Negotiating physician employment agreements

Benefits

Fringe benefits are an integral part of a compensation package for a new physician. Most physician employers offer a generous package of health insurance, retirement, reimbursable expenses, and paid time off. These benefits should be clearly delineated in the employment agreement or employee handbook. A very common question about health benefits is when they become effective (the first day of employment, 30 days after employment, the first of the month after employment, etc.). This is significant because Consolidated Omnibus Budget Reconciliation Act (COBRA) is quite expensive. Another issue is whether health insurance also will cover the physician’s spouse and dependents. Most physician employers cover only the physician, not his/her spouse and dependents. If a new physician has a spouse who already provides family health benefits, it may behoove the physician to negotiate an allowance in lieu of health benefits.

Paid time off of 10-20 days are commonly given by physician employers to new physicians. Some employers also provide 5 or more additional days of paid time off for Continuing Medical Education (CME). Of course, once a physician goes onto production-based compensation, paid time off usually is not provided.

It is very important that a physician employer offer a retirement plan. Oftentimes, there is a matching contribution by the employer. However, it is not uncommon for there to be a year waiting period for eligibility in the retirement plan. Retirement plans vary significantly so it is advisable for a new physician to meet with the employer’s human resources department to get the details of the plan offered; the physician may want to confer with a financial advisor after obtaining this information.

Most physician employers reimburse licensing and DEA fees, medical staff dues, and board certification expenses. There is often a CME allowance as well. In competitive markets, some physician employers also offer innovative benefits such as student loan repayment programs, fellowship and residency stipends, and forgivable loans for housing. Sometimes these benefits are not included in the employment agreement; you may have to ask for them.
 

Indemnification/noncompetition

In addition to compensation and benefits, there are several other issues which are commonly found in employment agreements. Perhaps the most controversial is the issue of indemnification. The legal concept of indemnity allows a physician employer to recover damages and defense costs from a physician employee in certain circumstances. For example, if a physician employer has a $1,000,000/$3,000,000 malpractice policy covering itself and each of its physician employees, and if a physician commits malpractice and the award is $2,000,000, the employer may seek to recover the $1,000,000 deficit from the physician. In California, for example, the physician employer would be prohibited from seeking the deficit from the physician employee, but in most states, it is permitted. Because insurance policies usually do not cover physicians for damages, expenses, costs, etc as a result of an indemnification action, there is no practical way for a physician to protect himself/herself from the consequences. It is very important that physicians not sign any type of agreement with an indemnification clause in it without consulting an attorney first.

Another controversial issue is noncompete restrictions. In many states, a physician employer can restrict a physician employee from competing with it after an employment agreement is terminated. The noncompete prohibitions usually last for 1-2 years and extend over a geographic area, which often causes a terminated physician to relocate. Importantly, noncompete clauses are generally enforceable in most states.