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How to Negotiate an Employment Contract

May 27, 2016 10:30AM ● By Med Magazine

By Jeana Goosmann 



Hospitals routinely face the complex dilemma of needing to add a top notch physician while working with limited funds to recruit due to a declining operating budget. In addition, physician recruitment is complicated by the legal restrictions placed on physician transactions, and the myriad key terms for mutual agreement critical to a deal. Here are some beneficial tips on how to negotiate a physician employment contract that is a win-win for physicians and employers.

First and foremost, consult an employment lawyer specializing in health law. While some sections of an employment contract may seem straightforward, close analysis is required for the terms in physician contracts that are uniquely governed by lengthy and complicated regulations. It’s best to have an experienced lawyer look over the entire agreement to ensure that it complies with regulatory issues that do not arise outside of the healthcare field.

Second, identify and communicate the culture of your organization. Peter Drucker’s quote “culture eats strategy for breakfast” is used across the nation in healthcare leadership training. If you are an employer, pitch your culture before pitching your compensation. You want to make sure that you are recruiting a physician who fits into your team.

Third, maintain open and clear communications throughout the negotiating process. This is important whether you are the employer or the physician looking to join an organization.  If each side clearly expresses what is important to it in the negotiations, the process is more likely to be smooth without misunderstandings. Depending on the size of the employer, some employment terms may simply be non-negotiable or set by a committee rather than the executive negotiating at the table.

There are a number of terms in most physician employment contracts. Compensation usually receives the most legal attention in negotiations. But I have spent more time negotiating medical malpractice tail provisions and call coverage to wrap up an employment contract.  The following terms are also important in negotiations: professional liability coverage limits, restrictive covenants addressing non-competition and non-solicitation, call coverage and shift schedules, moonlighting restrictions, outside ownership restrictions, assignment options, termination and disability, continuing medical education expenses, hospital privilege requirements and practice locations.

Because physician compensation must comply with federal fraud and abuse regulations such as the Stark Law, the Anti-Kickback Statute, and the False Claims Act, it is important that you work with an experienced health law attorney to mitigate employer and physician exposure to civil and criminal penalties.

When addressing the issue of compensation, nationally published compensation data and/or opinions from compensation consultants can aid negotiations as resources to mitigate compensation “Fair Market Value” risk. However, neither should be the sole due diligence of a fair market value assessment. If the employer is a non-profit entity, it will be important that the compensation package also complies with IRS regulations.

For employers, explain your compensation and bonus structure in detail even if the contract starts with a set salary for an initial period. Set the physician up for success in a productivity and/or quality measurement compensation structure in the beginning. This is where the importance of open communication and explaining organizational cultural issues is important to the negotiating process.

Sign on the Line

When you present the employment contract to that top notch physician, or you are the physician on the other side of the table, be open and ready for negotiation. At the end of the day, an intelligently-written physician employment contract will have little room for legal risk or confusion on the terms at the signing table.

The employer should have identified terms for its negotiation team that are negotiable and the range of change authorized from both its legal team and business owners. Identifying such with proper approval will help avoid unnecessary risk of civil and criminal penalties which would affect both the employer and the physician. Also, do not skip over discussing a term or section simply because it hasn’t come up yet, even if it isn’t negotiable. No employer wants a physician to pull his/her pen away at the signing table due to questioning a section of the contract for the first time.

Above all as the employer offering the contract, make sure your health employment lawyer reviews the employment contract thoroughly before handing the offer over for signatures. Plan how to best sign that physician without painting a health law target for federal regulators on everyone involved.

Attorney Jeana Goosmann is Founder and Managing Partner of Goosmann Law Firm in Iowa, Nebraska, and South Dakota.