither party was interested in ‘lawyering up’ and suing the other.
Look for something similar to this:
“Employer shall purchase on behalf of Physician appropriate extended reporting insurance coverage (“tail coverage”) for claims, demands, or actions reported in future years for acts or omissions during the period Physician is employed by Employer.”
3/ Limitations on your side gigs/“exclusive engagement”
Since employers expect you to be focused on your time at work – they can and often do stipulate that you need written approval ahead of time for any outside work as a healthcare professional. If this is something you are interested in pursuing, perhaps it is best to have the conversation ahead of time and have it written into your employment contract. You won’t have much recourse if you sign the employment contract with prohibitions, and if your request is denied at a later time.
An example of the language is: “Physician shall only provide professional, clinical, managerial, directive, consultative or other services as an employee of Employer, and shall not provide professional, clinical, managerial, directive, consultative or other services to or on behalf of any third party, whether or not for compensation, without Employer’s prior written consent.”
Also, obviously your employer will not cover the malpractice insurance for your side gig and they often have terminology to outline this: e.g.
“Physician understands that in the event Physician provides such services to or on behalf of any third party, Physician shall be responsible for securing insurance coverage for any such services and shall not be covered in connection with such services by Employer’s provided insurance coverage.”
4/ Royalties and intellectual property
Have an awesome idea for writing a book or invention? Don’t get ahead of yourself since your employer may lay claim to a percentage or all of your work. If you’re a full-time employee, your employers are paying for your full time effort and you may have a hard time proving you didn’t use company resources while working on the project.
They may specify that you’re only eligible for a fixed dollar amount of profits, or a percentage, or all of it goes to the institution.
Examples of such language Institutions include to stake their claim:
Fixed Dollar Amount
“If Physician, with the prior written approval of the Employer, generates honoraria, royalties or other revenues in connection with giving lectures, writing books or articles, or carrying out medical/legal reviews, Physician may retain only such revenue up to a maximum amount of XX Thousand Dollars ($XX,000.00) per year. Employer will be entitled to any amount more than XX Thousand Dollars ($XX,000.00) per year.”
“In general, royalties on Inventions, Copyrightable Works, and Tangible Research Property, net of certain expenses attributable to protecting and licensing the property, are distributed as follows: 25% to the Creators, 25% to the Creators’ Laboratory or Unit, 25% to the Creators’ Department or Service and 25% to the Creators’ Institution.”
They own it all
e.g. 3 “The Medical System owns all Intellectual Property, whether tangible or intangible, developed by an Employee within the Scope of Employment or using Medical System Resource”
The information contained in the Andwise blog is for educational purposes only. It should not be considered financial, legal or medical advice. The author and Andwise Inc. disclaim any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of the blog. The blog is provided as is, and without warranties.
Varun Verma, MD ⇨
Dr. Varun Verma, a seasoned internal medicine physician, embodies a passion for public health advocacy and a deep-seated knowledge of the trials encountered by medical professionals. His expansive experience spans 14 renowned hospitals, including UCSF, the Brigham, Jefferson, and Bellevue. Alongside his wife, a dermatologist, Varun champions the physician-patient relationship and fosters community and solidarity among physicians.
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