Physician Contract Negotiation: The 6 Worst Mistakes

mistakes in physician contract negotiations

Physicians  too frequently commit the worst mistakes in physician contract negotiation. In my 40 years of reviewing physician employment agreements I have seen these mistakes repeatedly. Read on to learn what these errors are, and how to avoid them.

Here, in no particular order, are the worst mistakes in physician contract negotiation:

  1. Not treating a letter of intent or term sheet seriously
  2. Physicians not knowing what they are worth
  3.  Signing contracts with ambiguous language
  4. Assuming that the offer that pays the most is the best deal
  5. Evaluating a covenant not to compete based on its legal enforceability
  6. Falling for the old “this is our standard contract” line

Treating Term Sheets or Letters of Intent as Meaningless

Letters of intent for physicians (sometimes abbreviated as an “LOI”) are also sometimes called term sheets.  These documents often contain language to the effect that they are not legally binding.  One of the most common mistakes in physician contract negotiations occurs when a physician assumes that since it is not legally binding it is meaningless.

Letters of intent in physician contracts are meant to assure that the employer and the physician are “on the same page” on the important aspects of the proposed arrangement. If there are large discrepancies  between the salary the employer expects to pay, and the salary the physician expects to receive, there may not be much point in continuing negotiations.

I have been stymied in many negotiations of physician employment agreements when I point out the results of an MGMA compensation analysis which demonstrates that a given salary, signing bonus, etc. is below MGMA benchmarks. Too many times the employer’s counsel flatly states that “the physician has already agreed to that.”

The lesson here is that you should not sign a physician letter of intent if you are not comfortable with all the terms listed. Don’t assume that a document which provides that it is not legally binding will not be considered agreed to when the contract is proposed. 

Physicians not knowing what they are worth

This is related to the first mistake in physician contract negotiations, where physicians sign a letter of intent without knowing if the salary, physician sign-on bonus, relocation allowance, etc. are fair for a physician in their specialty in a given geographical area for the type of employer they are looking at (e.g., hospital or physician group).

Too many physicians get a sense of what they are worth from other offers, or from chatting to colleagues. It never ceases to amaze me when physicians who are superbly educated in statistical analysis use one to five data points to determine if a given compensation offer is reasonable. Getting an MGMA compensation analysis seems like a no-brainer. MGMA publishes benchmarks for compensation, signing bonus, physician benefits such as vacation, CME, and collections and wRVU data. It is impossible to analyze the value of physician productivity compensation provisions if you don’t have access to  productivity benchmarks.

Although many medical libraries have the paper book with this data, the data for many specialties can be broken down to the state and type of employer level (e.g.,  Pennsylvania hospital). This sort of specificity can be very helpful when an employer tries to use an old chestnut like  “that data is nationwide, but we pay less in the South” or “that data is for big hospitals, but we are a poor private group.” 

Don’t make the mistake of entering negotiations without a good knowledge of what you are worth!

Signing a Physician Employment Contract with Ambiguous Language

Another of the huge mistakes in physician contract negotiation occurs when a physician signs an agreement with ambiguous language.  Physicians have been trained in medicine, not law – so they sometimes read language in a way that would be most favorable to them. You must always remember that the physician employment agreement was drafted by the lawyer for the employer, and no doubt protects the employer’s interests nicely.

A good lawyer will rarely allow an ambiguity that could be construed against the lawyer’s client. It’s likely that what the physician views as an ambiguity has been carefully crafted to protect the employer if that particular provision were challenged. Too many physicians who are concerned about the meaning of some bit of legalese ask a physician who is recruiting them to interpret an ambiguous provision. Even well-meaning physicians who are recruiting you are likely to give their take on what it means – and they don’t have any more legal training than you do!

I have frequently been assured that, in spite of what appears to be clear language, the employer “would  never enforce that.” The obvious question when given that line is to ask why a provision that would never be enforced needs to be in the agreement. After making a flat assertion that the provision would never be enforced, you are sometimes told that it is in there “just in case.” That obviously means that the employer would use the provision if it proved useful.

I am naturally biased, since I make my living doing physician contract review. However, I don’t see how you can argue against having a physician’s attorney review the document drafted by the employer’s attorney. At a bare minimum, physicians should study a book on physician employment agreements to try to get a handle on what issues may lurk in the agreement. However, of all the mistakes in physician contract negotiation, this one is the hardest to avoid if you don’t get a lawyer on your side.

Assuming that the Position that Pays the Most is the Best for You

Another of the top mistakes in physician contract negotiation is the assumption that the offer that pays the best is the best deal. When a physician employment agreement offer with unusually high compensation is received, many physicians automatically assume that this is the best position for them. It might be the best for you, as long as you realize that there is no “free lunch” (with the possible exceptions of drug company presentations and recruitment lunches). 

The employer that pays the most probably has harsher patient contact hour requirements, and call coverage requirements.

There tends to be a dichotomy between the perception of the physician and the perception of the employer in entering into a physician employment agreement. The physician often views the offer as a reward from the universe for the brutal training that has been endured.  The employer wants someone who will make it money. An employer that pays less may have better benefits, or a better lifestyle for it’s physicians.

I always recommend that physicians “go with their gut” in deciding which employer is right for them. Although I especially relish telling this to gastroenterologists, it is equally applicable to all specialties. Don’t make the mistake of assuming that all other aspects of your employment will be the same, except that one employer pays more than another.

Assuming a Restrictive Covenant will Not be Enforced

Another of the most serious mistakes in physician contract negotiation occurs when a physician evaluates a restrictive covenant based on whether or not a court will enforce it. Physician covenants not to compete have been challenged many times, and sometimes these challenges win. However, the legal enforceability of covenants not to compete (also called restrictive covenants) is all but meaningless for most physicians.

An employer who hires a physician subject to a restrictive covenant can be sued by the former employer for “intentional interference with contractual relations.” To prove this tort, the old employer merely needs to prove that the new employer was aware of the contractual provision and hired the physician anyway.

No employer wants to go to court, even if they have assurances that they will “win.” Tens of thousands of dollars in legal fees is rarely deemed worth it, no matter how the case turns out. I have represented a physician with a 65-mile restrictive covenant who was looking to work at a hospital about 62 miles away from his former employer. The general counsel at the hospital agreed that the former employer would never win if it brought a suit. Nevertheless, the hospital declined to hire my client because it did not want to go to court.

Don’t make the mistake of assuming that a restrictive covenant will not be enforced.  The market will almost always enforce the covenant, even if a court would not.

Signing the "Standard Contract"

Last, but certainly not least of the worst mistakes in physician contract negotiation, is falling for the old “this is our standard physician employment contract” line.

You can’t blame employers and recruiters for using this line – it works a disturbingly high percentage of the times it is used. Often the individual who uses this line follows up with an explanation that “I can’t make any changes.” This may be literally true – the physician or recruiter can’t make any changes.  Of course, requests could be submitted to the legal department, but it’s worth a shot to see if the physician will sign it “as is.”  Unfortunately, many will.

I have reviewed and negotiated thousands of physician employment agreements, and I can count on both hands the times an employer actually refused to change anything. I have had employers insist on an addendum or a side letter rather than disturbing the sacred text, but the vast majority of employers will make reasonable changes to the first draft.

Knowledge is Power When Avoiding Mistakes in Physician Contract Negotiations

Avoid the worst mistakes in physician contract negotiations by being aware of the following issues:

  • The employer will consider terms in the letter of intent or term sheet “off the table.”
  • Get an MGMA analysis before you begin negotiating, so you know what you are worth.
  • Don’t sign an agreement with language that isn’t clear.
  • Understand that the employer that pays the most isn’t necessarily the best offer.
  • Don’t ignore a covenant not to compete because you (or a lawyer) believes that it is not legally enforceable; and
  • Don’t believe that every contract of the employer is “standard.”

With these points in mind, you should be able to avoid the worst mistakes in physician contract negotiation.

If you would like me to review your physician employment agreement, you can start your review here. If you would like a complementary consultation with me to discuss your particular concerns, you can set an appointment.

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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.

2 thoughts on “Physician Contract Negotiation: The 6 Worst Mistakes”

  1. I highly recommend Dennis for his integrity, knowledge, and generosity. As a young physician, I was caught in a tangle with a very unethical employer with whom I ultimately separated.
    Although Dennis could not help me with the matter due in my state, he looked at my contract without charging me and gave me general pointers. I will never forget this gesture.

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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.