All Posts by Dennis Hursh

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About the Author

I am a healthcare attorney with over 40 years of experience, focusing on physician employment contracts. My book, The Final Hurdle, a Physician's Guide to Negotiating a Fair Employment Agreement, is available on Amazon.

physician disability
Aug 14

Physician Disability

By Dennis Hursh | Physician Contracts

Physician Disability Provisions in Physician Employment Agreements

The treatment of physician disability in a physician employment agreement can have a major impact on physicians. Given the nature of their work, I never cease to be amazed at the number of physicians who seem to believe that they will never become disabled. Notwithstanding the superhero persona many physicians have adopted, physicians are just as susceptible to a disability as anyone else.

When performing a physician contract review, I always analyze the physician employment agreement’s definition of “disability” and how this disability is determined. Physician disability should be determined by a physician mutually agreeable to the employed physician and the employer. Since the physician is working for one or more other physicians, it is important that the physician’s boss can’t unilaterally declare that the physician is disabled. Sometimes a physician employment agreement will sidestep this issue by providing that the physician is considered disabled for purposes of the agreement when the physician’s disability insurance treats him or her as disabled. This alternative is better than allowing the employer to unilaterally determine disability, but it is not as good as agreeing that a mutually agreeable physician will make the determination.

It is also important to determine how long the employer will continue the physician’s compensation in the event of a physician disability. I have persuaded some employers to provide, for example, full pay for some period (usually no more than three or four months), then some number of months of half pay, and then some number of months of one-quarter pay. I’ve also been able to negotiate longer periods of full pay, such as six months of full pay, followed by no pay.

Physician Disability Insurance Provisions

When reviewing a physician employment offer, it’s important to determine if the employer offers disability insurance. To analyze what benefits are provided in a physician disability insurance policy, the physician should ask for a summary plan description (“SPD”). Since most employers purchase insurance for long-term (and/or short-term) disability, the employer is unlikely to be in a position to negotiate the insurance provisions. Nevertheless, it is important to determine the nature of the benefits being offered, especially if the physician is reviewing multiple offers. It is also important to determine if it might be necessary to purchase a separate individual policy providing appropriate protection.

The physician should confirm that the  disability insurance policy defines a disability as an inability to work in the physician’s “own occupation.” This simply means that a physician is considered disabled (and therefore eligible for physician disability benefits) if the physician is unable to practice medicine. Some policies covering surgical specialties go even further and provide for partial disability benefits based on an inability to perform procedures.

The physician should beware of disability insurance policies that define disability as the inability to hold gainful employment. As a college graduate, a physician may very well be able to manage a McDonald’s restaurant even if that physician can’t practice medicine. If a physician doesn’t believe that getting free French fries for the rest of his or her life makes all their education worthwhile, the physician should avoid relying on a physician insurance disability policy that only covers an inability to hold gainful employment.

Tax Treatment of  Disability Insurance Policy Benefits

In general, if the employer is paying the premium for disability insurance, then disability benefits would be taxable. In contrast, if the physician is paying the premium for disability insurance, then disability benefits would not be taxable. While many physicians are convinced by their insurance agents that escaping taxation is well worth premiums paid, it is important to realize that disabled physicians are likely to be in a lower tax bracket if their only income comes from disability insurance. Accordingly, tax treatment of benefits should not be the deciding factor in determining the prudence of purchasing an individual disability insurance policy.

physician sign-on bonus
Jul 30

Physician Sign-On Bonus/Relocation Allowance

By Dennis Hursh | Physician Contracts

Physician employment agreements for both new physicians and experienced physicians should contain a physician sign-on bonus. If a physician sign-on bonus isn’t included in an employer’s initial offer, I always ask for one in my physician employment agreement review. A physician sign-on bonus can range from $10,000 to over $125,000.

In addition, most larger employers provide a physician relocation allowance. Although many physician employment agreements provide that only the amount paid to the moving company qualifies as “relocation expenses,” sometimes employers can be persuaded to include the costs of travel and meals incurred in house-hunting as part of the physician relocation allowance. Occasionally employers also offer a housing allowance to compensate physicians for losses sustained in selling their homes in a down real-estate market. Admittedly, senior physicians who own homes tend to find this perk more interesting than their younger counterparts.

Some physicians leaving training for their first position can pack all of their belongings into their car, so the physician relocation allowance is effectively wasted on them. In some cases, though, when negotiating a physician employment agreement I have been able to persuade an employer to revise the physician employment agreement by decreasing the physician relocation allowance and increasing the physician sign-on bonus. Although there used to be a tax advantage to characterizing money received as a relocation allowance, recent tax law changes have removed this advantage, so a physician sign-on bonus and a physician relocation allowance have the same tax effect.

It is common for the initial physician employment agreement offer to provide that the physician sign-on bonus and/or physician relocation allowance must be repaid if employment is terminated before the agreement’s initial term ends. Most of those provisions provide for what is called an “amortization” of the repayment obligation. In other words, the physician employment agreement may provide that the physician must repay a fraction of the physician sign-on bonus if the physician leaves before the end of the initial term; the repayment fraction is based on the fraction of the time that the physician didn’t work there. For example, if the initial term of the physician employment agreement is for three years (36 months) and the physician leaves after 12 months, the physician employment agreement could provide that the physician would keep 12/36 of the physician sign-on bonus, but must repay the balance (24/36).

Physician relocation allowances are generally a reimbursement of money that the physician actually paid. For that reason, in my physician employment agreement review I try to avoid any repayment obligation for the physician’s moving expenses that the employer reimbursed.

Additionally, the physician should be protected if the employer terminates the physician employment agreement without cause, if the physician terminates the physician employment agreement because the employer breached it, or if the physician employment agreement is terminated because of the physician’s death or disability. In such cases, the physician should not have to repay the physician sign-on bonus or the physician relocation allowance.

Finally, when negotiating a physician employment agreement, I have been able to obtain a shorter amortization period for some physicians. Let’s return to the above example. Say, in that case, that the employer agrees that the physician must only repay a portion of the physician sign-on bonus if employment is terminated before the first 12 months of the physician employment agreement. If the shorter amortization period is agreed to, the physician would not have to repay any part of the physician sign-on bonus or the physician relocation allowance if the physician sticks around for a year or more.

The Medical Group Management Association (“MGMA”) publishes benchmarks on both the physician sign-on bonus and the physician relocation allowance. Citing MGMA benchmarks can be helpful where the initial physician employment agreement presented provides either a physician sign-on bonus or a physician relocation allowance that is less than the median for the specialty in that particular region of the country.

Sometimes the physician sign-on bonus and/or the physician relocation allowance is structured as a loan, where the physician signs a promissory note and agrees to repay the amounts advanced if the physician doesn’t stay a given period of time. If that is the case, the physician should realize that he or she may recognize taxable income in the years the “loan” is forgiven. For example, assume a physician receives a $30,000 physician sign-on bonus that is structured as a loan on December 31, 2020. If the physician employment agreement provides that the loan will be forgiven over two years, the physician would have the following taxable income reported: 2020 - $0; 2021 – $15,000; 2022 - $15,000.

This is not a bad deal for the physician. If the physician sign-on bonus had not been treated as a loan, the physician would have paid the full tax on the bonus in 2020. The physician just has to be aware that his or her taxes will be going up in the next two years, even though the physician will not have received any cash in those years. Such physicians can avoid a nasty tax surprise in the years the loan is forgiven by increasing their tax withholding to account for this “phantom income.”

 The important aspects of the physician sign-on bonus and the physician relocation allowance go well beyond the amount of these benefits. Savvy physicians will also want to review how they are structured.
physician employment agreement offer
Jul 05

The Physician Employment Agreement Offer

By Dennis Hursh | Physician Contracts

It’s only natural that when you receive a physician employment agreement offer your competitive drive kicks in. As a physician, you’ve no doubt considered yourself to be in competition your whole life. You were at the top of your class in high school, because you knew competition to get into a good college was fierce. In college you took all the hardest courses, and you knew you had to be at the top of the class to get into medical school. Given that background, many physicians feel they need to keep competing after they have received a physician employment agreement offer.

Almost uniformly, though, potential employers view the competition for the position as being over once they make an offer. There may very well have been several qualified physicians vying for that position. The employer may have sifted through a large number of curricula vitae. It’s possible that more than one potential candidate was flown in for interviews. Nevertheless, when a physician employment agreement offer is extended, most employers view the selection process as over. If the potential employer is acting in good faith, it has made its decision by the time the physician employment agreement offer is tendered.

Of course, the curricula vitae of the other candidates may be retained, “just in case.” But this employer has decided that you are the one. It has invested valuable physician time in sifting through the documents of all the candidates, invested money in bringing you in and putting you up when you interviewed, and invested more physician time in the actual interviews. Physicians earn a living by seeing patients, not by interviewing potential new employees. They have foregone significant income by investing their time in choosing their next colleague. This is not a process that they want to keep repeating until they strike the best possible deal among everybody interested in the position.

To reiterate – at the time the physician employment agreement offer is presented, the employer has made up its mind. The prize is no longer the position, it is the physician (you). Of course, I am not suggesting that you now become obnoxious or cocky. At the same time, however, it is important that you realize that you have a lot more bargaining power at this point then you may think you have. The employer probably views physician employment contract negotiations as a tedious step it needs to go through in order to achieve its goal of bringing you in as a colleague. The employer most certainly does not view the initial offer as “take it or leave it”, nor does the employer have a pool of other candidates it would be just as content to work with.

The bottom line here is that you should not be concerned about the employer’s reaction to a legal review of a physician employment agreement. Nor should you be concerned about the employer’s reaction to citing MGMA benchmarks in a physician employment agreement review. By all means, don’t hesitate to get a physician employment agreement review. But, most importantly, relax – the competition has been won!

trapped physician
Feb 20

Malpractice Insurance in Physician Employment Agreements

By Dennis Hursh | Physician Contracts

Problems with malpractice insurance  in physician employment agreements are horror stories that repeat themselves all the time. A new physician takes a position right out of training and signs the contract presented to her. After a few years, she is ready to move on to greener pastures in another town. She’s moving far enough away that her restrictive covenant won’t apply, and this time she’s getting her offer reviewed by a  competent physicians contract attorney.

Her attorney gives her a thorough written review of the physician employment contract, and they discuss the review over the phone. One of the lawyer’s comments about malpractice insurance puzzles the physician. Her attorney says that the new contract contains what he describes as a “common provision,” a clause to the effect that the new employer’s malpractice insurance will only cover her for claims arising from her new employment. Does her current employer have a “tail”?

The physician is absolutely convinced that her current boss has horns, but she has never seen evidence of a tail. Her attorney explains that a “tail” is a policy that covers the physician for claims that arise after she leaves her current position. Tail coverage isn’t always required—depending on the type of insurance her current employer carries, the physician may be
covered for those claims automatically. A casual discussion with the office manager at her current position reveals that the practice has claims-made insurance, so the physician will not be covered for any claims that arise after she leaves. Her current contract requires her to purchase tail coverage at her expense when she leaves. The physician is shocked to learn that the premium for the tail coverage is about a third of her yearly salary. She reluctantly decides that she can’t afford to change jobs now or in the foreseeable future. She is stuck in a position that she hates and has to turn down what seems like a dream job in comparison to her current servitude.

Types of Physician Malpractice Insurance

There are two types of physician malpractice insurance: occurrence and claims-made policies.

The first type of policy covers you for any claims that “occur” during the period of the policy. If a claim arises based on an alleged action or omission during the period the policy was in force, you are covered - no matter when the claim is presented. In other words, if a case is filed several years after you leave employment, based on alleged malpractice that occurred while you were employed and covered by that policy, you are automatically covered.

The second type of physician malpractice insurance is claims-made coverage. As the name implies, such a policy will only cover a claim that is made during the policy period (i.e., if a lawsuit is filed or threatened). If you leave employment and a claim is filed against you based on alleged malpractice that occurred while you were employed, this type of policy will not cover you.

There are several reasons an employer may purchase claims-made coverage. First, of course, it is cheaper than occurrence coverage. In addition, sometimes occurrence coverage is simply not an option - once the legal environment reaches a critical mass of craziness (as it did in Pennsylvania a few years ago), insurers stop selling occurrence malpractice insurance. As in much of healthcare, these crises tend to be cyclical, so the availability of occurrence insurance varies over time in any given state.

To protect the physician after leaving a position with claims-made malpractice insurance, a separate policy to cover any later claims that are based on alleged malpractice at the old position must be purchased. This is called “tail coverage.”

Tail coverage isn’t cheap. Premiums for a tail can cost as much as a third of a year’s salary. That’s why it is so important to make sure your employment agreement addresses payment for a tail when you leave.

The Bottom Line on Physician Malpractice Coverage

The employer should agree to provide malpractice insurance in reasonable amounts. For example, the coverage provided should be no less than the greater of state-mandated minimums or that required for the hospital staffs the physician is required to join. The type of coverage provided (occurrence or claims-made) is almost never subject to negotiation.

To protect yourself when you leave employment, you have to negotiate responsibility for payment of tail coverage premiums. That must be done regardless of what kind of insurance the employer is currently carrying. Even if the employer has occurrence insurance now, you must protect yourself if the employer subsequently switches coverage (either voluntarily, to reduce costs, or because occurrence coverage simply isn’t available anymore).

I remember the good old days when virtually every employer was willing to pay for a tail. Those days are long gone. Most hospitals are willing to pay for a tail, although that concession is not uniformly contained in the first offer. Private practices, however, are becoming less likely to offer to pay for tails, especially in the first offer.

I have found that many employers are willing to pay for all or a portion of the tail under certain circumstances, especially if the physician can convince them that it isn’t fair not to pay a tail. For example, I am frequently able to persuade employers to pay for the tail if they terminate the physician’s employment without cause or if employment terminates because of the physician’s death or disability.

As a fallback position, if I can’t get the employer to agree to pay for all of the tail coverage, sometimes I am able to obtain partial payment based on the length of employment. For example, the employer might pay a fifth of the tail’s cost for every year of service. That way, if the physician sticks around for five years, the employer pays all the tail’s costs.

However, many employers are not willing to pay for any portion of the tail if the physician terminates employment without cause or if the employer terminates the physician’s employment for cause. It’s a little hard to get the employer to pay for a tail under circumstances in which the physician embarrassed the employer, especially if that embarrassment involved legal exposure.

For those looking at a physician’s employment agreement with a private practice, the good news is that most practices do pay for a tail for the practice owners.

Problems with malpractice insurance in physician employment agreements are a big deal - physicians must ensure that they are protected, or they could be trapped in a job by financial restraints.

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