General Parts of a Contract | Contracts | MD&D #11

Evidence based insights into physician compensation, RVUs, contracts, healthcare economics, and personal finances. For residents, fellows, and early-career attendings.

Life and Finances, in Medicine.

A job offer followed by a contract can feel intimidating. It is usually the first serious step into the new life that you are embarking on. Maybe it is the end of your residency or fellowship. Or perhaps you are just changing jobs after years in practice. Regardless of your situation, those few papers could dictate what your professional and even personal lives will look like for the next several years. So here is my first piece of advice. Do not panic. A contract is important, but there is nothing mysterious about it. And you do not need to become an attorney to understand the basic structure of a contract. You simply need to know what you are looking at, what questions to ask, and which portions deserve more attention.

Please remember that although the number at the top of the compensation section may get most of your attention, your salary is only one part of the agreement. A physician can receive an excellent salary and still sign a bad contract.

Let’s start with a simple question: what exactly is a contract, and what is it supposed to regulate? A job contract defines the basic relationship between you and your employer. It tells you what you are expected to do, what the organization is expecting from you, how you will be paid, how long the agreement lasts, and how either side can end the relationship. And depending on the contract, it may also determine other factors:

That is why the contract matters. Contracts are good for when things don’t go as planned. The details of what is included depend on your specific contract. Some contracts don’t explicitly mention these items. And that does not make them bad-faith contracts. They are just designed that way.

Now, let’s dissect the basic parts of a physician contract.

Basic Parts of a Contract

Although every contract is different, most of them can be understood by breaking them into six major areas:

There may be additional provisions, of course, but if you understand these six areas, you will understand much of the details of the offer you are getting.

1. Duties, Schedule, and Expectations

This section defines what you are being hired to do. It may describe your specialty, title, clinical responsibilities, administrative responsibilities, work locations, supervision requirements, call coverage, and other expectations. Read this carefully. If you were recruited to work primarily in one office but the contract allows the employer to assign you anywhere within its entire health system, that could be troublesome for you. If you were told that call would be one weekend every six, but the contract simply says that you will participate in call "as reasonably required," that matters too. This part of the contract may also describe your schedule like, full-time status, office hours, hospital responsibilities, administrative time, or other policies established by your future employer. Do not assume that something discussed during recruitment automatically becomes part of your contractual arrangement. If there are no records, you can’t prove this detail of the offer was made.  The written contract is much more important than what someone casually told you during an interview.

2. Compensation

This is usually the section everyone reads first. And understandably so. But the compensation can become complicated very quickly. This section details not only the amount you will get, but the type of compensation you will get. For example:

It is important for you to ask how this salary was calculated. Regardless of the type of salary you are being offered, especially if there is a productivity component included. So, you can ask politely:

Let me focus on one aspect. The distinction between compensation based on collections or based on your production is important. In a true wRVU-based compensation model, you are compensated for the work you did according to the dollar value of the wRVU your employer assigned to you. In this case, your employer assumes the collection risk, meaning if an insurance company denies a charge for work you performed, you will not be affected by this. A collections-based model is different: your compensation is tied to what your employer collects from insurance or other payers. The problem comes when an employer describes the compensation model as production based on wRVU but then reduces your income because of denials, or collection performance. Now, neither model is wrong. The important thing is that you understand which risk you are assuming under your contract.

3. Benefits

Your contract may also describe your benefits, including health insurance, retirement plans, disability coverage, life insurance, paid time off, CME allowances, and professional expenses. Sometimes benefits are described directly in the contract. Other times, the contract refers to separate employer policies. That distinction matters because employer policies can be changed more easily than your contract provisions. Look at more than health insurance and retirement contributions.

Ask about:

These details may seem small but collectively, they can be bigger than your compensation.

4. Rules for Termination

Your contract must specify how long the agreement lasts. One year? Two years? Does it renew automatically? Do not assume that a three-year contract means you are guaranteed three years of employment.

The contract must specify how your employment agreement ends. There is termination for cause, meaning one party can terminate the agreement because of a specific incident, like losing your license, or a misconduct. And there is termination without cause. This is enormously important. Either you or the employer can end the relationship without proving that the other side did anything wrong, if adequate notice is given. The notice period might be 60 days, 90 days, 120 days, or something else. And it must be specified in the contract.

You also need to understand what happens financially when the employment ends. Will you still receive productivity compensation you already earned? If there was a signing bonus, do you have to pay it back? Who pays malpractice tail? Do certain benefits disappear immediately? The termination section affects far more than the date you stop working.

5. Restrictive Covenants

This includes what you can do during and after you work for that employer. These usually include:

I have met many doctors who got into legal trouble for embarking on new business ventures or opening new practices, for example, without reviewing these provisions. Now that many doctors look for extra income, you must be aware of what the contract says about consulting, teaching, expert witness work, speaking, writing, or other professional activities. Can you do them? Perhaps you need permission.

6. Malpractice Insurance

Do not skip this section. Getting sued can be one of the most stressful aspects of your career. You need to know what kind of malpractice insurance you are getting when you sign your contract. This is possibly the most important section, in my opinion. Probably much more important than your income. I cannot stress this enough.

Basically, you need to ask if your employer is offering tail coverage. That means whether the type of insurance that you're getting will cover any lawsuits that you may be named in, after you leave that job. This could be very expensive if you want to pay for your own tail coverage. I have a friend who moved to New York and is still paying for his malpractice premiums, back in her state of origin because it was much cheaper than paying $200,000 for tail coverage.

How Long Do You Have to Review a Physician Contract?

A common question I get is how long it the average time to review a contract that was extended without being disrespectful. There is no universal time that applies to every contract. Getting a contract on Friday does not mean you should sign it over the weekend. But, the opposite is also true; you should not take a month reviewing the contract.

When you get the contract, ask your employer when they expect a response. If you need additional time to review the agreement or have it reviewed by an attorney, ask for it. That is fine. A reasonable employer should understand that this is a significant commitment for you. Just remember that the organization may also have other candidates for the same position who may also be waiting to get a contract, and unnecessary time spent before responding could be viewed as a sign that you may be using the contract with another employer to negotiate a higher salary. Something that is un-ethical but continues to happen. Unfortunately, I have seen that many times. Good faith on both sides is paramount for a successful match.

I know this is a lot and can create some unnecessary anxiety. So, even if you take the time to perform a thorough review of the contract, remember, you don’t need to negotiate every sentence. First, understand the contract. Then, decide what matters most to you. What is important to me, may not be the same to you. Just remember, negotiation does not mean fighting over every provision. You don’t want to start a new job like that. Some parts of the agreement may be standardized and essentially non-negotiable. Others may have flexibility.

The Contract Is Only One Part of the Deal

Another important point: not everything about your employment relationship will necessarily appear in the contract itself. Other documents, like the bylaws, and benefit plans, for example, contain these details. You can ask to review these documents when you get the contract. And you can ask how often the organization changes them.

Do You Need an Attorney?

There are certain moments in life when having legal counsel is not only recommended but necessary. For example, when signing a prenuptial agreement, buying a house, or dealing with a lawsuit. I recommend adding signing a job contract to this list. Having an experienced attorney is often worthwhile. Not because an attorney will negotiate on your behalf but because a good attorney can identify provisions you may not. Ideally, use someone who regularly reviews employment agreements for doctors. But even if you use an attorney, you still need to understand your contract. It is your career. For example, only you know what it is like to be on call every other night doing what you do.

There are six major parts of a contract: duties and expectations, compensation, benefits, termination, restrictive covenants, and malpractice insurance

Contracts are legal documents that should be taken seriously and reviewed in detail. Contracts are created for when things don’t go as planned.

Remember, you do not need to become a contract lawyer. But before you sign a document that will affect years of your professional life and potentially hundreds of thousands of dollars in income, you should understand exactly what it says.

1. Your salary is only one part of the contract.

2. Understand exactly how you are being paid.

3. Know how the relationship ends before you enter it.

“A doctor can get an excellent salary and still sign a bad contract”.

Next: Physician Salary vs. RVU Compensation: How to Evaluate a Job Offer
Your salary and your compensation are not the same thing.

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Life and Finances, in Medicine.