OCT 16, 2024
Factors to Consider When Negotiating a Physician Contract: For Surgeons
Starting a new job? Your contract matters! This guide breaks down the key parts of your employment agreement into simple terms. We’ll help you understand what to look for, so you can make the best decisions for your career.
Compensation Structure
Physician compensation models based solely on a percentage of collections are uncommon, especially in larger healthcare organizations. Hospitals and major healthcare networks rarely pay physicians using pure net-collections models.
Instead, when these larger organizations implement productivity-based compensation, they typically utilize RVU-based systems. RVU models tie physician earnings to the volume and complexity of services provided, rather than actual collections. Net collections-based compensation is more frequently found in smaller, physician-owned practices, though its prevalence can vary depending on the medical specialty.
Below are examples of compensation structures you may encounter:
- Base Salary – A guaranteed base salary provides stability and security, especially for surgeons new to practice or joining established groups. This model is often employed in the first year or two of employment.
- Advantages: Predictable income, reduced financial stress during practice ramp-up
- Considerations: Ensure the base salary is competitive for your specialty and region
- Negotiation tip: Research median salaries for your specialty and experience level to establish a baseline
- Productivity-Based Compensation – Many contracts incorporate productivity-based compensation, typically using one of these methods:
- Relative Value Units (RVUs)
- Common in hospital and healthcare network settings
- Ties earnings to volume and complexity of services provided
- Calculation: RVUs generated × Compensation factor (typically $40-$80 per RVU)
- Negotiation points: RVU targets and thresholds, Compensation factor value, Frequency of reconciliation (monthly, quarterly, annually), Treatment of excess RVUs (e.g., bonus payments, carryover to next period)
- Net Collections
- More common in smaller, physician-owned practices
- Pays a percentage of actual amount collected for services rendered
- Typical range: 30-45% of net collections
- Negotiation points: Percentage of collections, Definition of “net collections” (e.g., inclusion/exclusion of certain revenue streams), Timing of payments (e.g., 15-30 days after end of month), Treatment of accounts receivable upon joining/leaving practice
- Hybrid Models – Many contracts offer a combination of base salary and productivity incentives.
- Example structure:
- Base salary: $240,000 annually
- Productivity bonus: 40% of collections above $600,000 annually
- Negotiation points: Balance between base and productivity components, Thresholds for productivity bonuses, Caps on total compensation (if any)
Payor Mix
A payor mix represents the breakdown of revenues, charges, discharges, and patient days from different medical insurance payors for a healthcare provider or facility. It typically includes categories such as Medicare, Medicaid, and commercial/private/self-pay/other. The payor mix provides insight into an organization’s financial health and performance by showing the distribution of payment sources.
For hospitals, Medicare often accounts for a significant portion of the payor mix, while commercial and private insurance tend to make up the largest share. The specific percentages can vary based on factors like hospital type, size, and location. Understanding payor mix is crucial for healthcare providers as it impacts reimbursement rates, revenue cycles, and overall financial stability. It can also influence strategic decisions, such as service line development or marketing efforts, as providers may prioritize attracting patients with more favorable insurance coverage.
When deciding whether to contract with a payor or join a network, physicians must carefully evaluate multiple factors. These include their existing payor mix, patient demographics, and the insurance plans and employers covering beneficiaries in their market. In many regions, the health insurance market is highly concentrated, often with a dominant payor that physicians may need to contract with to serve a majority of local patients.
Key considerations for physicians contemplating a payor contract include:
- In-network benefits: Secure clear reimbursement terms and rates, gain access to the payor’s member base, and avoid challenges associated with out-of-network status.
- Out-of-network consequences: Potential for lower reimbursement (usual and customary charges rather than billed charges), limited out-of-network benefits for patients, challenges in collecting from patients, and navigating evolving surprise billing regulations.
- Payor’s market presence: Assess the number of members affiliated with the payor in the market.
- Physician’s unique value: Understand and articulate what distinguishes you from similar providers.
- Operational alignment: Evaluate whether the practice’s processes align with payor requirements, including utilization management procedures, quality measurement tools, and necessary third-party arrangements.
- Payor’s track record: Review the payor’s past performance and reliability.
- Data sharing requirements: Examine the payor’s data access needs and associated privacy/security concerns.
- Utilization management: Consider the volume of services subject to requirements like prior authorization.
- Physician profiling programs: Understand how the payor measures and reports on physician quality and cost, including potential impacts on tiered networks and patient cost-sharing.
These factors contribute to the overall context of payor negotiations. A practice’s ability to secure favorable terms depends largely on understanding these elements and how they shape the negotiation landscape. While the decision to join a payor network can be complex, practices can enhance their negotiating position by clearly understanding both parties’ goals and constraints. Engaging experienced healthcare counsel can be beneficial in developing a feasible negotiation strategy within this context.
Benefits Package
When negotiating contracts, physicians should pay close attention to benefits beyond compensation, as these can significantly impact overall financial well-being and job satisfaction. Here are the benefits you should examine:
- Health Insurance
- Coverage for surgeon and family members
- Review plan options, deductibles, and out-of-pocket maximums
- Consider negotiating for premium coverage or additional allowance for healthcare costs
- Malpractice Insurance
- Prefer occurrence-based coverage over claims-made policies
- “Claims Made” policies cover incidents and claims occurring during the policy period, with a brief extension. “Occurrence” policies cover claims for incidents during the policy period, regardless of when filed, even after policy expiration.
- If claims-made, negotiate for tail coverage to be provided upon departure
- Understand policy limits and any shared liability with the practice/hospital
- Ensure coverage meets state minimums and is appropriate for your specialty
- Retirement Plans
- 401(k) or 403(b) options
- Employer match percentages and vesting schedules
- Consider negotiating for additional retirement contributions as part of compensation package
- Continuing Medical Education (CME) Allowances
- Annual allowance for CME expenses (typically $3,000-$5,000)
- Time off for CME attendance (usually 1-2 weeks annually)
- Potential for rollover of unused CME funds/time
- Additional Benefits to Negotiate
- Licensing fees and medical staff dues coverage
- Moving expense allowances (for relocating surgeons)
- Loan forgiveness programs (especially valuable for recent graduates)
- Paid time off (vacation, sick leave, personal days)
- Professional development funds
- Technology allowances (e.g., smartphone, laptop)
Other Factors to Consider
Work Schedule and Clinical Duties
Negotiating work schedule and clinical duties is crucial for surgeons. Call requirements should be clearly defined, including frequency, limitations on weekends and holidays, compensation for excess coverage, and backup arrangements. Work Relative Value Unit (wRVU) expectations need to be established, outlining annual or monthly targets, consequences for not meeting them, and opportunities for exceeding them. Protected time for research, administrative duties, and teaching responsibilities should be specified, particularly for academic positions. Clinical responsibilities, including types of procedures, clinic hours, operating room block time, and inpatient rounding expectations, must be clearly outlined. Coverage and backup arrangements, including cross-coverage agreements and emergency protocols, should be addressed.
Partnership or Advancement Opportunities
For surgeons seeking partnership, the contract should define a clear timeline (typically 2-5 years) and criteria for eligibility, such as productivity targets and quality metrics. The buy-in structure and terms, including vesting schedules for ownership shares, should be specified. For those in academic positions, criteria for promotion and tenure, support for research and publishing, and mentorship programs should be outlined.
Termination Provisions
Contracts should address both without cause and for cause termination. Without cause termination should specify the required notice period, obligations during this time, and any severance package terms. For cause termination should clearly define “cause” and include opportunities for remediation and an appeal process. Financial implications of early termination, such as repayment of signing bonuses or treatment of accounts receivable, should be addressed. Ensure termination rights are reciprocal for both employer and surgeon.
Non-Compete and Restrictive Covenants
Non-compete clauses should specify geographic scope, typically a radius from practice locations, and duration (usually 1-2 years). Practice limitations should be clearly defined, potentially including exceptions for academic or research positions. Any liquidated damages for violating the non-compete should be reasonable. Consider negotiating for specific exceptions or proposing a non-solicitation agreement as an alternative.
Contract Duration and Renewal Terms
Initial contract terms typically range from 1-3 years. Understand any automatic renewal provisions and ensure adequate notice periods for non-renewal or contract changes. Build in periodic review and renegotiation opportunities, potentially tied to specific milestones or achievements.
By thoroughly addressing these key areas during contract negotiations, surgeons can secure agreements that align with their career goals, provide fair compensation, and establish a strong foundation for their professional practice. Remember that every contract is negotiable, and it’s essential to advocate for your interests while maintaining a collaborative approach with potential employers. Getting legal advice can also help you make a good choice for your career.
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