Physician Employment Agreements Roger Tracy Assistant Dean Carver

Physician Employment Agreements Roger Tracy, Assistant Dean Carver College of Medicine The University of Iowa K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

TODAY’S SEMINAR • Based on >35 years of experience • Applies broadly • Elements of typical employment agreement • Summary comments/focus on issues K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

IMPORTANT CONTEXT • Employment agreement =contract • Integrated systems vs. independent medical practice K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

WHY HAVE CONTRACTS? K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

WHY? • Define the relationship • Avoid misunderstandings • Reasonable expectation: – unambiguous – balanced/fair – comprehensive – competitive K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

RECITALS • Names the parties • Sets forth their qualifications • States offer and acceptance of employment • States parties mutually agree to the conditions and covenants K: graphicspowerpointRT presentationsContracts Waterloo updated 11 -20 -08 K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

TERM OF CONTRACT K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

INITIAL TERM • Integrated system: - 1 -3 years then automatic renewal until terminated by either party • Independent group: - 1 or 2 years (“buy-in”) • Longer terms with loan repayment (3 -10) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

RESPONSIBILITIES OF PARTIES Employee • Employer’s expectations • Worksites (specify or mutual agrmt. ) • Call/coverage (equitable with others) • Full time/no external professional services (without prior approval) • Employee’s representations K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

RESPONSIBILITIES OF PARTIES Employer K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

COMPENSATION K: graphicspptrt presentationscontractsCedar Rapids 4 -28 -10. ppt

COMPENSATION • Integrated system: - Salaried with production incentive (most common) - Salary eliminated after initial term (production) - WRVUs used for calculating production (formulae are changing/reform) • Independent practice: - Salary with incentive (changes after buy-in) • Flat salary /no production incentive - Some integrated systems/and some SS groups K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

PC PHYSICIAN STARTING SALARIES* (Not including recruitment incentives or production bonuses) 2012 -2013 • Full Range: $150, 000 - $220, 000 • Most (80%): $170, 000 - $190, 000 Other points: ‒ In general, GIM is at the higher end, FM across full-range, Peds at the lower end. ‒ Rural critical access hospitals start between $180, 000 -$220, 000. ‒ Hospitalists (FM or GIM) are paid $190, 000 -$225, 000. ‒ PCPs working in rural EM positions are paid $180, 000 -$220, 000 (and up). * These figures apply to all primary care specialties. K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

SIGNING BONUS • >75% of employers offer one • $5 K — $75 K • Mean and mode = $25 K • Increasingly a “retention” bonus (repayable) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

COMPENSATION ISSUES • Competitive base? • Incentive? Achievable threshold? • Method of payment after initial term • Growth potential? - The practice - The physician - The formula K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

Profit-Sharing Professional Prof. Liability Dues Ins. Retirement Plan FRINGE BENEFITS S-T Disability Health Ins. K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt Life Ins. L-T Disability

FRINGE BENEFITS • Pay attention (value=15 -30% of base) • Downward pressure • CME allowance/professional D/L/M • Retirement/profit-sharing—know 3 things: - Eligibility - Employer contribution? (401 K/403 K) - Vesting schedule • Disability insurance K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

TIME OFF (paid leave) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

PAID TIME OFF • Vacation/CME/Other • Integrated systems: 4 -6 weeks ( ) • Independent practices: 4 weeks • PTO lumped: 25 -30 days (holidays? ) • “Professional” time off ( when pay is 100% prod. ) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

TERMINATION (of employment) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

TERMINATION CLAUSES • Mutual agreement at any time • W/O cause: 30/60/90 – day notice by either party • Immediately for cause: - Loss of qualifications (either party) - Failure to perform/material breach (either party) (often not granted to phys. but should be) - Professional/personal behaviors (employer right/discretion) • Death or permanent disability - 30 – 180 days of disability - Defined as unable to perform responsibilities - Determination process K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

ISSUE Termination Provisions (unbalanced) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

TERMINATION CLAUSE ADVICE • Provisions should be balanced between parties • Obligations should be reasonable in a “w/o cause” case: - Waiver of tail insurance payment - Waiver of non-compete clause • “For cause” clauses should be stated objectively to minimize employer discretion K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

NON-COMPETITION CLAUSE (restrictive covenant) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

ISSUE Restrictive and Enforceable K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

NON-COMPETITION COVENANTS • Legal in all but 10 states • Enforceable if court deems restrictions: – Reasonable in time and geographic scope – Necessary to protect employer’s business • Judge makes determination (case law) – – Time: 1 -3 years Distance: PC—county line or 20 -30 mi. (less in metro) Other specialties based on service area Liquidated damages: 50% of receipts or 100% of taxable income • Seek waiver tied to “w/o cause” termination K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

LIABILITY INSURANCE POLICY ENDORSEMENT (“Tail”) K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

“Tail” Insurance Issue • Applies to “claims made” form (and self-insured) • Tail premium - 2. 3 X annual premium Y 1 - 1. 4 X annual premium past Y 1 (premium↑) ● Issue: Who pays? physician? employer? • Push for vesting if phys. obligated • Seek waiver in event of “ w/o cause” termination K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

ISSUE Entire Agreement K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

ENTIRE AGREEMENT CLAUSE • If not in the contract, it doesn’t exist • Special considerations? - Recruitment bonus - Moving expenses Certification exam expenses Maternity leave arrangements Practice modifications (equipment/pts. ) • Cite in contract/addendum/joint letter K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

POSSIBLE ISSUE Buy-in Terms K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

BECOMING A SHAREHOLDER/”PARTNER” • Why buy-in? … shareholder income distribution • Explanation of terms - Need this before signing contract - Language seldom in the contract If fixed amount, ask the amount If not, then method/terms Illustration if based on NBV of assets or deferred compensation • AR should be excluded • Intent s/b easy in – easy out (perpetuate organization) • Hospital/integrated system – no buy-in K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

BEST WAY TO DEAL WITH CONTRACT PROBLEMS: PREVENTION! K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

PREVENTING PROBLEMS • Pay attention to the “hot spots” • Have all understandings in writing • Meet face-to-face or by telephone • Don’t reserve any questions—seek clarification • Use attorney—but have physician or administrator read it, too K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt

LOAN REPAYMENT/FORGIVENESS/SERVICE • Has spread to other specialties from PC • Frequency is above 30% and will go ↑ • Range $50 K — $250 K • Forgiveness/service period: 3 – 5 yrs. (up to 10) • Amounts per year: $20 K — $40 K (plus interest) • Taxable as ordinary income (unless federal or state program) • Forgiveness interval drives tax on interest K: graphicspptrt presentationscontracts2013Family Medicine updated 8 -12 -13. ppt