Podcast #133 Show Notes: What Physicians Need to Know About Contract Negotiation
A contract is just a vehicle to set expectations, but understanding those expectations is very important. A contract discusses the physician's time and job responsibilities, along with how they will be compensated, what benefits are provided, and what happens when that employer-employee relationship is terminated. Having a solid understanding of all these things will make a difference in your efforts to build wealth, not to mention the benefit of negotiating that compensation so you ensure you are paid what you are worth.
In this episode, I interview Jon Appino from Contract Diagnostics, a long-time advertiser that has helped many WCI readers and listeners better understand their contracts and negotiate better compensation packages. This is not an expensive service, a few hundred dollars. Considering how much money we are talking about, especially if it becomes a long-term job, a couple of hundred bucks is money well-spent. Listen to this episode to learn more about contracts, who is qualified to review one, find out what you are really worth, and what you can negotiate in a contract.
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Quote of the Day
Our quote of the day today comes from John T. Reed, who said,
“Not all tax questions have clear-cut answers.”
When you have a choice between two legal tax alternatives, choose the one which results in the lowest tax. I think that's pretty good advice.
What Physicians Need to Know About Contract Negotiation
Basic Parts of a Contract
A contract is just a “vehicle to set expectations.” It has the expectations of the physician from the employer and the expectations of the employer for the physician. We are looking at the physician's time and job responsibilities, and then how they will be compensated, what benefits are provided, and what happens when that employer-employee relationship is terminated. There is a lot of other language in a physician employment contract, but, as long as those things are clear, the rest of the contract just dictates the relationship.
Who is Qualified to do a Contract Review
A contract is a legal document. As such it should be looked at by an attorney. But Jon says,
“If a physician thinks that a contract contains illegalities, or needs to be completely redrafted, or it is missing large chunks, or it's not going to line up with compliance, then having an attorney drive that process, who can provide those services, I think is a great idea. If the contract looks like a normal contract that was drafted by attorneys who knew what they were doing, maybe in a larger system or a multi-specialty group, it doesn't look like it was pulled off the internet the day before and kind of cleaned up by the physician, the owner of the practice, it should still be looked at by an attorney.”
Having an attorney or someone else who understands RVU compensation structures, how compensation trends could change over time, regional differences in pay, and understands the backend of healthcare and not just how the law is applied in the state would be beneficial, too. Jon points out that having someone review your contract that has reviewed a lot of physician contracts in varying specialties is important.
Some healthcare attorneys argue that you should have an attorney who actually litigates contracts do the review. Jon said if there is potential for litigation, leaning on a local attorney would be a good idea. His firm explains the contract to the physician in terms that they can understand and gives them some really good ideas for how they could go about questioning or negotiating or having the conversation with the employer. The chance of litigation is probably very rare, but he would never discourage anyone from getting a local attorney to look at a contract.
Negotiating a Contract
We discussed negotiating a contract, and I asked whether it was worth hiring someone to negotiate for you. Can that be a negative if you show up with someone besides yourself doing your negotiating?
He said it depends on the situation. Rarely they have seen where having a third party involved can look like the physician doesn't want to participate but it is really that they are too busy and want an efficient process. Some employers want to work directly with a physician; some hospital systems don't even want to work with third parties and have policies stating they don't work with third parties.
“I think a small percent of the time it can come across as negative. When we've helped a physician go through that process, a lot of the employers actually think it's a great idea to have a third party, and a third party who knows a lot about the market, who's asking good questions, who understands the standard language, who understands what contracts are going to be redlined and what contracts are not, a firm who doesn't want to drag out the process. We've had a lot of hospitals or a lot of groups be kind of happy that the physician had a third party participate in it simply because it tends to speed the process up. It gets the physician the questions that they have answered in a clear fashion, in a timely way, when the physician might be busy working most of the day. So it can speed the process up.”
The most common question I get from listeners about contracts is this idea of a non-negotiable or standard contract. What is the best approach when you are told a contract is non-negotiable or this is our standard contract?
“We hear that a lot. And with the consolidation of healthcare systems buying each other, and hospital systems will have 1,000 physicians to 2,000 physicians sometimes underneath it, they don't want 1,000 or 2,000 different contracts. So they may be non-negotiable as far as we're not changing the material terms. It doesn't mean that the physician doesn't have a lot of questions, or that the contract contains all the things that they need to know. And so, even if it's “non-negotiable,” obviously, there's still a lot of due diligence that the physician needs to do understanding the compensation plan, how things are paid, when benefits start, how the schedule is built. So there's lots of questions that still come up.”
He suggested that if there is something the physician needs or wants, and the employee says they don't negotiate or modify the contract, they have had some success asking for a side letter.
“It is kind of like a letter of understanding. It's not a contract, but at least it's a letter of understanding saying look, “Our understanding is you're working at the hospital on Lakeside Boulevard and your schedule is 7 on 7 off, and you don't have to work night shifts.” Something that just maybe lays out a little more detail that the physician wants to see, that's not necessarily going to be in the contract because to your point they don't modify or they don't negotiate contracts. So if it's non-negotiable, that's fine. We hear that a lot. It doesn't mean that there's not questions that the physician should ask as they do the due diligence. And it doesn't mean that we couldn't get creative with how a side letter could be provided to the physician to just set the expectations a little more clearly.”
Is that side letter enforceable like a contract would be? No, but Jon thinks it shows good intent.
“I think it shows that should a service line manager change or should the medical director leave and they've got someone new in the department, I think just having something makes the physician feel a little bit better that at least now I'd have something that says my schedule is 7 on 7 off versus you'll just work full-time. So it's not a contract, but sometimes we've seen that to be at least some kind of middle ground for someone who's not willing to negotiate.”
What Are You Really Worth?
What are the best ways to find out what you are really worth?
“If you're training, ask around what your colleagues are receiving for offers; I think it's a great idea to survey the market. That means if you're in training, going on five different interviews, don't just pick one job, go on five different interviews. Even if you know where you want to be, get five different offers so you kind of know what the different ranges are. Maybe have a couple of practice interviews, even. I think as an attending physician, it's a good idea to contact recruiters every once in a while to go on interviews if nothing else to keep your interview skill up and just see what you're worth in the market, so what are people going to offer you for your experience.”
Asking individual colleagues or in online groups or social media is a great way, too. Obviously contract reviews companies have the data, too, because they do a lot of contract reviews and can share with physicians what they are seeing in your area.
MGMA data is used by many employers to build compensation models, but Jon sees that physician's salaries are dramatically different than that based on various markets because not everyone takes the MGMA surveys. The data has changed over the years with how they've broken out your length of employment from new grad to established physicians. Jon feels it is almost the best of what we have available for a lot of people. But there are other sources out there than looking at a data set.
Some regional differences he mentions are differences between a small private practice and a large system inside the city or 100 miles outside the city. Jon feels like looking at data is important but so is having someone guide you through the process, looking at the market, and hearing the story of the group hiring – why are they hiring, how long have they been hiring. Also, what is the individual skillset of the physician? Do they speak a different language? Do they have a different skill set that the practice doesn't have?
“All of those things I think play into what the physician's worth, not just looking at the data set. But I think what you mentioned as far as what MGMA paints as a broad picture I think is accurate.”
What Percentage of Doctors Are Underpaid?
I asked Jon this question and he thought 20-30% are underpaid. He thinks it varies depending on where the physician is in their career and what their goals are. The big thing he said was to not just take a job out of training and be happy with it and not really look at compensation structures. They see a lot of discrepancies in pay sometimes with certain physicians who are willing to raise their hand and ask for things and other people who just kind of settle in. He said without a doubt this happens more often with women and people working part-time.
Do Most Hospitals Pay for Call Coverage?
A listener asked,
“Do most hospitals pay for call coverage? What determines the payment in areas with a more difficult time recruiting physicians? Do they typically pay more? What about physician shortage specialties like OB and the large nighttime call burden? Can you talk a little bit about pay per call coverage?
Jon said a lot of contracts will have it baked into the contract, like 60-65%. “Here is your salary and this includes you taking call.” The pay structure of that depends on the specialty, on whether it is equal call or up to 10 calls a month. He said sometimes they see a threshold and then you will be paid. A lot of saturated markets with specialties like orthopedics may not pay for call because people might want to volunteer for call to build their practice quicker than just sitting and taking call only three days a month.
“In a smaller market where there's not a lot of OB help, and obviously the call has to be taken for OB, we do see some physicians who can do very well as far as call compensation goes in some specialties, OB being one of them. We always want to make sure that the contract is clear on what the call is and we like it when it's capped. And if it's over a certain cap, then it's paid, and I think paid at a healthy rate.”
Can You Reduce Your Time to Partnership
Another listener asked about reducing time to partnership. Jon said it all depends on what the group is willing to do.
“If they've done partnership 20 times, and this is our process, it's a two-year, it's a three-year process, a lot of times those might not be flexible. We can get pretty creative based on the group story and the physician story and why they want to be in the market, obviously, different from dermatology to OB to ophthalmology, but it's a give and take. So if you want something like quicker partnership, what are you willing to give up? Do you take less salary? Do you say, “I don't even want the bonus.” So if you get paid a percent of collections over a certain threshold, do you forego that or have that put into an escrow account that can be used for early partnership purchase? Do you ask them what would make you thrilled with my production? Oh, if it's doing $1 million in your first year, then what if I do 1.1? Then can I be a partner in the first year instead of waiting for two years?
See AlsoBest Investing PodcastsReverse Mortgages: What Are They and Should You Get One?Conventional Home Loan Requirements In 2024Saving 101: How To Save $1,000 On Any Budget At Any TimeI think there could be a lot of questions and a lot of back and forth that can happen on it. I think it does depend on the group and what things you could do to show that you are worthy of partnership early. We typically don't like partnership structures that are three years or four years. It shouldn't take a group that long to know if they want to keep you around long-term. One year at a partnership, two years at a partnership and maybe having a defined metric in the contract. Once you collect 700,000 in a rolling 12 months, we'd like to have defined metrics. Some groups are willing to do that, and some groups aren't. But of course every situation is different, whether there're lots of ancillaries and real estate involved, or whether it's just you're going to sign up and assume your portion of the rent every month.”
Private Equity
This listener also wanted to know about how you ask a potential employer about private equity? We are seeing practices sell to private equity. Jon said,
“We see this a lot in certain specialties. And there's little you can do. Obviously, having a really good robust discussion on whether they've ever been approached, what happened, knowing the stories of the physicians there, how old they are, plans on retirement, how long is that going to be, again, if it's a long path to partnership, those things can all play into that discussion on would you or will you or do you plan to sell to private equity? In rare instances, we've seen employers willing to say, “I'm not going to sell to private equity. And to prove it to you, if I do, I will give you X.” And we've seen X defined as a big dollar amount. So at the end of the day, there's little you can do. But if a practice is so adamant on we are not, we are not, you could ask them to put something in the contract that says, “If you do, you need to give me money.”
That should be easy to do if they really aren't going to sell.
What is the Frequency of an Actual Contract Issue Among Physicians?
The listener who asked this question maybe wanted to hear some horror stories about contracts gone bad. Jon does have some to share but the frequency of an issue is pretty small. He shared one.
“We recently had one where we went through… it was an OB deal… I'm sorry, it was a family practice with OB deal. And we went through the contract. And she was working four days a week, and there was a defined dollar amount, which we thought was appropriate. And we went through everything, and she had a great discussion with them and ultimately signed. When she started, they had called her in and said, “We unfortunately made a mistake in your pay. We did not structure your pay to the four days a week or the 0.8 FTE. We kept it at what was a 1.0 for the department. So we're sorry, but we're going to unilaterally modify your pay structure starting next paycheck.”
She called us and we gave her some advice on how to have the conversation with the employer in a friendly conversational way. And I don't think it was what we did. I think she was fantastic. She was able to have a conversation with them, and they honored the contractual terms that they signed to. So they kind of owned the mistake and said, “We'll take it for the first year, and we'll reevaluate it for next year.” So I was happy about the employer and how they handled it knowing they could have handled that differently.”
It hasn't been a year yet so we don't know how that story will end. But he shared another one.
“There was an OB physician in Baltimore. She was moving to Florida, and she never had anybody look at her contract in Baltimore. She's signed with a private practice out of training maybe. I think it was 230 a year for two years. She was out for two years. She was moving down to Florida. We looked at her Florida contract. And of course, I said, “Look, I haven't looked at your Baltimore contract, so I'm guessing everything's fine with that, how to terminate and tail insurance and all that good stuff.” And she said, “Yeah, I think I'm all good.” And then she had us take a small peek out. We have a cheap package that we can take a small peek at it. And it's set in there that it was very clear that she had to purchase her tail insurance, and she had no idea what that meant.
And I think it just goes to tell you the importance of having somebody look at these things. And she had no idea what that meant. And two years out of training for an OB, then I had to break this news to her. I want to say her tail insurance, she had to pay for it. And I want to say it was 170,000 bucks… $160,000, and two years out of training at even the most frugal White Coat Investor is not going to put together $160,000 of cash to buy a tail policy two years out of training with everything else that's pulling at you.
So that was a situation where somebody didn't have a contract looked at, they didn't understand the terms, and they were leaving, and they had a big financial obligation that they did not know about, and of course, they didn't plan for. And tail insurance is one of those finicky things. Unfortunately, you can't finance it most times because, unlike a car or a home, there's nothing to take back by the lending authority. So it generally has to be paid for up front. So that's a situation that was unfortunate for her, and I felt bad having to break the news to her.”
This is something I looked at very carefully when I came to my group, and we decided to set it up so that if I left early, I had to buy the tail, and if they fired me, they had to buy the tail. But we decided we better figure out what a tail was going to cost for us right up front when we did it because they didn't know either. We got a quote from the malpractice folks and it would have been 50 grand for me as an emergency physician after a couple of years. And I think it was a fully mature tail at like 55,000 after three years. But it was no small sum of money. It was really a little bit of golden handcuffs if things didn't work out for either one of us.
Cost of Contract Negotiations
A listener wanted to know the cost structure for a service like this and if it is ever set up that, instead of paying for time, they only pay if a better deal is found. He also wanted to know if most of it is just contract review and contract lingo education to the doctor versus any sort of negotiation. Jon said,
“In general, I would tell all physicians, like we said, have it looked at and have your pricing structure fixed upfront. Know what you're going to pay. So I wouldn't pay an hourly rate to an attorney or to any firm that could charge you more than would be required. Our packages are cheap and they go to not too expensive. But I think that having it, knowing what you're going to get upfront and not having an hourly rate would be important. Not all contracts are negotiating salaries. And so to say, if I get a better deal, that means that I'll pay the firm more money or I'll pay… it's not always about the finances. Sometimes it's about the schedule, or it's about the benefits, or sometimes it's just about the malpractice insurance, and how do you put a cost on those things to say, “You started at 100,000, I got you to 110,000, therefore, I get $100”?
It's hard to sometimes put dollars and cents, and sometimes it might be there's no change to the base salary, but there's a change to the bonus structure, or there's a change to how the signing bonus is repaid, or there's a change to the amount of vacation time. And so it's hard to put a dollar amount and say, “Because of this, the service should be paid more or less.”
What Can Be Negotiated in a Contract
You can be as creative as you can in negotiating from the basic core of the contract to the termination clauses and how those kick in, to the obligations of the physician after termination.
“Compensation structures, there's really a vast area of what could be negotiated in any particular contract that varies so much based on the physician's story. So if the physician's story is, “I'm going to be here for a year or two and then we're going to move,” that's a different frame as far as how do you negotiate that deal versus, “My family's from here and I want to raise my kids here for the next 30 years. And this is the only group in town or this is one of 10 groups in town.” So having the backend story I think is also important. It's not just about the words, say this on the contract, and therefore this is what you should ask for, it's about knowing the individual's story and what they want for the future and then customizing it, I guess, to that individual situation. But there's a ton of things you could ask for in a contract as far as negotiating it.”
What can you negotiate if salary doesn't seem to be negotiable? What do you go to? Do you go to more academic times, signing bonuses, moving expenses, loan forgiveness? Where do you find doctors' success when they can't budge the salary? What else should they be considering? Jon suggested,
- defined amount for your research fund every year for the first three years
- some new equipment
- additional time off for flexible time
- more CME dollars to train yourself
- If you are working for a private group, maybe there's a scribe that you need, to make you more efficient
- putting a metric in for having a physician assistant as a surgeon, so how busy are you going to be before they give you that resource?
- negotiating ancillary things like supervision fees for a nurse practitioner
- Take the call 10 days a month, but anything more than that, be paid $500 for
- maybe back funding of COBRA insurance if you have to buy COBRA insurance as you transition from one position to the next
- vesting you in a certain benefit earlier
Loc*ms
A listener asked, “when you're considering loc*ms work, what are some of the watch outs that one should pay attention to? What should we expect a recruiter to have, a pretty standard contract, or should we expect to negotiate each part and not just rate? Is it worth it to pay for a separate contract review for each short-term loc*ms engagement when going through an established agency, or how would you approach this for someone who's interested in doing loc*ms maybe just once or over and over again for a good chunk of a career?”
Jon said he has seen some loc*ms contracts and didn't think you needed to pay much money to have them looked at, especially every single one. He suggested a few things to look out for.
“Thing is to keep an eye out for that you can decline an assignment, that you can get out of an assignment. And if you take an assignment and you're in an assignment and you think a permanent placement might make sense, then understanding the fee structure behind that. We have seen in some situations where someone's providing locum services to an account, that account wants to hire the physician, and of course, the loc*ms agency has a contract with the account that says, “If you want to hire one of our people, you have to give us money”, $20,000, $30,000 or typical rates for that.
And we have seen hospitals then tell the physician, “Hey, here's your contract, we're excited to have you,” and there's no signing bonus when maybe typically they offer $20,000 or $30,000 for a signing bonus. And the hospital will say, “Because we have to buy out your loc*ms contract, we are not going to give you that signing bonus, or we're going to decrease your salary for the first so many years because of whatever calculation we make on our end to make things fair. We're allocating $250,000 per head, therefore, we got to pay this fee of $20,000. We're going to decrease your salary or decrease your bonus or decrease something by $20,000 to make it neutral for us.” And so that's one of the things to keep an eye out for if they decide to go down a route of, “I'm going to stick around and maybe do a perm placement off of a loc*ms,” to make sure that they understand that if the hospital is going to try that, that the hospital understands that the physician expects the exact same deal that they gave the last person, if not better.”
Are Non-Competes Negotiable?
I'm sure the answer to this question is it depends. I asked Jon to explain how it depends.
“Yeah, a lot of it is just the situation of the physician. If you're the 25th hospitalist into a service line, or the 30th cardiologist into a hospital employee group, the situation might be different than if you're the only pediatric endocrinologist in a 300 mile radius in the Midwest. So those situations when seemingly contracts or non-competes are “non-negotiable,” you have a pediatric endocrinologist going to a market or any highly subspecialist physician going to a market, and they've been trying to hire that person for the last three years, and they draw a line in the sand. You've talked and written about that before. They draw a line in the sand and say, “Look, I am not going to sign with this non-compete, period.” Sometimes we see flexibility there.
So are they negotiable? Yes. Sometimes it might be the years, it might be the radius, it might be how it's enforced, it might be a buyout provision. So maybe you'll tell the employer, I will give you a dollar amount to buy my way out. Some contracts have that pre-specified in the contract, but maybe you want to negotiate that and have that instead of the one times your salary, you want it to be $30,000 or $50,000. And so at least, again, just like when you were talking about your tail insurance obligation, if you guys were to take a different position, you know if I want to leave this position and I want to compete with my employer, it's going to cost me this amount of money. So there's lots of different things that you could negotiate regarding the non-compete, again, all depending on the situation.”
There is always lots of talk about non-competes not being enforceable. Can you talk a little bit about which ones are not enforceable and how you would feel about leaving one that doesn't seem like it would be enforceable in a contract?
“So from our end, at Contract Diagnostics, if there was a non-compete in a contract, we would say follow the non-compete. Sometimes you can't have a non-compete, you can have a non-solicitation. We see that in various states. We see some states changing how they view non-competes. But we would always tell a physician if a contract has a non-compete in it, we wouldn't violate it, we wouldn't breach it. We wouldn't want to wait and see what the employer did. Our guidance to them would be don't breach the contract terms in any way, including the non-compete. If they wanted to ask for local guidance on that from a local attorney, then that will give you a good idea.”
Is that more from being a person of honor standpoint, or is that more from the fact that it's a very expensive way to find out if it truly is enforceable?
“I think it's a very expensive way to find out if it's enforceable. And we talked about litigation earlier, and what physician wants to find out. Whether you're worried about litigation or not, a lot of contracts say very clearly, “We don't even have to litigate it. If you breach this, you owe us damages,” and they're defined damages. And it's one times your salary, or it's two times your salary. So a lot of non-competes are almost taking the, are they enforceable or not? Well, we don't know. If you breach it, we will just send you a bill. Now, will they or not? I don't know. I wouldn't want to find out.”
Structuring of a Contract with RVU Basis
I hear some people talk a little bit about having a one-year salary guarantee and then they're on some sort of RVU basis. It seems like a lot of times for these folks, they end up with a much lower paycheck that second year. I asked Jon to talk a little bit about contracts that are structured that way and what to watch out for.
“Yeah, we see the same job almost every other year because there'll be a big salary up front, and then of course, like you said, you'll go onto production and then they can't meet the production, their income is going to go down by $100,000, and they're going to transition to a different employment because they can't handle that. So back to the due diligence process, what are their expectations? What did the last physician that they hired put up in terms of numbers? How much transparency do we have in terms of numbers? Do I get a monthly report from the employer, a two-year guarantee versus a one-year guarantee? I think a fair question is, how often does someone in any department that you guys hire, cardiology or family practice, how often does somebody come off of a guarantee and go down in income? And if that's the case, maybe they just don't have a good idea on how efficient physicians can be.
But I think there's certain things that you can do to protect yourself by having maybe a longer guarantee, by having access to the reports so there are no surprises if your production isn't where it was supposed to be. Should the employee come to the employer with ample notice and say, “Look, I know that I'm not hitting the numbers, I don't want to take a decrease in pay. If we cannot extend my guarantee I'm going to have to give my notice 90 days or 120 days”? Most employers in that situation would go ahead and extend the physician for another 6 or 12 months to see if they can get their feet underneath them. Because having a physician transition out of an employment, now they've got to hire someone else, it costs $100,000 minimum.
So we think that you can always ask for a longer guarantee, you can always ask about expectations, but at the end of the day, if you do come up to that timeline to be able to have that conversation with the employer on, “I cannot afford to take a big decrease like this. What are our options?” I think most employers would find some kind of happy medium with the physician in that situation.”
I wondered if a fair number of employers out there using these RVU-based compensation structures are a little bit nefariously trying to make there be a lot of moving parts so they can end up getting a physician cheaper. Or does Jon think that a lot of the problems doctors are running into with this is just because those doctors aren't necessarily very efficient or very fast docs?
“Do I think it's intentional by the employer to get a good deal on their labor? I'd like to say no, but we do see some overly complicated structures. And I don't know if it's administrators trying to fill their days with things to do to make themselves look important or feel important, or if they're really what they feel is in the best interest of the patients and the physicians and their revenue model. So I don't know. I would like to think it's not intentional to underpay the physicians, but we are seeing some employers slowly go towards these things that I know all physicians love like quality metrics. And they're reducing RVU structure saying, “Okay, we used to pay 100% of the RVUs. Now, we're going to go to 80% of the RVUs and 20% quality.
We've had conversations with employers where their goal is to go more towards the quality, so we're going to get down to 50% RVUs and 50% quality, and then 40% RVUs and 60% quality. And of course, quality in all the various metrics that come with that thing of a performance incentive plan can be challenging to measure, challenging to report, and I think that pose its own problems and head-scratching and everything else that we see with employers.”
Jon thought that 20-25% of contracts these days have part of your compensation based on either quality or patient satisfaction. It was 10% years ago. So he is seeing a big shift and has been told by the employers that they are going to gradually shift more and more to these models.That is really concerning, especially with the difficulties in measuring quality, number one, and also the data that suggests more satisfied patients are actually getting worse patient care. So it's really worrisome that they're basing physician's compensation on that.
Tips for VA Doctors
I talked to a VA doctor at a conference recently who told me that they were working basically one-quarter time. I think they were working 10 hours a week, and they had a full benefit package. Now, I don't know if that's the standard contract or if that was specially negotiated. I asked Jon if he had anything in particular for VA docs?
“No, no. If somebody called and said, “I want my VA contract looked at and I want to pay you a bunch of money,” I would discourage them from it. I don't know that those contracts need to be… it's important to know what it says and how to get out of it. But knowing that there's not a lot of negotiating room, if any, in there, I think it's just understanding the benefits of working for the VA. So what's the schedule? Are the benefits long-term? What does the retirement plan look like? Yeah, working a quarter time and getting full-time benefits from what I know the VA has really good benefits, but that sounds like a nice either part-time gig for anybody out there, or for someone who's doing a 1099 work, or just a good lifestyle to live.”
Ending
Jon emphasized in the ending the importance of having your contract looked at by someone who does a lot of contract reviews, that they know what they are doing and understand how physicians are different. As you move to the negotiation, it isn't about you versus them or about winning or losing because you both have the same goals, to get you in front of patients, have the patients be happy, provide lots of good care to patients, and have you stick around long-term.
“So it's about how do we get from where we are now, where I don't understand what this 15 or 20 page contract says to I'm signed and I'm credentialed and I'm happy. How do we get there? The due diligence is very important. But I think once they're convinced that it's not about just sign the contract, and whether it's your first contract or your fifth, it's not about just signing it and showing up, there's a lots of due diligence to be done. But knowing that you have the same goal as you go through the due diligence with the employer, I think is an important thing.”
The other thing is to know your worth. Don't lose track of that. Continue to revisit it. Continue to read online about physician salaries. Know their specialty and how payer mixes are changing. Reach out to a company or to someone else to say, “this is my structure. Is it fair or not fair?” We have several companies that can help you with a contract review. You can find them on our recommendation page. Choose the one that looks best to you and get your contract reviewed. Don't make a mistake like some of the horror stories we heard in this podcast. This is not an expensive service. They spend time with you going over your contract, explaining what it means. You can hire them to negotiate for you, or you can just get some ideas on what you're worth and what you should negotiate and how you might do it. But considering how much money we're talking about, especially if this becomes a long-term job, a couple of hundred bucks is money well-spent. This is not someplace to cheap out when it comes to your personal finances.
Full Transcription
Intro: This is the White Coat Investor Podcast, where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahle.
Dr. Jim Dahle: Welcome to White Coat Investor Podcast number 133, physician contract negotiation. I just got back from traveling. I've given seven presentations in the last three days. Before I'm recording this, I was out at the Passive Income MD Conference in L.A. It was great to see a lot of you there, and then I went to the American College of Emergency Physicians Scientific Assembly. It was also wonderful to meet hundreds of you there as well. I'll be talking a little bit more about that in next week's podcast, but it's good to be back home and it's good to be on the air making another White Coat Investor Podcast.
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Dr. Jim Dahle: Our quote of the day today comes from John T. Reed, who said, “Not all tax questions have clear-cut answers.” When you have a choice between two legal tax alternatives, choose the one which results in the lowest tax. I think that's pretty good advice. All right, I got some feedback with thanking you guys for what you do on a daily basis. So for that one guy who sent me that feedback, it's time to cover your ears because I'm not going to stop. Here it comes. I was in the ER working a shift the other day and I had a lady come in from memory care in her 90s that had fallen ground-level fall and ended up with a type II dens fracture, C2 fracture. And she would not let us put any sort of a C-collar on or not even a soft C-collar, the ones that people wear when they go in front of the jury to get more sympathy. She wouldn't let us put anything on her. She who'd scream at it and fight you to do it. The only way I was going to be able to put any sort of C-collar on her was to sedate her and keep her sedated.
Dr. Jim Dahle: It was pretty amazing. I call up the neurosurgeon, he's like, “Well, we're going to need to fix that actually,” which I was surprised he was going to operate on her, someone in their 90s that's already in memory care. But apparently, it reduces pain and obviously it would keep her from having to wear the C-collar. So I'm pretty amazed at what you guys do sometimes. And I know that just like that lady was never going to thank any of us for her care. A lot of you don't get thanked for what you do each day. So I'm going to thank you, thanks for what you do. You may not have checked out our recent changes to our newsletters. They're all still free, and there's a lot of options there now. You can get the daily blog posts, you can get the monthly newsletter, you can get a weekly digest, you can get any combination of those you like. But we also have a specific real estate investing deal newsletter, where I'll send you these options for private funds, for syndications.
Dr. Jim Dahle: If you're interested in learning more about those sorts of passive income opportunities and real estate investments, make sure you also opt into that newsletter. You can do it at the bottom of any email I send you, or you can simply go to whitecoatinvestor.com/newsletter and sign up for those anytime you like. All right, we've got a special guest on today. Let's bring him on here. Our special guest today is Jon Appino with Contract Diagnostics. You can find out more about him at contractdiagnostics.com, but this is a service that helps physicians to evaluate their contracts, to make sure they're not getting ripped off, to understand what's in their contracts, and if you so desire to even help you negotiate your contracts. Welcome to the White Coat Investor Podcast, Jon.
Jon Appino: Jim, thank you. It's a pleasure. And I know it's been a long time in the making. So glad to be here.
Dr. Jim Dahle: Now, what's your background that you end up in this line of work? It's a fairly unique line of work. Can you tell us how you ended up doing it?
Jon Appino: Yeah, so I have always been into healthcare in various forms. I've worked for pharmaceutical companies or biotech companies, I've started small companies like recruiting companies for physicians, and at the end of the day, I've always enjoyed working with physicians. My mother was a nurse practitioner for 35 years. I thought I was going to be an emergency medicine physician. So I've always enjoyed that kind of space. And well, again, I've had lots of friends who are physicians and just talking with them and understanding some of the challenges they've had. A lot I just kept coming back to the job process after training and how do you go from a resident or a fellow into a good attending role. And I thought that I had it figured out with some recruiting company and then I didn't think that that was a good fit. But I really thought that there was a niche for contracts because I know that they're not giving formal training on this stuff, just like they're not giving formal training on finances.
Jon Appino: So I think while you found a great niche in serving these folks, we found a great niche in providing the information that they need in a timely manner back to them. So I've got a lot of experience, I guess in healthcare, various different aspects of it. I understand lots of different things about payers, about contracting, about the actual job that physicians do, and just about how to interact with them and their schedules and how busy they are and how things need to be easy and simplified for them in a similarly complicated process like finding a job and getting a contract negotiated.
Dr. Jim Dahle: Awesome. So the most of the material for this podcast is coming from some questions I asked to readers, listeners, etc., on the WCI forum as well as on Twitter and Facebook. And most of this podcast is just going to be answering these questions that they have for you. But I thought at the beginning we better go a little bit more general and provide a bit more of an overview. So can you start with telling us about the typical parts of a physician's contract?
Jon Appino: Sure. The basic parts of any contract are having things like definitions and representations and warranties and general provisions and rights of parties and often termination and those things. So there is like a formal structure with what a contract is supposed to be. And obviously, there's a big difference between an academic contract and a private practice contract or a large for-profit health system contract. We'll look at contracts as just vehicles to set expectations. So what are the expectations of the physician from the employer, and then one of the expectations of the employer for the physician.
Jon Appino: So the way that we boil it down to is the contract is what sets expectations for what the physician is going to do, which of course is their time and giving their expert opinion, and then what the employer is going to do for the physician, so providing compensation, providing benefits, and then the rest of it is just what happens if we want to go our own ways. And I hate to say filler language, it's lots of important language, but the rest of it is just kind of as long as those two expectations are clear and the rest of it just kind of dictates the relationship.
Dr. Jim Dahle: So who's really qualified to do contract reviews? Can you talk a little bit about that?
Jon Appino: Yeah, there are legal documents. So I mean every contract should be looked at by an attorney, and they're very important. They dictate the position of the physician and the role that they have with their organizations, what happens if they want to terminate, what the downstream effects of that could be, how they'll earn over the years, so they're very important documents. And they should, of course, be looked at by an attorney. Now, who drives the process I think is, it varies. If a physician thinks that a contract contains illegalities, or needs to be completely redrafted, or it's missing large chunks, or it's not going to line up with compliance, then having an attorney drive that process, who can provide those services I think is a great idea. If the contract looks like a normal contract that was drafted by attorneys who knew what they were doing, maybe in a larger system or a multi-specialty group, it doesn't look like it was pulled off the internet the day before and kind of cleaned up by the physician, the owner of the practice, then they should still be looked at by an attorney.
Jon Appino: But if that process is driven by the attorney or by somebody else who maybe has a different frame on how the compensation should look, understanding RVU structures, what the payer future looks like, or compensation trends could change over time, or how they have changed over time, regional differences in pay. Sometimes the attorneys aren't the best one to drive that discussion in that process. It's somebody who understands all the backend things at healthcare, not just the law that is applied in the state. And I guess the other qualification that I would say as far as who's qualified to do it, somebody who's got a lot of reps, somebody who understands how dermatology is different and cardiology, how emergency medicine is its own unique animal and how third-party companies might be contracted with hospitals for emergency medicine. So somebody who has a lot of reps and who does a lot of contract reviews is somebody who I think the physician should lean on for going over it with them.
Dr. Jim Dahle: I've had some healthcare attorneys argue that you have to have an attorney who actually litigates these things, do the review that a nationwide contract review service like yours is not adequate because you don't litigate these contracts. What's your response to that?
Jon Appino: I think if there's a potential for litigation, I think leaning on a local attorney would be a good idea. Again, what we do is nothing like that. We look at the contract, we explain it to the physician in terms that they can understand, and then we give them some really good ideas for how they could go about questioning or negotiating or having the conversation with the employer. I don't know what the overall chance for litigation is in a physician's employment situation. I don't know if it's an error rate of 1%. Out of 100 physician, 1% of them would have litigation. I would think it'd be much, much, much less than that. So I think the chances of litigation being something that comes up, I think we'd be rare. But I would never discourage anybody from getting a local attorney to look at a contract for sure.
Dr. Jim Dahle: All right, so you mentioned negotiation, is it worth it to hire someone to negotiate for you? Can that be a negative if you show up with somebody besides yourself doing your negotiating?
Jon Appino: I think that's a great question. It's all dependent on the situation. Whether you're the 25th hospitalists into a service, or whether you're joining an academic practice as the only cardiothoracic surgeon in the area, or… there's so many things that play into how the negotiation process goes. Can it be a negative thing? Yes, of course. I think rarely we've seen where having a third party involved can look like the physician doesn't want to participate and it might be just because they're too busy and they want an efficient process. Some employers want to work directly with a physician, some hospital systems don't even want to work with third parties. So they have policies that they don't work with third parties.
Jon Appino: So I think a small percent of the time it can come across as negative. When we've helped a physician go through that process, a lot of the employers actually think it's a great idea to have a third party, and a third party who knows a lot about the market, who's asking good questions, who understands what standard language, who understands what contracts are going to be redlined and what contracts are not, a firm who doesn't want to drag out the process. We've had a lot of hospitals or a lot of groups be kind of happy that the physician had a third party participate in it simply because it tends to speed the process up. It gets the physician the questions that they have answered in a clear fashion, in a timely way, when the physician might be busy working most of the day. So it can speed the process up.
Jon Appino: So I guess to answer your question in a small percent of the time it can come across as a negative, the vast majority, at least from our experience, it's been looked at as a positive thing to move the process along in a quick fashion to get all the questions answered and then get the physician signed if that's the way that it ends up.
Dr. Jim Dahle: The most common question I get from listeners about contracts relies on this idea of a non-negotiable or standard contract. What is the best approach when you are told a contract is non-negotiable or this is our standard contract.
Jon Appino: We hear that a lot. And with the consolidation of healthcare systems buying each other, and you'll have these banners where one hospital system will have, 1,000 physicians to 2,000 physicians sometimes underneath it, they don't want a 1,000 or 2,000 different contracts. So they may be non-negotiable as far as we're not changing the material terms. It doesn't mean that the physician doesn't have a lot of questions or that the contract contains all the things that they need to know. And so even if it's “non-negotiable,” obviously, there's still a lot of due diligence that the physician needs to do understanding the compensation plan, how things are paid, when benefits start, how the schedule is built? So there's lots of questions that still come up.
Jon Appino: Now, if there's something that a physician needs or wants and there's not… they've said, “Look, we don't negotiate, we don't modify, we don't change anything,” Sometimes there'll be success instead of asking for modifications to the contract because you know the answer is no. So instead of pounding your fist or getting frustrated at the account and not being willing to modify or change it, we've seen some success just asking for a side letter. So it's kind of like a letter of understanding. It's not a contract, but at least it's a letter of understanding saying look, “Our understanding is you're working at the hospital on Lakeside Boulevard and your schedule is 7 on 7 off, and you don't have to work night shifts.”
Jon Appino: So something that just maybe lays out a little more detail that the physician wants to see, that's not necessarily going to be in the contract because to your point they don't modify or they don't negotiate contracts. So if it's non-negotiable, that's fine. We hear that a lot. It doesn't mean that there's not questions that the physician should ask as they do the due diligence. And it doesn't mean that we couldn't get creative with how a side letter could be provided to the physician to just set the expectations a little more clearly.
Dr. Jim Dahle: Is that side letter enforceable like a contract would be? I mean, what's the difference, legally speaking?
Jon Appino: It wouldn't be enforceable, but I think it shows good intent. I think it shows that should a service line manager change or should the medical director leave and they've got someone new in the department, I think just having something makes the physician feel a little bit better that at least now I'd have something that says my schedule 7 on 7 off versus you'll just work full-time. So it's not a contract, but sometimes we've seen that to be at least some kind of middle ground for someone who's not willing to negotiate.
Dr. Jim Dahle: What are the best ways to find out what you are really worth?
Jon Appino: It's a great question. So I think asking around, if you're training asking around what your colleagues are receiving for offers, I think it's a great idea to survey the market. That means if you're in training, going on five different interviews, don't just pick one job, go on five different interviews. Even if you know where you want to be, get five different offers so you kind of know what the different range is. Maybe have a couple of practice interviews even. I think as an attending physician, it's a good idea to contact recruiters every once in a while to go on interviews if nothing else to keep your interview skill up and just see what you're worth in the market, so what are people going to offer you for your experience.
Jon Appino: Now, are they offering you finances that are fine with your experience level or you're training for the market? Obviously, we've got survey data, may or may not be accurate. You can go online, you can search it. Like I said, I think asking your peers, I think using social media to pose the questions to groups, I think is a great way. We here at Contract Diagnostics have lots of good internal data because we do a lot of contract reviews so we can share that with the physicians to say, “This is what we're seeing for anesthesia in Minneapolis, or these are the rights that we're seeing for emergency medicine in outside of Chicago.
Jon Appino: So I think having some kind of granular data like that can help. But I think it's just a good idea for the physician to keep their ears open to the market. And I do think it's a good idea to go out and do some of these interviews every other year, even if you're not looking around, just to see what the market's bearing. And then obviously, follow trends, conferences, and those kinds of things, they'll provide good detail on that stuff.
Dr. Jim Dahle: So MGMA data is not the end-all and be-all of what you're worth?
Jon Appino: Unfortunately, it's not. But so many employers use that to build our compensation models that we see that physician's salaries are dramatically different than that based on various markets. But a lot of employers tend to use that to build their compensation models. And obviously, big regional differences from… you're in the middle of Chicago versus 100 miles outside of Chicago, but there's survey bias with everything as you physicians well know. And who takes the MGMA survey? It's not everybody. The data has changed over the years with how they've broken out your length of employment from new grad to established physicians. So it's changed a lot over time, and I think it's almost the best of what we have available for a lot of people. But I do think that there's other better sources out there than looking at a data set.
Dr. Jim Dahle: So you mentioned some regional variation, what are the regional variations in physician's income? I know when I look at the emergency medicine data, it seems like docs get paid more in the Southeast and less in the mid-Atlantic and the Northeast, and then everywhere else, the Midwest and the West and the Intermountain West is all somewhere in the middle. Is that the way you find it basically shakes up regionally for all specialties or is that emergency medicine specific?
Jon Appino: I think that'd be accurate. There's regional differences, but then like I mentioned before, there's also Illinois being a region, Chicago being much different than 100 miles outside of Chicago. So we do see the regional differences, but we also see a lot of differences between a small private practice and a large system inside the city, 100 miles outside the city, even if they may fall in the same region. And so that's why looking at the data is important, but also having somebody who can guide you through the process, who can maybe look at the market a little differently and then obviously hear the story, how long have they been hiring? Why is the position open? What's the individual skill set of the physician? Do they speak a separate language? Do they have a different skill set that the practice doesn't have? All of those things I think play into what the physician's worth, not just looking at the data set. But I think what you mentioned as far as what MGMA paints as a broad picture I think is accurate.
Jon Appino: I'll never forget, I think it was two years ago. We had two neurosurgeons in here, and one was in Southern California, and the other one was smaller market Ohio. And the Ohio, their guarantee for the first two years was literally 3X the Southern California position. So there are definitely regional salary differences and we'd see it in a quite interesting way over here.
Dr. Jim Dahle: Yeah, I'm not surprised to hear that. I run into that all the time. A lot of people don't realize just how high that sunshine tax can be in California, unfortunately. All right, so here's the kind of an oddball question for you. What percentage of doctors do you think are currently underpaid?
Jon Appino: You know what, Jim? I want to say maybe 20% or 30% would be underpaid. I think it varies a lot based on where the physician is in their career, what their goals are. But I think if you just surveyed the market and you said, “Based on what we're saying in some situations, and if you look at the market underneath and the physicians who are currently contracted in that market, what percent of them would be less than we would expect?” I would say maybe 20% or 30%, so a significant amount. The one thing, Jim, that I would say that everybody should be aware of is not taking a job out of training and then be happy with it and settling into it and not really looking at the compensation structure.
Jon Appino: I'll never forget, we had a girl call us a couple of years ago and she was eight years post-training. She was in a job, her friend used our service, so she was just calling us. She didn't want a new job, she didn't have a new contract. She just was calling to see, would there be anything that we could help with? And she said, “I love my patients, I love to practice, I get along great with my colleagues. I think I earn enough money.” And we really didn't have anything to give her, but I said, “If you want to, we can just look at your contract and we charge a small fee to look at the compensation structure.” And we thought she was dramatically underpaid. She'd been there for eight years. She had an auto-renewing contract. She didn't take any mind to the yearly changes in compensation. She just knew that she had a certain amount deposited in her paycheck every other week, and she thought that was enough money for her.
Jon Appino: Once we dug into it, we found that she was dramatically underpaid. And by encouraging her to ask for certain things of the department, she was able to increase her compensation dramatically. I want to say it was almost on an annual basis, six figures. And so that was an example, not that everybody can do that, but I think it's a good example of what not to do and not just settle into your job and they give you a 2% raise here and a 3% raise here and they changed the RVU structure there, just not assuming that you can settle in and everything will be just fine, they'll pay you appropriately. We do see a lot of discrepancies in pay sometimes with certain physicians who are willing to raise their hand and ask for things and other people who just kind of settle in. So I think what percent of people are underpaid? Maybe 20% or 30%, and a lot of them might be the attendings who have just settled into the position and they really haven't revisited it for years.
Dr. Jim Dahle: Do you think that happens more often with women or people working part-time?
Jon Appino: I do, without a doubt. I don't think I know, we see it.
Dr. Jim Dahle: Let's get into some of the questions I got from listeners. From the White Coat Investor forum, one of our moderators, Peeds, asks, “What benefit can you bring to the table for a Kaiser-type area, where negotiation is not allowed?” I know we talked a little bit about negotiation earlier, but anything specific about Kaiser, for instance, that you could bring to the table with your services?
Jon Appino: You've seen their contracts and they look good, they look fine. They're pretty simply written. There's not a lot of risk on the physician. What can we bring to the table? I think just hearing their story and giving them a couple of good questions to ask. It's not something that I would encourage them to spend a lot of money on. It's not something I would say, “Buy the high dollar package or pay a local attorney hundreds of dollars an hour to review.” I think that they need a simplification of everything. But the contracts, well, they don't have a lot of risk on them. And I think it's always good to have someone look at the contract to at least explain to you your risks and how to get out. But I wouldn't think that they would need much of a service from anybody else included.
Dr. Jim Dahle: All right, this one comes from SLCOB who asks, “Do most hospitals pay for call coverage? What determines the payment in areas with a more difficult time recruiting physicians? Do they typically pay more? What about physician shortage specialties like OB and the large nighttime call burden? Can you talk a little bit about pay per call coverage?
Jon Appino: Yeah, a lot of contracts will have it baked in, and it obviously depends on orthopedics versus primary care. But a lot of contracts will have it baked in. So here's your salary and this includes you taking calls. Now, how that's defined if it's equal call, if it's up to 10 calls a month? Sometimes we'll see a threshold and then after that we'll be paid. It does vary, of course, by specialty. A lot of saturated markets with specialties like orthopedics may not pay for call because people might want to volunteer for call to build their practice quicker than just sitting and taking call only three days a month because there's so many folks in the market. So it varies a lot.
Jon Appino: But in a smaller market where there's not a lot of OB help, and obviously the call has to be taken for OB, we do see some physicians who can do very well as far as call compensation goes in some specialties, OB being one of them. Well, we always want to make sure that the contract is clear on what the call is and we like it when it's capped. And if it's over a certain cap, then it's paid, and I think paid at a healthy rate.
Dr. Jim Dahle: Do you find that most doctors taking call are getting some sort of compensation for it or is it typically just baked in with an expectation that you take call?
Jon Appino: We usually see it baked in. It's maybe 60%, 65% of people have expected call based on their contract, and then the others are paid on a per call basis.
Dr. Jim Dahle: For a member Brains428 asks, “What can one do to reduce time to partnership? Is there a good way to ask if a private practice is planning to sell the private equity?
Jon Appino: I get it all depends on the situation. But what can people do to reduce their time to partnership, it depends on what the group's willing to do. If they've done partnership 20 times, and this is our process, it's a two-year, it's a three-year process, a lot of times those might not be flexible. We can get pretty creative based on the group story and the physician story and why they want to be in the market, obviously, different from dermatology to OB to ophthalmology, but it's a give and take. So if you want something like quicker partnership, what are you willing to give up? Do you take less salary? Do you say, “I don't even want the bonus.” So if you get paid a percent of collections over a certain threshold, do you forego that or have that put into an escrow account that can be used for early partnership purchase? Do you ask them what would make you thrilled with my production? Oh, if it's doing $1 million in your first year, then what if I do 1.1? Then can I be a partner in the first year instead of waiting for two years?
Jon Appino: So I think there could be a lot of questions and a lot of back and forth that can happen on it. I think it does depend on the group and what things you could do to show that you are worthy of partnership early. We typically don't like partnership structures that are three years or four years. It shouldn't take a group that long to know if they want to keep you around long-term. One year at a partnership, two years at a partnership and maybe having a defined metric in the contract. Once you collect 700,000 in a rolling 12 months, we'd like to have defined metrics. Some groups are willing to do that, and some groups aren't. But of course, every situation is different, whether there's lots of ancillaries and real estate involved, or whether it's just you're going to sign up and assume your portion of the rent every month.
Jon Appino: Now, the second part of the question, how do you ask about private equity? We see this a lot in certain specialties. And there's little you can do. Obviously, having a really good robust discussion with the account on have they ever been approached, what happened, knowing the stories of the physicians there, how old they are, plans on retirement, how long is that going to be, again, if it's a long path to partnership, those things can all play into that discussion on would you or will you or do you plan to sell the private equity? In rare instances, we've seen employers willing to put almost like, “I'm not going to sell to private equity. And to prove it to you, if I do, I will give you X.” And we've seen X defined as a big dollar amount. So at the end of the day, there's little you can do. But if a practice is so adamant on we are not, we are not, you could ask them to put something in the contract that says, “If you do, you need to give me money.”
Dr. Jim Dahle: Yeah, they should have no problem putting money behind their mouth, huh?
Jon Appino: Yeah.
Dr. Jim Dahle: Yeah, that's a good tactic.
Jon Appino: We saw one a couple of weeks ago, and the physician was so adamant about not selling. They actually put in there, “If I do sell within the next 24 months… I think it was like $175,000 or something like that. It was a way to say, “I'm not selling. And if I do, I'm putting my money where my mouth is. I'll give you the money.”
Dr. Jim Dahle: Yeah, it should be easy to do if they really aren't going to sell. It's pretty easy to do. I've done that similarly in some of the business contracts I've had with WCI. So it's certainly helps people understand what your intentions really are. All right, this one comes from forum member MPMD, “What do you think the frequency of an actual contractual issue is among physicians? My sense is that is very low. I'm getting to where I'm relatively experienced, and I still don't think I've really known anyone who's suffered a major contractual issue as a doc. Am I just lucky or not paying attention?” And it sounds like what he wants to hear are horror stories.
Jon Appino: I wish we didn't have them, but we have lots of them. We need to get better at telling that story. So I think we're going to have some content coming up on these. I think fortunately for people to learn from, maybe unfortunately because we don't like telling these stories. But frequency of something coming up… and we've done thousands and thousands and thousands of contracts here, and we get phone calls sometimes saying that things are less than what they expected. And that might be something like, “I didn't think I was going to do this many night shifts.” And that might be something that would be minor as far when is there a contractual issue, like somebody needs to be sued or somebody needs to be in trouble. I don't know. I would assume it'd be very, very minor, very small. Those are things that we, of course, don't get involved in here. But I think overall, the frequency of an issue would be pretty small.
Jon Appino: Now, disagreements, I guess it depends on the how big the issue is. If it's just a disagreement on your schedule, or if it's something bigger when there's a breach of contract, obviously, schedules change and expectations change and program coordinators or directors change, but I think as far as what the percent that there is a contractual issue, I think it's pretty small. Horror stories, we could do 10 podcasts on horror stories. There's a lot that we could go over on. We recently had one where we went through… it was an OB deal… I'm sorry, it was a family practice with OB deal. And we went through the contract. And she was working four days a week, and there was a defined dollar amount, which we thought was appropriate. And we went through everything, and she had a great discussion with them and ultimately signed. When she started, they had called her in and said, “We unfortunately made a mistake in your pay. We did not structure your pay to the four days a week or the 0.8 FTE. We kept it at what was a 1.0 for the department. So we're sorry, but we're going to unilaterally modify your pay structure starting next paycheck.”
Dr. Jim Dahle: Wow, how'd that go?
Jon Appino: She called us and we gave her some advice on how to have the conversation with the employer in a friendly conversational way. And I don't think it was what we did. I think she was fantastic. She was able to have a conversation with them, and they honored the contractual terms that they signed to. So they kind of owned the mistake and said, “We'll take it for the first year, and we'll reevaluate it for next year.” So I was happy about the employer and how they handled it knowing they could have handled that differently.
Dr. Jim Dahle: Has it been a year yet? Have you heard back what happened after a year?
Jon Appino: It is not. No, it was recent. Yeah, has not been a year. But of course, we told her to reach out to us nine months in, and we'll start being able to tell the story for how month 13 should go.
Dr. Jim Dahle: Any other horror stories that come to mind quickly that would be worth sharing?
Jon Appino: There was an OB physician in Baltimore. She was moving to Florida, and she never had anybody look at her contract in Baltimore. She's signed with a private practice out of training maybe. I think it was 230 a year for two years. She was out for two years. She was moving down to Florida. We looked at her Florida contract. And of course, I said, “Look, I haven't looked at your Baltimore contract, so I'm guessing everything's fine with that, how to terminate and tail insurance and all that good stuff.” And she said, “Yeah, I think I'm all good.” And then she had us take a small peek out. We have a cheap package that we can take a small peek at it. And it's set in there that it was very clear that she had to purchase her tail insurance, and she had no idea what that meant.
Jon Appino: And I think it just goes to tell you the importance of having somebody look at these things. And she had no idea what that meant. And two years out of training for an OB, then I had to break this news to her. I want to say her tail insurance, she had to pay for it. And I want to say it was 170,000 bucks… $160,000, and two years out of training at even the most frugal White Coat Investor is not going to put together $160,000 of cash to buy a tail policy two years out of training with everything else that's pulling at you.
Jon Appino: So that was a situation where somebody didn't have a contract looked at, they didn't understand the terms, and they were leaving, and they had a big financial obligation that they did not know about, and of course, they didn't plan for. And tail insurance is one of those finicky things. Unfortunately, you can't finance it most times because unlike a car or a home, there's nothing to take back by the lending authority. So it generally has to be paid for up front. So that's a situation that was unfortunate for her and I felt bad having to break the news to her.
Dr. Jim Dahle: Yeah, that's something I looked at very carefully when I came to my group and we decided to set it up so that if I left early, I had to buy the tail, and if they fired me, they had to buy the tail. But we decided we better figure out what a tail was going to cost for us right up front when we did it because they didn't know either. And so we got a quote from the malpractice folks and it would have been 50 grand for me as an emergency physician after a couple of years. And I think it was a fully mature tail at like 55,000 after three years. But it was no small sum of money. It was really a little bit of golden handcuffs if things didn't work out for either one of us.
Jon Appino: Yeah, but I think the way that you had it set up, if it's my fault, I'll buy it. If it's your fault, you'll buy it. And then you had the expectation with if you guys wanted to leave, what's it going to cost us? So if we have a job open up in Dallas, what's it going to cost for us to quit this and move down? And even if they said, “Look, we're not changing it at all,” I still think it's a very good question to ask is what's a fully mature policy going to cost? And now we know, so at least you've done due diligence and you at least know what the policy would cost you so you can transition it if you'd like, knowing that you'll be buying it instead of like finding out later on because you never had anybody explain it to you. So I think you did a great job of doing due diligence and at least finding a happy medium with the group on who pays for what situation.
Dr. Jim Dahle: Yeah, they had a happy ending for me anyway. A year later, we switched to an occurrence policy. So it worked out well for everybody. But it was interesting with the falling cost of malpractice, the occurrence ended up being cheaper than the previous claims made policy anyway. All right, our next question comes from another forum member Adventure, who sounds like he's trying to minimize the cost of getting a contract reviewed. He asks, “Can you describe the typical contract negotiation cost structure? Is this ever something that's only paid for if a better deal is achieved instead of just paying dollars for time and we'll hope a better deal is found?” And also wants to know how much of it is really just contract review and contract lingo education to the doc versus any sort of negotiation.
Jon Appino: In general, I would tell all physicians, like we said, have it looked at and have your pricing structure fixed upfront. Know what you're going to pay. So I wouldn't pay an hourly rate to an attorney or to any firm that could charge you more than would be required. Our packages are cheap and they go to not too expensive. But I think that having it, knowing what you're going to get upfront and not having an hourly rate would be important. Not all contracts are negotiating salaries. And so to say, if I get a better deal, that means that I'll pay the firm more money or I'll pay… it's not always about the finances. Sometimes it's about the schedule, or it's about the benefits, or sometimes it's just about the malpractice insurance, and how do you put a cost on those things to say, “You started at 100,000, I got you to 110,000, therefore, I get $100”?
Jon Appino: It's hard to sometimes put dollars and cents, and sometimes it might be there's no change to the base salary, but there's a change to the bonus structure, or there's a change to how the signing bonus is repaid, or there's a change to the amount of vacation time. And so it's hard to put a dollar amount and say, “Because of this, the service should be paid more or less.” Now I think there's another portion of the question as far as what could be negotiated. We think it's as creative as you can be from just the basic core of the contract to the termination clauses and how those kick into the obligations of the physician after termination, like panel insurance or non-competes.
Jon Appino: Compensation structures, there's really a vast area of what could be negotiated in any particular contract that vary so much based on the physician's story. So if the physician's story is, “I'm going to be here for a year or two and then we're going to move,” that's a different frame as far as how do you negotiate that deal versus, “My family's from here and I want to raise my kids here for the next 30 years. And this is the only group in town or this is one of 10 groups in town.” So having the backend story I think is also important. It's not just about the words, say this, on the contract and therefore this is what you should ask for, it's about knowing the individual's story and what they want for the future and then customizing it, I guess, to that individual situation. But there's a ton of things you could ask for in a contract as far as negotiating it.
Dr. Jim Dahle: Let's talk about some of those extras. This is a question that is asked in 15 different forms in this list of questions I got from listeners. So what you do when the salary doesn't seem to be more negotiable? What do you go to? Do you go to more academic times, signing bonuses, moving expenses, loan forgiveness? Where do you find docs success when they can't budge the salary? What else should they be considering?
Jon Appino: I think all of those things. I think if it's academics, maybe you want like a defined amount for your research fund every year for the first three years. Maybe you need some equipment, maybe there's additional time off for flexible time, maybe you need more CME dollars to train yourself on something. If you are working for a private group, maybe there's a scribe that you need to make you more efficient. Maybe it's putting a metric in for having a physician assistant as a surgeon, so how busy are you going to be before they give you that resource? If you can't negotiate your salary, maybe there's negotiating ancillary things like supervision fees for a nurse practitioner, or putting in there, “I'll take the call 10 days a month, but anything more than that, I'm going to be paid $500 for.”
Jon Appino: You could ask for maybe back funding of COBRA insurance if you got to buy COBRA insurance as you transition from one position to the next. We could go on and on and on with different things that you could negotiate if they said, “Compensation is 100% off the table, don't ask for anything compensation-wise.” There's so many things that you could still ask for or negotiate that maybe they'd be willing to give a little on. And those things maybe like benefits that would be similar to financials, or maybe there are things like giving you more spare time, or more free time, or vesting you in a certain benefit earlier, or providing new equipment in the OR. There's a lot of other things that you could put metrics around.
Dr. Jim Dahle: All right, this next question comes from Dak, who wants to hear about loc*ms. When you're considering loc*ms work, what are some of the watch outs that one should pay attention to? What should we expect a recruiter to have, a pretty standard T&Cs contract, or should we expect to negotiate each part and not just rate? Is it worth it to pay for a separate contract review for each short-term loc*ms engagement when going through an established agency, or how would you approach this for someone who's interested in doing loc*ms maybe just once or over and over again for a good chunk of a career?
Jon Appino: So we've seen some loc*ms contracts, and I don't know that you need to pay much money at all to have it looked at, especially not every single one. Thing is to keep an eye out for that you can decline an assignment, that you can get out of an assignment. And if you take an assignment and you're in an assignment and you think a permanent placement might make sense, then understanding the fee structure behind that… we had seen in some situations where someone's providing locum services to an account, that account wants to hire the physician, and of course, the loc*ms agency has a contract with the account that says, “If you want to hire one of our people, you have to give us money, $20,000, $30,000 or typical rates for that.
Jon Appino: And we have seen hospitals then tell the physician, “Hey, here's your contract, we're excited to have you,” and there's no signing bonus when maybe typically they offer 20,000 or 30,000 for a signing bonus. And the hospital will say, “Because we have to buy out your loc*ms contract, we are not going to give you that signing bonus, or we're going to decrease your salary for the first so many years because of whatever calculation we make on our end to make things fair. We're allocating 250,000 per head, therefore, we got to pay this fee of 20,000. We're going to decrease your salary or decrease your bonus or decrease something by 20,000 to make it neutral for us.” And so that's one of the things to keep an eye out for if they decide to go down a route of, “I'm going to stick around and maybe do a perm placement off of a loc*ms,” to make sure that they understand that if the hospital is going to try that, that the hospital understands that the physician expects the exact same deal that they gave the last person, if not better.
Dr. Jim Dahle: All right, let's switch tactics a little bit and take a question off Twitter. This is from Christian McNealy who asks, “Are non-competes or these restrictive covenants negotiable?” Now, I'm sure the answer to that is it depends. Can you explain how it depends?
Jon Appino: Yeah, a lot of it is just the situation of the physician. If you're the 25th hospitalist into a service line, or the 30th cardiologist into a hospital employee group, the situation might be different than if you're the only pediatric endocrinologist in a 300-mile radius in the Midwest. So those situations when seemingly contracts or non-competes are “non-negotiable,” you have a pediatric endocrinologist going to a market or any high subspecialist physician going to a market, and they've been trying to hire that person for the last three years, and they draw a line in the sand. You talked and written about baton that before they draw a line in the sand and say, “Look, I am not going to sign with this non-compete period.” Sometimes we see flexibility there.
Jon Appino: So are they negotiable? Yes. Sometimes it might be the years, it might be the radius, it might be how it's enforced, it might be a buyout provision. So maybe you'll tell the employer, I will give you a dollar amount to buy my way out. Some contracts have that pre-specified in the contract, but maybe you want to negotiate that and have that instead of the one times your salary, you want it to be 30,000 or 50,000. And so at least, again, just like when you were talking about your tail insurance obligation, if you guys were to take a different position, you know if I want to leave this position and I want to compete with my employer, it's going to cost me this amount of money. So there's lots of different things that you could negotiate regarding the non-compete, again, all depending on the situation.
Dr. Jim Dahle: Now, there's always lots of talk out there about non-competes not being enforceable. Can you talk a little bit about which ones are not enforceable and how you would feel about leaving one that doesn't seem like it would be enforceable in a contract?
Jon Appino: So from our end, at Contract Diagnostics, if there was a non-compete in a contract, we would say follow the non-compete. Sometimes you can't have a non-compete, you can have a non-solicitation. We see that in various states. We see some states changing how they view non-competes. But we would always tell a physician if a contract has a non-compete in it, we wouldn't violate it, we wouldn't breach it. We would want to wait and see what the employer did. Our guidance to them would be don't breach the contract terms in any way, including the non-compete. If they wanted to ask for local guidance on that from a local attorney, then that will give you a good idea.
Dr. Jim Dahle: Is that more from being a person of honor standpoint, or is that more from the fact that it's a very expensive way to find out if it truly is enforceable?
Jon Appino: I think it's a very expensive way to find out if it's enforceable. And we talked about litigation earlier, and what physician wants to find out. Whether you're worried about litigation or not, a lot of contracts say very clearly, “We don't even have to litigate it. If you breach this, you owe us damages,” and they're defined damages. And it's one times your salary, or it's two times your salary. So a lot of non-competes are almost taking the, are they enforceable or not? Well, we don't know. If you breach it, we will just send you a bill. Now, will they or not? I don't know. I wouldn't want to find out.
Dr. Jim Dahle: I hear some people talk a little bit about having a one-year salary guarantee and then they're on some sort of RVU basis. And it seems like a lot of times for these folks, they end up with a much lower paycheck that second year. Can you talk a little bit about contracts that are structured that way and what to watch out for?
Jon Appino: Yeah, we see the same job almost every other year because there'll be a big salary up front, and then of course, like you said, you'll go onto production and then they can't meet the production, their income's going to go down by $100,000, and they're going to transition to a different employment because they can't handle them. So back to the due diligence process, what are their expectations? What the last surgeon or the last physician that they hired? What did they put up in terms of numbers? How much transparency do we have in terms of numbers? Do I get a monthly report from the employer, a two-year guarantee versus a one-year guarantee? I think a fair question is, how often does someone in any department that you guys hire, cardiology or family practice, how often does somebody come off of a guarantee and go down in income? And if that's the case, maybe they just don't have a good idea on how efficient physicians can be.
Jon Appino: But I think there's certain things that you can do to protect yourself by having maybe a longer guarantee, by having access to the reports so there are no surprises if your production isn't where it was supposed to be. Should the employee come to the employer with ample notice and say, “Look, I know that I'm not hitting the numbers, I don't want to take a decrease in pay. If we cannot extend my guarantee I'm going to have to give my notice 90 days or 120 days”? Most employers in that situation would go ahead and extend the physician for another 6 or 12 months to see if they can get their feet underneath them. Because having a physician transition out of an employment, now they've got to hire someone else, it costs $100,000 minimum to have physician insured.
Jon Appino: So we think that you can always ask for a longer guarantee, you can always ask about expectations, but at the end of the day, if you do come up to that timeline to be able to have that conversation with the employer on, “I cannot afford to take a big decrease like this. What are our options?” I think most employers would find some kind of happy medium with the physician in that situation.
Dr. Jim Dahle: Do you get the impression that there are a fair number of employers out there using these RVU-based compensation structures a little bit nefariously trying to make there be a lot of moving parts so they can end up hosing the physician and getting them for cheap, Or do you think that a lot of the problems docs are running into with this is just because those docs aren't necessarily very efficient or very fast docs?
Jon Appino: Do I think it's intentional by the employer to get a good deal on their labor? I'd like to say no, but we do see some overly complicated structures. And I don't know if it's administrators trying to fill their days with things to do to make themselves look important or feel important, or if they're really what they feel is in the best interest of the patients and the physicians and their revenue model. So I don't know. I would like to think it's not intentional to underpay the physicians, but we are seeing some employers slowly go towards these things that I know all physicians love like quality metrics. And they're reducing RVU structure saying, “Okay, we used to pay 100% of the RVUs. Now, we're going to go to 80% of the RVUs and 20% quality.”
Jon Appino: And we've had conversations with employers where their goal is to go more towards the quality, so we're going to get down to 50% RVUs and 50% quality, and then 40% RVUs and 60% quality. And of course, quality in all the various metrics that come with that thing of a performance incentive plan, as you know, Jim, can be challenging to measure, challenging to report, and I think that pose its own problems and head-scratching and everything else that we see with employers.
Dr. Jim Dahle: It's interesting. I wonder what percentage of contracts these days have part of your compensation based on either quality or patient satisfaction? What percentage of contracts do you think you're seeing that some of your compensation is based on one or both of those things?
Jon Appino: I would estimate it right now at 20%, 25%. I want to say it was 10% for years ago. So we've seen a big shift. And again, we've been told by the employers that they are going to gradually shift more and more and more to these models> And a lot of employers have very, very spelled out plans over the 5 five to 10 years to slowly roll physicians more onto these plans. And they're formulating new compensation plans right now to be rolled out January of this year in certain employer situations, certain models.
Dr. Jim Dahle: That's really concerning, especially with the difficulties in measuring quality number one and also the data that suggests more satisfied patients are actually getting worse patient care. So it's really worrisome that they're basing physician's compensation on that.
Jon Appino: And like I said, we are going to see more and more of a shift towards that. And so how that changes compensation structures, it's going to be interesting. We talked earlier about survey data and how that changes those models is going to be interesting. Some employers are going to go faster towards it because they feel it's the right way, or they want a certain perception, while other employers are going to push back on it and continue to pay physician fee for service. Healthcare is always interesting, and we have an election coming up of course, and so all those things play into what the employers do, how the employers build their models, and how they look towards the future on not only their biggest asset being the physician, but also their biggest cost.
Dr. Jim Dahle: Any tips for VA docs or prospective VA docs? I talked to one yesterday at a conference who told me that they were working basically one-quarter time. I think they were working 10 hours a week, and they had a full benefit package. Now, I don't know if that's the standard contract or if that was specially negotiated. But anything in particular for VA docs?
Jon Appino: No, no. If somebody called and said, “I want my VA contract looked at and I want to pay you a bunch of money,” I would discourage them from it. I don't know that those contracts need to be… it's important to know what it says and how to get out of it. But knowing that there's not a lot of negotiating room, if any in there, I think it's just understanding the benefits of working for the VA. So what's the schedule? Are the benefits long-term? What does the retirement plan look like? Yeah, working a quarter time and getting full-time benefits from what I know the VA has really good benefits, but that sounds like a nice either part-time gig for anybody out there, or for someone who's doing a 1099 work, or just a good lifestyle to live.
Dr. Jim Dahle: Yeah, it sounded pretty good. It was an emergency doc and then they're basically doing high priced 1099 loc*ms on the sides. It sounded pretty lucrative to me.
Jon Appino: Yeah, I was just thinking that would be a great job for somebody like that, who they were on the traveling team with an organization. They went around, and they just kind of filled in where they were needed, and they got paid out a lot of money per hour, a 1099 role. But now, they have all their benefits picked up on the VA. They just have to be working so many hours a week, and not measured on most of the things that we just talked about, RVUs or policies or patient satisfaction and those kinds of things. So sound like a good gig to me.
Dr. Jim Dahle: Yeah, well we're getting to the end of this. We better wrap it up. But before we go, this podcast is going to be listened to by 20,000 to 30,000 people in the next month and maybe 1,000 people a month after that. Who knows? 50,000 or 100,000 people by the time all is said and done are going to listen to this. So you have their ear, what would you tell them that we haven't covered yet today that you think is important for them to know?
Jon Appino: I would say as long as they understand the importance of having their contract looked at, I would say whoever does it make sure they have a lot of reps and they know what they're doing and they understand how physicians are different. But then as you go about the process with that person and as you go about the… you take it to the next step with the employer, have the frame from a negotiation perspective. It's not about you versus them, or it's not about winning or losing because you both have the same goals. And it's to get you there if you're talking to them, you're having the contract looked at, you're paying to have it reviewed, obviously, you've got interest in the position. So the goals are the same. It's to get you there, get you going, get you in front of patients, have the patients be happy, provide good care and lots of good care to patients, have you stick around long-term, you guys have the same goals.
Jon Appino: So it's about how do we get from where we are now, where I don't understand what this 15 or 20 page contract says to I'm signed and I'm credentialed and I'm happy. How do we get there? Again, it's not you versus me. It's we have the same goals, and I think if everyone goes about it with that light, I think it'll be a smooth and an easy process. The due diligence is very important. But I think once they're convinced that it's not about just sign the contract, and whether it's your first contract or your fifth, it's not about just signing it and showing up, there's lots of due diligence to be done. But knowing that you have the same goal as you go through the due diligence with the employer, I think is an important thing.
Jon Appino: And then the other thing I would say is we talked earlier about your worth in the market. Don't lose track of that because physicians and everyone listening knows this, spend a lot of time on making their time very valuable. And I want to make sure that the physicians understand how valuable their time is, and of course that the employer documents that in the contract. So how much time am I going to give you and then how much in money and benefits will you return to me? And those things should be very clear in agreement, and that physician shouldn't lose track of that over time.
Jon Appino: So they should continue to revisit it. They should continue to read online about physician salaries. They should know their specialty and how payer mixes are changing. They should reach out to a company or to someone else to say, “This is my structure. Is it fair or not fair?” How should I have a conversation with them to make sure that I'm spending my time away from my family, my passions, my hobbies, and I'm being fairly compensated for it? So I think if everyone keeps those things in mind, I think they'll do just fine.
Dr. Jim Dahle: Jon Appino, with contractdiagnostics.com, thank you so much for being on the White Coat Investor Podcast.
Jon Appino: Thanks for having us, Jim.
Dr. Jim Dahle: Okay, that was great having Jon on. He's been advertising with me for years now. I think I've had one complaint in like five years of hundreds of doctors using their services, so really a great resource there. Now, we've actually got three firms that advertise with us to do physician contract negotiation and review. You can learn about all of those if you go to the whitecoatinvestor.com under the recommended tab. And we have a little tab there for legal and contract review, and all three firms and contact information is listed there. And you can choose the one that looks best to you and get that contract reviewed. But don't make a mistake like some of those horror stories we heard in this podcast.
Dr. Jim Dahle: This is not an expensive service. Typically, it's $200, $300, $400, something like that. They spend an hour with you going over your contract explaining what it means. You can hire them to negotiate for you, or you can just get some ideas on what you're worth and what you should negotiate and how you might do it. But considering how much money we're talking about, especially if this becomes a long-term job, a couple of hundred bucks is money well-spent. This is not some place to cheap out when it comes to your personal finances.
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Disclaimer: My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He is not a licensed accountant, attorney, or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.
