Home Feature What to look for in a new contract

What to look for in a new contract

Published in the May 2015 issue of Today’s Hospitalist

YOU HAVE PLENTY of evidence-based tools to treat complex clinical conditions. But how do you evaluate a contract before you take a new job?

According to legal experts, doctors should pay close attention to contract terms that pertain to starting that new job “compensation and signing bonuses “and to leaving the position down the road, especially language around restrictive covenants, giving notice and tail coverage. And of course, you need to figure out what’s in that small print at the bottom.

Compensation packages
When it comes to compensation, Andrew Knoll, MD, JD, a former hospitalist who is now a partner with Cohen Compagni Beckman Appler and Knoll PLLC in Syracuse, N.Y., has this advice: Don’t just look at the salary figure.

“Look at all the compensation components: RVU thresholds, base salary, bonus structure, citizenship incentives,” Dr. Knoll says. “You need to look at the whole package to make an informed decision.”

According to the 2014 Today’s Hospitalist Compensation & Career Survey, 38% of hospitalists reported earning a straight salary, 55% said they received salary combined with productivity and other incentives, and 6% claimed their compensation was pegged entirely to productivity. Hospitalists with a combined compensation model received bonus income that ranged between $10,000 and $100,000 per year, with about half earning bonus amounts between $10,000 and $30,000.

Frequently, physicians just out of residency are offered a straight salary for one to two years because they won’t be as productive as veteran hospitalists. Or new physicians are compensated per RVU, with a guaranteed minimum salary if that RVU quota is not met.

Many experts believe that some combination of salary and productivity is the right way to go. But Dr. Knoll points out that some hospitals may offer tempting packages with fabulous salaries or hefty bonuses linked to an extremely unreasonable RVU figure.

That alluring salary may also be cut the following year if the physician fails to meet the RVU threshold “a tactic Dr. Knoll likens to “bait and switch.” Some contracts have this type of penalty clause, while others do not.

How negotiable are compensation formulas? “In general, hospitals have a compensation formula for everyone and will not make an exception for one person,” Dr. Knoll explains. “But one may be able to negotiate a penalty clause out of the contract or increase the number of years of base salary from one to two.”

Signing bonuses and payback
When considering a new job, don’t automatically jump for the $50,000 signing bonus being dangled by a rural hospital. If you miss the city and want to head back to an urban hospital in a year, you could be in for a surprise.

“You can’t simply terminate your contract early and walk away,” says Chris Brown, JD, an attorney with the Health Law Firm in Altamonte Springs, Fla. “You usually have to repay part or all of that bonus.”

This is also true of other recruiting incentives, such as credentialing or relocation costs, student loan repayment, and even recruitment fees. Any termination of employment before the end of the contract period ” whether initiated by you or the hospital or group “can trigger incentive repayment. So if you’re fired, you incur the same repayment burden as if you left voluntarily.

To protect yourself, make sure your contract spells out “exactly what the hospital considers grounds for termination,” Mr. Brown says. Some are obvious such as misconduct, criminal activity or a revoked license.

“But you should not have to repay anything if the employer terminates you without cause,” says Dennis Hursh, JD, managing partner of Hursh and Hursh PC, a Pennsylvania-based law firm that represents physicians.

Further, the contract should specify repayment terms, including when and how much. Signing bonuses are typically considered to be pro-rated over two to three years. You may have to repay only the remaining pro-rated amount “but some employers require the full amount, even if you have already worked a year.

The key is to find out what’s tucked away in the contract, and don’t be afraid to negotiate something more favorable.

“Physicians underestimate the leverage they have,” says Mr. Brown. “They’re afraid they’ll scare away the potential employer, but that hasn’t been my experience.” On the contrary: His clients have successfully negotiated amending or nullifying repayment terms.

So even when you’re told, “This is our standard contract,” plan to negotiate. But don’t bring an attorney in at this juncture. “Once attorneys are involved,” Mr. Brown says, “the process can become unnecessarily adversarial. Get legal advice behind the scenes, but do the negotiation yourself.”

Dig into that small print
Your contract seems interminably long, but your potential bosses insist it’s their standard contract. And all that boilerplate at the bottom can’t be important, right?

“Nothing could be further from the truth,” Mr. Brown warns. “It’s extremely important to take this section of the contract very seriously.”

That small print contains the “integration clause,” stating that the contract content constitutes the complete agreement between the two parties. Additional language holds that all prior negotiations and documents are superseded by the signed contract.

“This clause nullifies any oral or written representations made to the physician prior to signing including e-mails, oral promises, handshakes and letters of intent,” says Mr. Brown.

Neither the signed offer letter nor previous e-mail exchanges are legally binding. Either party can walk away from them with neither owing the other anything and with no penalties incurred.

The best way to protect against nasty surprises buried in the boilerplate is to show the contract to an attorney before signing.

“And make sure the attorney reviewing the agreement knows what you’ve been promised,” Mr. Hursh points out. Otherwise, he or she won’t flag a promised item that isn’t in the contract you were sent.

How do you exit?
Even before you start your new job, make sure contract terms for your potential resignation are fair and reasonable. Typically, contracts stipulate that you need to give your employer advance written notice.

But “I’ve had clients who have signed contracts with no mechanism to quit,” says Dr. Knoll. “If life takes them in another direction or they’re miserable in their job, they’re stuck.”

The provision you want to see is one called “termination without cause.” Ending a contract without cause means you are not leaving for reasons related to an employer’s inappropriate conduct. Contracts may require physicians to give as little as 30 days notice and as much as 180 days, but between 90 and 120 days is the norm.

But simply having a termination without cause provision isn’t enough, Mr. Brown says. “Make sure the notice period is equitable, meaning that the employer and the physician must give the same amount of notice.”

That rarely will be spelled out. Often, the hospital or group requires the physician to give 90 days’ notice (or more), while setting a reduced notice period for itself. “This puts the physician at a disadvantage,” he points out.

Such a clause is negotiable, however. You may not get a completely equitable arrangement, Mr. Brown says, but you should be able to close the gap.

According to Mr. Hursh, “If a hospital displays no flexibility in closing the gap, it’s a warning sign that the employer generally isn’t fair to its employees.”

Dr. Knoll also notes that the amount of time a hospital requires for giving notice is a clue to the position’s desirability. “When the hospital or group requires notice longer than the standard 90 to 120 days, I start wondering if there is an issue with recruiting or keeping employees,” he says.

And if you’re relocating, ask the hospital or group to give you 180 days’ termination notice or to write in the contract that the employer can’t terminate your employment without cause during the first year.

Restrictive covenants
Your contract contains a restrictive covenant that prohibits departing physicians from setting up a practice for a set period of time (typically two years) and within a set geographic radius. That can range from as little as five miles to 20 or 30 from your current hospital.

“The wording may seem simple, but there are many variables that make things complicated and can really limit a physician’s future employment,” warns Mr. Hursh, the author of “The Final Hurdle: A Physician’s Guide to Negotiating a Fair Employment Agreement.”

The first question to consider: How is your current employment situation defined?

“It would be logical to assume that you’re restricted from practicing within a 20-mile radius of your current geographical location, but that doesn’t necessarily follow,” says Mr. Hursh. If you are employed by a large hospital system with multiple satellite facilities, you may be barred from practicing within 20 miles of any system-owned facility.

Dr. Knoll notes, however, that a hospital is different from a private practice. “Hospitalists are similar to airline pilots,” he says. “People have a relationship with the airline, not with the pilot.” Hospitals may be less likely to enforce restrictive covenants because a hospitalist cannot “poach” patients by going to a different facility.

Mr. Brown tries to negotiate several things into a restrictive covenant. “One is that the prohibition should refer only to the primary practice location. This covers the possibility that you might have spent an occasional day in a satellite location.”

Also, nail down exactly what “practice medicine” means, says Mr. Hursh, with language spelling out that the radius is related to the hospital location, not the overall practice of medicine. Physicians with multiple specialties might be able to practice one specialty without a geographical restriction, he points out. And hospitalists may have the option of practicing outpatient medicine within that proscribed radius.

The reason why a doctor is leaving may also affect the noncompete. “I negotiate into the covenant that if the employer terminates the contract without cause or if the physician terminates the contract with cause, the restrictive covenant should be rendered null and void,” Mr. Brown says.

Negotiating tail coverage
“One of the most important things to look for in your contract is whether the hospital will continue to provide coverage for patient encounters that took place while you were there, even once you’ve left,” says Mr. Brown.

There are two kinds of malpractice coverage: occurrence and claims-based, explains Dr. Knoll. An occurrence policy covers you not only while you work at the facility, but even years later if a claim is made against you after the policy has expired and premiums are no longer being paid.

In claims-made coverage, however, the insurer covers only incidents that happened and claims filed while the physician is still on the policy, similar to car or homeowners’ insurance. “When the premiums are no longer paid, there is no more coverage,” Dr. Knoll says. “Your new policy also won’t cover alleged malpractice that took place when you were insured by another company.”

The solution, called tail coverage (also known as an extended reporting period), is additional coverage you or your employer can buy once a claims-made policy is cancelled or expires. Purchased from the original insurance company, it essentially converts a claims-made to an occurrence policy.

But tail insurance is expensive and some hospitals balk at paying it. That’s a red flag, says Mr. Hursh, but not necessarily a deal-breaker. “I have sometimes been able to obtain a compromise so the employer pays a portion of the cost of tail coverage for every year of service. Some employers will pay for a third of tail-coverage costs for every year of completed service.”

When looking into buying tail coverage yourself, find out about state requirements on malpractice limits, and investigate the cost with your current and future employers’ carriers.

“Tail coverage has major long-term consequences, so review your contract and make sure terms are clearly spelled out,” says Mr. Brown. “And don’t be afraid to negotiate.” Tail coverage, he adds, is worth fighting for.

Batya Swift Yasgur, MA, LMSW, is a freelance health care writer based in Teaneck, N.J.

Getting the language right on call coverage

YOU’VE RECENTLY joined a private hospitalist group with 10 physicians. The contract noted that call coverage would be “equally” split among the group, which translates to three to four days per month. 
But once you start, you find out that the four physicians who have been with the group more than 10 years are exempt from taking call. You’re splitting call with six doctors, not 10 “quite a difference.

“This scenario is all too common,” says Chris Brown, JD, an attorney with the Health Law Firm in Altamonte Springs, Fla. “Often, contract language is very broad, leading to incorrect assumptions.” Instead, doctors should “firmly narrow down” exactly what call coverage consists of, leaving nothing to chance or interpretation.

Dennis Hursh, JD, managing partner of Hursh and Hursh PC, a law firm in Middletown, Pa., agrees. “I don’t use the word ‘equal,’ ” he says. “I prefer the word ‘equitable.’ ” If, for example, all group members are expected to take call two days a week but you’re always stuck with Saturday and Sunday, the numbers may be equal but the arrangement isn’t equitable.

Instead, “I use language such as, ‘call coverage will be equitably allocated and will not exceed two days per week and one weekend per month’, ” he says.

Don’t be afraid to negotiate creative call coverage arrangements, he adds. “You might agree to a certain number of days per month, then negotiate extra pay if you are on call additional days.”

And be sure you have an exact definition of “day.” Mr. Hursh recalls one client whose contract stated that he would be on call a certain number of days a month. “He was shocked to discover that the hospital defined ‘day’ as a 24-hour period while he thought it meant ‘daytime,’ so he was expected to also take call at night.”

Because call coverage is such a crucial component of your work life, begin hammering out details verbally before you even get to the contract stage. Then make sure the contract contains what you discussed.

“Sometimes, the general contract language is deliberately vague, so flesh it out before you sign,” advises Mr. Brown. It might be a good idea to ask an attorney to review the contract, just to make sure there is no ambiguity.