After medical school, physicians will go to work in a hospital setting, while others go into a private practice. Whichever direction they choose or have chosen, after putting a lot of time and money into training, they will sign-on for their first “real job” with a nice, shiny contract to solidify the deal. A physician employment contract is worth millions. This is why physicians should get their employment contracts reviewed by a professional.
They’ll have to be smart at this point with the contracts laid before them.
Same goes for you.
There are key things you need to know about when thinking about your potential job:
Do you understand what is expected of you in your new position?
Did you read the contract to understand every detail laid out?
Do you know what situations should be covered in the contract and how they might protect you?
What must you do to keep the sign-on bonus?
If you decided to leave your current position for something new—are you free to do that?
Lots of elements to consider.
There is too much detail.
It gets confusing.
We get it.
Another person who gets it is Jon.
Jon Appino from Contract Diagnostics has years of experience understanding the details of employment contracts like yours. He finds it fun, much like we find boosting financial competence fun—we’re like superheroes.
Yeah, we went there. 😉
We encourage our community to manage personal finances like a business, much like we’re encouraging them to build a foundation of financial knowledge. This time the knowledge is about growing their understanding around employment contracts and why physicians should get them reviewed.
Let’s get started.
How Important is Understanding Your Contract?
Signing your first position is an exciting time for you; however, it is a critical period for understanding exactly what is expected of you. Understanding your contract may save you money, time and stress further down the line. Some questions that you might consider are:
- Can you work in this area?
- Are you able to terminate your employment?
- How long are you required to work to keep a sign-on bonus?
More than half of new physicians will leave after their first employment agreement. If you don’t understand the requirements that you must meet, leaving could mean losing hundreds of thousands of bonus dollars. Even re-negotiating a new contract is easier when you understand your original agreement.
- When reviewing a contract what exactly should you look out for?
- Do you know if the wording is enough to protect you?
- Is the wording so vague, that it benefits the employer more than you?
These are questions you need to know the answers to.
Knowledge is Power
Knowledge is power, especially when reviewing a contract. The technical language can be overwhelming. Jon simplified the process by explaining a contract is basically answering the question “What are you going to do for me? What am I going to do for you?,” and “What happens if you don’t uphold your end of the bargain, or I don’t uphold mine?”
It sounds simple but knowing what to look for and who the wording benefits may be a little bit more complicated!
Physicians need to have these outlined in the contract:
- Duties
- Services
- Schedule
- Location
- How many calls will you take?
- Do you have administrative time?
- When will you complete your records?
- How many patients will you see a day?
Employers need to answer these expectations in the contract:
- Is there a base salary?
- Is that base salary guaranteed?
- If you don’t produce—do you owe anything?
- Is there a collection bonus?
- Are there quality metrics?
- What are the quality metrics?
- When are bonuses paid?
The termination clause is equally important. What if you want or need to leave this employer?
- Can I terminate?
- Can they terminate me?
- Am I able to get out of this contract in the event things are not working out?
Again! Lots of questions.
The Contract
As our guest today, Jon points out, that “knowing,” is half the battle.
The contract is all about expectations.
The contract may reference 20 expectations but only include 15.
That means you don’t know what the missing ones are!
Jon pointed out that if you are not used to looking at contracts you may think the expectations are clear when they are not.
There are also times when things change on the administrative end, such as more doctors being hired, or perhaps they leave. Another situation is when compensation changes over time.
Which end of the contract are you currently on? Are you currently looking at a contract? Have you already signed on the dotted line? Then as you were listening to this program—suddenly, you realize some contract metrics are missing? What is your next step?
Ahhh.
Which Way?
If you are already employed, you may be comfortable with the administration and feel that you understand the expectations.
You feel this is a verbal agreement. However, if the administration changes, the unwritten agreement may also change. In this case, clarifying and documenting the expectations is imperative.
If you didn’t have your initial contact reviewed, a perfect time to have that done is when you come up for re-negotiation. This is a great time to look at your compensation and reclarify expectations—and your employers.
On the other hand, if you are already in a contract and have a good relationship with the administration, there is probably no need to go over the contract now.
Jon points out that most of the time the employer wants to be fair to the employee. Most employers are not out to trick you.
There is a small portion of employers that may be less than honest—or it may be that someone didn’t understand the importance of the details! He gives the example of physicians who feel they have been taken advantage of or ripped off. When you first read your contract, you may not have felt those minor things were important, but later they assume a whole new level of significance! That might happen when you realize you can’t afford to leave an employment situation, you might have to pay a bonus back or are restricted in any number of ways.
Is there anything that absolutely must be covered in the contract? Jon indicates that it varies according to the physician’s goals, situation, position, and employer. He states there are basic things that should be covered.
Where will you work?
What is the salary you will make?
How will you be paid?
There are other specific topics that need to be clearly addressed such as malpractice insurance, physician term insurance, term insurance, or tail insurance.
There are some topics needing to be in the contract that may affect you at a new place of employment. If you are asked to provide proof of prior insurance, it could cost you time and money in addition to lost wages.
The bottom line is to understand the agreement and how bonuses are paid…or you may lose thousands of dollars because you didn’t take the time to understand the contract! The last thing you want to do is pay back a bonus!
That is definitely a step on the opposite end of your ideal life and would definitely add to your stress about money.
The Missing Piece
What are some key aspects that a physician might miss while reading their contract? Jon uses the example of being on call. He knew someone who was assured that the call was being divided among several physicians.
When one those physicians didn’t get signed on, and another left, this physician that Jon knew was left taking all the calls.
There was nothing in the contract putting a cap on the number of calls he could take. There was nothing in the contract giving him extra pay for taking all the calls—which might have financially put pressure on the administration to bring in locums. He was getting paid less than what his time was worth.
He couldn’t negotiate due to a variety of factors, he had just bought a house, and he had student loans. It placed him in a tight corner professionally and with his family. He was going to have to work more. His wife was unhappy about that, and he saw his children less. This is a prime example of when having someone experienced in physician contracts explain the intricacies would have paid off.
Jon explained a variety of ways the contract could have been written to ensure the physician would not be stuck in an untenable position, unfortunately for his friend it was worded to benefit the employer.
Non-Competes
Non-competes are in the majority of contracts. Some states don’t allow non-completes, but that can change. Jon explains some of them are reasonable and market appropriate (one year, seven miles, you can’t work from your main hospital). However, there are others that are not reasonable or market appropriate.
An example is a contract that does not specify your location, but the non-compete is from any location that you work. That leaves your location up to the discretion of your employer. That employer may or may not enforce the non-competes. Here are some questions to ask when dealing with a non-compete:
- Have non-competes been enforced in the past?
- Does everybody have the same non-compete?
Negotiating a Better Contract
How can you negotiate a better contract? Jon points out that understanding that you and your employer have the same goal. You and your employer both want to serve the community. You want to practice medicine. They need your medical skills. They want to earn a profit. You want to provide for your family. You would both benefit on working toward a long-term relationship.
Jon said that he has read contracts that were two pages and their lack of detail made them harder to work with than a mid-size contract of 20-30 pages. He has also read extreme contracts of 70 pages—those had too much detail!
He explains when looking at a contract it is all about what is in the contract or what is not in the contract. What should be covered in the contract and what should not be. He emphasizes the importance of being specific and taking goals and personal needs into consideration. He also gives an example about asking an employer how they come up with compensation.
The employee realized that the employer started everyone with the same flat rate of pay, so he didn’t proceed to ask for the additional salary he had planned to ask for. The approach of asking open-ended questions will help you understand where the employer is coming from!
Another example Jon discussed was a short contract written in paragraph form with multiple references to the policy manual.
He stated it is important to read and understand the policies;
And the shorter the contract the more important your questions are.
This is the time to make sure you get clear answers on key questions. He stressed that the length of the contract is not necessarily a reflection on how good the employer might be, but you don’t know what you don’t know. Having someone read the contract or asking questions to clarify the employer’s expectations may just save you money and stress in the long run!
This is really the time to build your financial knowledge about your CONTRACT.
Curbside Consult
In my Curbside Consult with Jon, I asked a community question.
That question was “What are the intangibles that a physician should look for when reviewing a group or opportunity?”
He gave us some questions and scenarios to consider asking about:
- Why is the position open?
- Is somebody retiring or has the position been open for three years?
- Did someone leave because they were unhappy, or their spouse moved across country?
- Do I enjoy the community? Could I see myself here long-term?
- Is the group a good size?
- If people don’t leave that is a wonderful sign
- Are they transparent?
- Ask about what type of group they are (workaholic, top notch, chugging along)?
Intangibles are not often reflected in the contract, but they are important to overall job satisfaction.
As Jon stated, physicians have good gut instincts which can come in quite handy when reviewing a group or new job opportunity. He points out that you are interviewing them as much as they are interviewing you!
Jon discussed how important the details of your employment contract are. Jon and his team at Contract Diagnostics are enthusiastic about their work.
They are a flat-rate fee business that works strictly with contracts. They will not attempt to sell you anything.
Taking the time to understand and clarify all expectations can literally save you time, money and heartache. You were given some specific questions to ask your employer during the interview process about the contract and the job. You have a potential resource if you want a second pair of experienced eyes reviewing your physician contract. They are there to look at every detail, so nothing is left to chance!
Journal Club: Dads Dollars Debts
So happy to spotlight an article that was posted on the site dadsdollarsdebts.com titled “Getting The House In Order – Personal Finance.”
These types of posts are my vice because I absolutely love reading how someone wants to get their financial life in order and what they believe the steps are to get that accomplished.
Dads Dollars Debts (OK, I’m just going to call him Triple D from now on) writes a killer post on how you can keep your financial house from collapsing.
We share a similar philosophy, keep things simple. There is no need to overcomplicate your financial situation, especially if you have just recently finished training and have a lot of, let’s say, earning potential ahead of you (with negative or little net worth currently).
So, in this article, Triple D, yup, I’m for real going to keep calling him that, gives several points that one should consider when getting their financial house in order.
I’m going to quote some of these points and add some commentary in there when applicable…
The first is Set-Up a Budget/Expense Review. We won’t use the b-word again. Let’s call it a spending plan. He tells us how his family does an expense review and doesn’t keep a formal b-word. I like this approach but tend to look ahead in cash-flow planning as it helps clients understand what is coming up and not look in the rearview mirror.
Next up is Determining Your Net Worth. I like that he’s getting right to the point.
And I quote, “I think it can do a few things:
1) It sets up a visual goal allowing for motivation. How much are we worth? How much do we want to be worth today, next year, in 5 years?
2) It lets us organize our debts by amount owed and then interest rates. After organizing and visualizing the debt that is sitting on our chest like an elephant, we can deal with it. We can get some air and figure out if we want to pay off the small debts first (debt snowball as discussed here) or pay off high-interest debts first.”
Third is to get some insurance. Not just any type of insurance but term insurance and disability insurance. First, we did an entire show on this back in April with Larry Keller so go check out that episode for the ins and outs of insurance, but he also mentions auto coverage and most importantly umbrella insurance.
To quote, Umbrella Insurance sits and waits for something so bad to happen that it eats up your auto or home insurance and still is hungry.
Say there is a lawsuit for 1 million dollars and your auto insurance only covers $500,000 in claims, then the umbrella kicks in to cover the other $500,000. Our premiums were around $300/yr for $2M in coverage in California but this can vary by state.
Next up is to Set Up a Will or Trust. We talked a lot about this in a very old episode with Chris Burke titled, you don’t have a financial plan unless you do this so if you want to learn a lot more on the estate planning process, check that out.
Following estate planning is to Max Out Your Employer-Sponsored Plans. If you have the option to contribute to these accounts then do so, particularly if there is an employer match (free money!) Limits for 2019 were just increased to $6k for IRA contributions and $19k for 401k/403b’s.
Speaking of IRAs, setting up one is next up on his list. If you make more then the modified adjusted gross income, set up a traditional IRA and do a backdoor Roth conversion.
Either way, make sure to contribute the max if you can. For residents, this may be tough, but if you are making six figures, you should be able to get this fully funded each year. Remember you can set one up for your spouse even if they aren’t earning an income.
In my experience, I see so many residents and new attendings make some poor decisions concerning their finances. If they took some of the advice presented in excellent articles such as this one, mistakes would be fewer and far between and it could end up saving them 10s of thousands of dollars and, frankly, make financial planning that much easier for them.
If I could add one, it would be to stress to not let your lifestyle creep inflate way too fast. That is the biggest problem I see when advising physicians. Its not about how much you earn, its about how much you save. The sooner you realize that point, the easier financial planning becomes.
Dadsdollardebts, “Triple D,” thanks for an excellent article.
