What to Know Before Signing a Physician Employment Agreement

You are a new practitioner and are ready to begin your first job, one for which you have been preparing for years. As with many job opportunities, your prospective employer gives you an agreement to sign: It outlines your compensation, scope of work, requirements, and benefits. You are eager to start your new assignment, and you want to sign this document quickly to make your employment official.

However, before you execute this agreement, you must review it in its entirety and understand it fully so you can comply with both the agreement and the law. Here are some of the common and important physician employment agreement provisions you should analyze before you sign the document.

Type of Compensation Model

Before entering into the employment agreement, you’ll want to understand the different compensation models and ensure the agreement language reflects your understanding of how you will be paid. An understanding of the different types of physician compensation models will allow you to decide what type of structure best supports your long-term goals and expectations. Some of the most popular variations of compensation models for physicians are briefly described here:

1. 100% salary model: The physician receives a prenegotiated, fixed salary, which makes this model predictable and easy to administer. However, it may not provide much incentive for physicians to grow a practice because the fixed salary does not fluctuate, even if a practitioner meets goals or benchmarks.
2. Salary plus incentive model: This model guarantees a physician a minimum base salary, which can be supplemented or increased with additional compensation based on merit factors. This model incentivizes certain behavior, and may allow a practice or hospital to promote its mission or values.
3. Capitation/productivity plus capitation model: This model pays a provider a prenegotiated, fixed amount for each patient enrolled in a health plan for a certain period of time, regardless of whether that individual patient seeks care.
4. Equal shares model: This model takes the total amount of money the practice earns and, after expenses are paid, divides it among the practice’s physicians. This can be complicated to implement if the practice’s physician experience or skill levels vary.
5. Pure productivity model: This model gives a physician a designated percentage of what revene they bring to the practice. This type of compensation structure rewards entrepreneurship and can facilitate an individual’s sense of ownership.

Each of these models has its own formula and intricacies. We recommend physicians have a healthcare attorney familiar with the various compensation structures analyze a proposed compensation model to ensure it’s commercially reasonable, does not exceed fair market value, and complies with healthcare laws relating to compensation and fee structures, including fee-splitting laws, the Stark law, and anti-kickback laws.

You have done the work, graduated, completed your training, and are ready to embark on the first chapter of your career. It’s important to analyze your employment agreement to ensure it meets your expectations.

Existence of Restrictive Covenants

Another critical point to clarify before executing an employment agreement is whether it includes any type of restrictive covenant. Restrictive covenants, which include noncompetition and nonsolicitation provisions, prohibit employees from working at certain places, with certain people, or in certain geographic areas after they leave their current place of employment. The laws addressing restrictive covenants vary by state.

If your employment agreement includes restrictive covenants, be sure you understand their scope—geographic and temporal—as well as the types of medicine you are prohibited from practicing. If the covenants seem too broad or unnecessarily restrictive, consult with an attorney. Overly broad or unduly burdensome covenants are often unenforceable.

Notice and Termination Provisions

When examining your employment agreement, review whether it contains any notice requirements, which may require you to notify your employer in advance of a departure. Also determine whether terminating an agreement early will result in a penalty or fine. Understanding in advance whether penalties are associated with prematurely terminating your agreement will allow you to later decide whether you want to cancel the agreement and pay the penalty or push back your timeline until the end of the agreement’s term to avoid any fees.

General Provisions to Analyze

Generally, you want to make sure that what was discussed during the hiring or negotiation stage is articulated carefully in the agreement. Examples of provisions that should be included are:

• Duties of employment, including administrative tasks and responsibilities;
• Your work schedule, including weekend, holiday, and on-call expectations;
• Requirements for the maintenance of professional liability insurance; and
• Employee benefits, including paid time off, insurance, retirement savings, and expense reimbursement.

You have done the work, graduated, completed your training, and are ready to embark on the first chapter of your career. It’s important to analyze your employment agreement to ensure it meets your expectations. If you have any questions about your agreement, contact an experienced healthcare attorney to help you with this analysis. 

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Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins LLC. Contact him via email at sharris@mcdonaldhopkins.com.