Letters of Intent in Physician Contracts

Although a letter of intent for a physician employment or practice sale agreement may not be legally binding, it's important not to restrict yourself.
Letters of Intent in Physician Contracts

The contracting process for physician employment agreements and medical practice sales sometimes (but not always) begins with a letter of intent.

 

The Purpose of Letters of Intent in Physician Contracts and Medical Practice Sale Agreements

A letter of intent in Physician Contracts  is simply a very brief summary of the main terms of what the parties assume will be a binding formal contract (either a physician employment agreement or a medical practice sale agreement, or both, as the case may  be). The purpose of these documents is to make sure that the both parties are “on the same page” as far as the major terms of the agreement they hope to form.

In an employment agreement, if you think you’re going to be paid $300,000 a year but the employer is expecting to pay $200,000 a year, there may not be any value in continuing negotiations. Similarly, if the hospital or other purchaser thinks they are buying only used furniture, but you think you are selling a valuable medical practice, it is better to know that before the lawyers start looking at documents.

You can think of a letter of intent as a means of making sure that it is worthwhile to continue negotiations .

Most terms of the letter of intent are not legally binding

Since the purpose of a letter of intent in physician employment agreements or medical practice sales agreements is just to determine if further negotiations are in order, the terms in a the document are generally not legally binding. However, certain provisions of a letter of intent are legally binding. Specifically, the document will most likely provide that each party is responsible for its own attorneys fees, that the negotiations will remain confidential, and that the physician will negotiate exclusively with this employer/purchaser for some period of time.

These provisions generally are legally binding (that is, even if you do not sign a physician employment agreement or medical practice sale agreement, you are still bound to pay your own attorneys fees and keep the terms of the negotiations confidential).

The Effect of a Letter of Intent

Remember that the purpose of a letter of intent is to make sure that you and your potential employer are on the same page with respect to the major terms of the employment agreement (and, possibly, the medical practice sale agreement) you hope to conclude.  Although there will be countless terms and conditions of the final agreement(s) that will be negotiated, you should assume that anything you agree to in a letter of intent is “off the table”.

Accordingly, your potential employer/practice buyer will be seriously ticked off (sorry for the legal jargon) if you sign a letter of intent that sets forth a specific salary, and then attempt to negotiate a higher salary, or if you attempt to negotiate payment for goodwill for your practice if the  letter of intent was clear that only hard assets were being purchased.

How to Handle a Letter of Intent

A letter of intent is not a bad way of starting off negotiations for your physician employment agreement and (if applicable) medical practice sales agreement.  The employer will generally emphasize that the letter of intent is not legally binding.  That is true, but don’t treat the letter of intent as a meaningless document.  If there is something you are uncomfortable with (e.g., the salary offered) you can always attempt to retain flexibility by asking that the hard number be replaced with a phrase such as “an annual salary of approximately $X, to be determined in the definitive physician employment agreement”.

Should You Get an Attorney Involved in a Letter of Intent for a Physician Employment Agreement or Medical Practice Sale Agreement?

The classic lawyer’s response to any question: “It depends”.  You probably don’t need an attorney before the first draft is tendered, as long as you don’t say something that could lead the employer to believe that you are going to accept a given term. If you are uncertain about the compensation offered, it would certainly be smart to get a MGMA compensation analysis.

However, it would be prudent to have a competent physicians’ lawyer review a letter of intent before you sign it if all of the provisions aren’t crystal clear.  I may be a tiny bit biased (since I make my living doing this stuff), but I think it is a good idea to err on the side of caution to make sure you aren’t “agreeing” to something that you don’t want in the final agreement.

Please schedule a free phone consult if you would like to discuss your particular situation.

You may also be interested in my posts about physician productivity compensation and negotiating physician employment agreements.

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Dennis Hursh

Dennis Hursh

Dennis Hursh has been providing healthcare legal services in Pennsylvania since 1982. Since 1992, he has been a physician's lawyer serving as Managing Partner of Physician Agreements Health Law, the first law firm in the country to focus exclusively on physician employment agreements. Dennis has devoted his life to serving physicians and medical practices. He is the author of the definitive book on physician contracts "The Final Hurdle - a Physician's Guide to Negotiating a Fair Employment Agreement, and a frequent lecturer on physician employment agreements.

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    How It Works

    After purchasing the physician contract review, you will receive an email asking you to transmit the agreement and any concerns you have to me. Many physicians do this by email, but I will be available by phone, too. In three business days from the time you purchase the Physician Prosperity Program® and transmit the draft physician employment agreement along with any concerns you have about the agreement and the information I will need to perform the MGMA analysis, you will receive a detailed physician contract review letter from me.

    After you receive my physician contract review letter, you will have the opportunity to discuss it with me, to make sure all of your concerns were met, and to correct any factual inaccuracies, or to point out things that were verbally promised but didn’t make it into the physician employment agreement. These discussions, and revisions of the letter following these discussions, are included in the initial fixed fee.

    Once you are completely comfortable with the physician contract review letter, you transmit the letter to your potential employer.