ChesterCountyMedicineWinter2018 - 24

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NEGOTIATING
PHYSICIAN CONTRACTS
BY KAREN DAVIDSON

hysician employment contracts encompass relationships
between doctors and savvy hospitals/health systems,
academic medical centers and private practices. These
contracts have evolved into sophisticated instruments drafted
principally for the benefit of the employer. They specify the duties
and obligations of the physician (from patient-care hours to oncall duties), outline compensation, address malpractice insurance
coverage (often inadequately), and delineate termination rights.
This article seeks to raise awareness of four key contract areas and
highlight some related negotiation tips.

Compensation
While physician compensation historically was a set amount
with annual increases, changes in reimbursement and health care in
general have vastly increased the complexity of physician compensation, shifting risk to physicians. What exists now are elaborate
compensation models that typically provide guaranteed base compensation for only one or two years, after which the base and/or
bonus is subject to productivity benchmarks. These include work
relative value units (wRVUs) (a measure of physician work effort),
collections, quality measures and others, that are used to establish
targets to determine if a physician will retain, lose or garner certain
compensation. The anticipated compensation should be analyzed
in light of compensation survey data for the physician's particular
medical specialty (available through subscription). Physicians
should fully understand their targets, ascertain if they are likely to
achieve them and estimate the amount or range of compensation
to which they ultimately will be entitled.
Negotiation Tip: Seek to negotiate compensation that is as definitive as possible through compensation floors and specified bonus
amounts (e.g., sign-on and/or retention bonuses) and set annual
increases (whether established amounts, percentage increases or
increases in the percentage change in a consumer price index). For
variable portions of compensation (such as floating base or productivity bonuses) seek lower target thresholds (whether for wRVUs or
collections) and greater wRVU dollar values based on survey data.

24 CHESTER COUNT Y Medicine | WINTER 2018

Malpractice Insurance
Most physician contracts specify that the employer will
purchase malpractice insurance covering physicians during the
period of employment. They also typically address which party is
responsible for purchase of a post-termination extended reporting
endorsement (i.e., tail) covering the physician's acts during employment. Such tail coverage is necessary if the underlying policy was
written on a "claims made" basis. Absent an express obligation by
an employer to purchase tail coverage, physicians are generally liable for the cost. It is critical that the contract clearly spell-out the
party responsible for the cost of tail coverage and the circumstances
under which such party will assume such responsibility.
Tail coverage is expensive; ranging from 100% to 200% of a
physician's current annual malpractice premium. The cost can
be exorbitant for high risk medical specialties that have costly
annual premiums. Tail coverage for certain specialties can range
from $80,000 to $120,000 after only 2 years of medical practice.
Regardless of the arrangement ultimately negotiated, the physician
should fully understand the extent of liability he/she will be assuming for tail coverage.
Negotiation Tip: Negotiating malpractice tail provisions can be
tricky because who pays the tail can often depend on the termination reason. Assess if the employer will assume the full cost of
tail coverage upon any termination. If that is not possible, try to
have the employer assume the cost of tail coverage if it terminates
the contract without cause (but use caution to limit the "for cause"
termination provisions) or if the physician terminates "for cause."
If any of the foregoing are not possible, then ascertain the next
best-case scenario given the physician's specialty. In some cases, it
may make sense to propose that the parties equally share the cost of
tail coverage.

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ChesterCountyMedicineWinter2018

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