Top Ten Mistakes Doctors Make Negotiating Their Own Contracts
July 28th, 2016
10. Fail to examine and identify life goals.
Medical schools do not train physicians in exploring and evaluating multiple business options. To the contrary, doctors are taught deferred gratification. Physicians often fail to explore several geographic regions or practice area, even though there is a vast difference in wages, malpractice exposure and other factors from state to state. As a result, their ability to envision options and possibilities is limited, so they usually pursue one job at a time, thereby losing out on the increased value of having multiple employers competing for their services. Physicians need an independent advisor to help explore and examine a variety of practice opportunities before making commitments. Don’t waste years of your professional life in a dead-end job.
9. Fail to know what they are worth.
Physicians constantly undervalue themselves. There are published benchmark indices that establish average income by specialty and region. Physicians should insist on at least average earnings, if not more. Usually their training and background qualifies them for above-average salaries. If the contract provides earnings that are less than average, the contract could be considered below the prevailing wage thereby jeopardizing the candidate’s visa status.
8. Leave money on the table.
Due to lack of schooling in business skills, physicians tend to be very poor at negotiating salary signing bonuses, moving costs, housing assistance, benefits, CME, memberships, marketing assistance, consulting assistance and facilities costs and a host of other valuable benefits. All of these items should be part of the total compensation package and can add up to tens of thousands of dollars in value to the physician. Often the physicians do not know to ask for these benefits, or if a doctor does ask, he or she does not know how much to request. As a result, physicians lose a lot of monetary value in their self-negotiated deals.
7. Fail To Undertake Necessary Due Diligence.
For any job to be successful there must be a viable full-time practice opportunity. There are sophisticated methods for analyzing whether there are enough paying patients to support a practice, but physicians need expert help to make that analysis. If this is not done the physician could wind up all alone by the telephone, or worse, the economic underpinnings of the employment relationship could fail, thereby putting the employment relationship at risk.
6. Confuse employment contracts with recruitment contracts.
An employment contract means that the employer guarantees the paycheck at the prevailing wage for three years. The employer takes the risk of whether there is a viable practice. Recruitment contracts put that risk squarely on the doctor. Income guarantees are not the same as salary. They are really only forgivable loans that are forgiven if and only if the doctor stays in the community a certain number of years. They are like indentured servitude. If the physician leaves before the term of the contract, he or she is required pay off a debt totaling hundreds of thousands of dollars. Recruitment contracts are highly regulated. If they are not written right and performed exactly then the doctor and employer could land in very big trouble.
5. Fail to read / understand the fine print.
Physicians think contract provisions are just a bunch of words. They have legal meaning and are there to protect the employer, unless they are negotiated to be fair and evenhanded. For example, a contract may state a term of three years, but then have a separate, unfavorable termination clause allowing the employer to end the contract earlier. Sudden termination can lead to sudden economic hardship if the contract does not work out. This can be devastating if the doctor has uprooted home and family and then is terminated by the employer. It can be ever more devastating if the contract contains a covenant not to compete. Appropriately, when interviewing for jobs, physicians focus on making a good impression and establishing personal and professional rapport. That is what they are supposed to do. They should not expect to be experts in contract terminology, law and business. Physicians need experienced advice to parse out the legal language. Instead they all too often substitute the advice of other physicians who didn’t have a negotiator or lawyer and think their colleague’s experience somehow reflects the best outcome they could achieve…and reliance on “friends” for advice is worth what you pay for it!
4. Willing to Accept Unfairness.
Thirty-seven years of experience has taught us that bad terms in an employment contract are a likely to be a sign of a bad employer. If an employer imposes terms that disrespect the employed physician or are unfair, it is likely that employer will never treat the employed physician as an equal colleague financially or professionally.
3. Fail to Appreciate The Hidden Dangers of Contingent Liabilities.
Contingent liabilities are clauses in contracts that create serious and very real obligations in the future. Covenants not to compete can force the doctor to move mid-career forcing the doctor to start over in a new town. The most egregious form of contingent liability is liquidated damages. “Liquidated damages” is a provision in a contract that requires a breaching party to pay huge sums. Liquidated damages can be used as a huge threat to lock doctors into terrible situations and can result in sizable penalties for the unwary. Another contingent liability is tail insurance. Many contracts make employees pay for tail coverage. This can cost the employees $50,000 or more. Most doctors don’t understand that if they accept this obligation, they will need to set aside a reserve for tail insurance every month, thereby reducing their effective salary.
2. Obligate themselves to “voluntary” call coverage.
Increasingly, hospital call is paid for separately. Nightly call stipends can range from $250 to $4,000 per night, depending on the specialty and location. Most employers try to get employees to provide call coverage for free.
1. Fail to use a professional negotiator.
Physicians fear that using a lawyer or professional negotiator will alienate the potential employer. Au contraire. Employers are usually impressed if the potential employee looks out for his or her own welfare by bringing in a well-versed business agent to facilitate and expedite the negotiations. Often the good sense shown by the potential employee in getting professional negotiating help engenders real respect from the employer; most importantly, it sends a message to the employer that the potential employee is careful about business and expects the relationship to be clean, solid, business-like and fair.
As you can see from this list, negotiating an employment contract involves complex issues and very large sums of money. More importantly, employment contracts govern both the physician’s day-to-day work life of providing patient care and the future of the physician’s career. The art of negotiation is a skill that requires knowledge, talent and experience. Negotiation is a process, and in contract negotiations each side makes concessions. Doctors should not try to practice negotiation on their own contracts any more than negotiators should try to practice surgery on themselves. Doctors think they are saving money by not hiring a negotiator. While a negotiator must be paid just like any professional, the value of the experienced negotiator’s services far, far exceed the price paid.