Residents and Fellows
As a frequent lecturer at medical schools, Scott often discusses the business aspects of medicine to help prepare residents and fellows for their transition into the practice of medicine. He has reviewed and negotiated hundreds of employment agreements for residents and fellows. Some of the issues in these employment agreements are as follows.
Many physician employers are converting to production-based compensation models. Consequently, it is important for new physicians to obtain guaranteed base salaries during their first few years of employment while they are building their practices.
Some physicians may be offered income guarantees by hospitals. The most common income guarantees offered by hospitals are physician recruitment agreements (“PRA’s”). Under a PRA, a hospital usually guarantees that a physician who relocates to the service area of the hospital collects a minimum amount of monthly revenues for one or two years. This arrangement is actually structured as a loan by the hospital to the physician, and requires the physician to execute a promissory note with the hospital for the amounts advanced to the physician by the hospital. The promissory note is forgiven if the physician continues to practice in the service area for two or three years after the guarantee period. It is important to note that the promissory note executed by the physician may affect his/her credit, especially if he/she wants to obtain financing for a home purchase.
Perhaps the most controversial issue in physician contracting is indemnification. This allows an employer to recover damages and defense costs from a physician employee in certain circumstances. For example, if an 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 many states, a physician employer can restrict a physician employee from competing with it after an employment agreement is terminated. The non-compete prohibitions usually last for one to two years, and extend over a geographic area which often causes a terminated physician to relocate. Importantly, non-compete clauses are generally enforceable in most states.
Physicians should always ask whether there is an opportunity to obtain equity in the medical groups which hire them. Many medical groups provide such an opportunity for new physicians after two or three years. Importantly, the cost of the buy-in is critical especially to new physicians with student loans. Recognizing this problem, the trend today is for physician employers to have nominal buy-ins which are financed internally by the employers using pre-tax dollars.