WCI #133: What Physicians Need to Know About Contract Negotiation

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dali. Welcome to White Coat Investor podcast 133 position contract negotiation. I just got back from traveling. I've given seven presentations in the last three days, but I before I'm recording this, I was out at the Passive Income MD Conference in la. It was great to see a lot of you there. And then I went to the American College of Emergency Positions Scientific Assembly. It was also wonderful to meet hundreds of you there as well. I'll be talking a little bit more about that in next week's podcast, but it's good to be back home and it's good to be on the air making another White Coat Investor podcast. No more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums trying to gain a financial education the way the hobbyists do for a fraction of the price of hiring a professional financial planner. The Fire your financial advisor online course will take you from feeling anxious and having no plan to having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school or residency, but never was. Fire your Financial advisor also has a version eligible for CME credit. Get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Coat Investor can help. Our quote of the day today comes from John T. Reed who said not all tax questions have clear cut answers. When you have a choice between two legal tax alternatives, choose the one which results in the lowest tax. I think that's pretty good advice. Alright, I got some feedback to quit thanking you guys for what you do on a daily basis. So for that one guy who sent me that feedback, it's time to cover your ears because I'm not going to stop. Here it comes. I was in the ER working a shift the other day and I had a lady come in from Memory care in her 90s that had fallen ground level fall and ended up with a type 2 dens fracture, a C2 fracture and she would not let us put any sort of a C collar on her. Not even a soft C collar. You know, the ones that people wear when they go in front of the jury to get more sympathy. She wouldn't let us put anything on her. She would scream at it and fight you to do it. The only way I was going to be able to put any sort of C collar on her was to sedate her and keep her sedated. You know, it was pretty amazing. I call up the neurosurgeon and he's like, well, we're going to need to fix that actually. Which I was surprised he was going to operate on someone in their 90s that's already in memory care, but apparently it reduces pain and obviously would keep her from having to wear the seat collar. So I'm pretty amazed at what you guys do sometimes. And I know that just like that lady was never going to thank any of us for her care. A lot of you don't get thanked for what you do each day. So I'm going to thank you. Thanks for what you do. You may not have checked out our recent changes to our newsletters. They're all still free and there's a lot of options there now. You can get the daily blog posts, you can get the monthly newsletter, you can get a weekly digest, you can get any combination of those you like. But we also have a specific real estate investing deal newsletter where I'll send you these options for private funds, for syndications. If you're interested in learning more about those sorts of passive income opportunities and real estate investments, make sure you also opt into that newsletter. You can do it at the bottom of any email I send you, or you can Simply go to whitecoatinvestor.comnewsletter and sign up for those anytime you like. All right, we've got a special guest on today. Let's bring him on here. Our special guest today is John Apeno with Contract Diagnostics. You can find out more about him@contractdiagnostics.com but this is a service that helps physicians to evaluate their contracts to make sure they're not getting ripped off, to understand what's in their contracts and if you so desire to even help you negotiate your contracts. Welcome to the White Coat Investor Podcast, John.

Jim, thank you. It's a pleasure. And I know it's been a long time in the making, so we're happy to be here.

Now. What's your background that you ended up in this line of work? It's a fairly unique line of work. Can you tell us how you ended up doing it?

Yeah. So I have always been into healthcare in various forms. Worked for pharmaceutical companies or biotech companies. I've started small companies like recruiting companies for physicians. And at the end of the day, I've always enjoyed working with physicians. My mother was a nurse practitioner for 35 years. I thought I was going to be an emergency medicine physician. So I've always enjoyed that kind of space. And again, I've had lots of friends who are physicians and just talking with them and understanding some of the challenges they've had. A lot of it just kept coming back to, you know, the job process after training and how do you go from a resident or a fellow into a good attending role? And I thought that I had it figured out with, you know, some recruiting company and then I, I didn't think that that was a good fit, but I really thought that there was a niche for contracts because I know that they're not giving formal training on this stuff, just like they're not giving formal training on finances. So. So I think where you found a great niche in serving these folks, we found a great niche in providing the information that they need in a timely manner back to them. So I've got a lot of experience, I guess, in healthcare, various different aspects of it. I understand lots of different things about payers, about contracting, about the actual job that physicians do, and just about how to interact with them and their schedules and how busy they are and how things need to be easy and simplified for them in a seemingly complicated process like finding a job and getting a contract negotiated.

Awesome. So the most of the material for this podcast is coming from some questions I asked to readers, listeners, etc. On the WCI forum as well as on Twitter and Facebook. And most of this podcast is just going to be answering these questions that they have for you. But I thought at the beginning we better go a little bit more general and kind of provide a bit more of an overview. So can you start with telling us about the typical parts of a physician contract?

Sure. I mean, the basic parts of any contract are having things like definitions and representations and warranties and general provisions and rights of parties and often termination and those things. So I mean, there's like a formal structure with what a contract is supposed to be. And obviously there's a big difference between an academic quote contract and a private practice contract or a large for profit health system contract. We'll look at contracts as just vehicles to set expectations. So what are the expectations of the physician from the employer and then what are the expectations of the employer for the physician? So the way that we kind of boil it down to is the contract is what sets expectations for what the physician's going to do, which of course is their time and giving their expert opinion and then what the employer is going to do for the physician. So providing compensation, providing benefits, and then the rest of it is just what happens if we want to go our own ways. And you know, I hate to say filler language, it's lots of important language, but the rest of it is just kind of as long as those two expectations are clear and the rest of it just kind of dictates the relationship.

So who's really qualified to do contract reviews? Can you talk a little bit about that?

Yeah, I mean they're legal documents so I mean every contract should be looked at by an attorney and they're very important. I mean they dictate the position of the position and the role that they have with their organization. What happens if they want to terminate, what the downstream effects of that could be, how they'll earn over the years. So they're very important documents and they should of course be looked at by an attorney. Now who drives the process I think is it varies. If a physician thinks that a contract contains illegalities or needs to be completely redrafted or it's missing large chunks or it's not going to line up with compliance, then having an attorney drive that process, who can provide those services, I think is a great idea. If the contract looks like a normal contract that was drafted by attorneys who knew what they were doing, maybe in a larger system or a multi specialty group, it doesn't look like it was pulled off the Internet the day before and kind of cleaned up by the physician owner of the practice, then they should still be looked at by an attorney. But if that process is driven by the attorney or by somebody else who maybe has a different frame on how the compensation should look, understanding RVU structures, what the payer future looks like, or how, you know, compensation trends could change over time, or how they have changed over time, regional differences in pay. You know, sometimes the attorneys aren't the best one to drive that discussion in that process. It's somebody who understands all the back end things in healthcare, not just the law that is applied in the state. So and I guess the other qualification that I would say as far as who's qualified to do is somebody who's got a lot of reps, somebody who understands how dermatology is different than cardiology, how emergency medicine is its own unique animal and how third party companies might be contracted with hospitals for emergency medicine. So somebody who has a lot of reps and who does a lot of Contract reviews is somebody who I think the physician should lean on for going over it with them.

Now, I've had some healthcare attorneys argue that you have to have an attorney who actually litigates these things do the review, that a nationwide contract review service like yours is not adequate because you don't litigate these contracts. What's your response to that?

You know, I think if there's a potential for litigation, I think leaning on a local attorney would be. Would be a good idea. Again, what we do is nothing like that. We look at the contract, we explain it to the physician in terms that they can understand, and then we give them some really good ideas for how they could go about questioning or negotiating or having the conversation with the employer. I don't know what the overall chance for litigation is in a physician employment situation. I mean, I don't know if it's an error rate of 1%. You know, out of 100 physician, 1% of them would have litigation. I would think it'd be much, much, much less than that. So I think the chances of litigation being something that comes up, I think would be rare. But I would never discourage anybody from getting a local attorney to look at a contract, for sure.

All right, so you mentioned negotiation. Is it worth it to hire someone to negotiate for you? I mean, can that be a negative if you show up with somebody besides yourself doing your negotiating?

I think that's a great question. It's all dependent on this situation, whether you're, you know, the 25th hospitalist into a service or whether you're joining an academic practice as the only cardiothoracic surgeon in the area or, you know, I mean, there's so many things that play into how the negotiation process goes. Can it be a negative thing? Yes. I mean, of course, I think rarely we've seen where having a third party involved can look like the physician doesn't want to participate. And it might be just because they're too busy and they want an efficient process. Some employers want to work directly with a physician. Some hospital systems don't even want to work with third parties or they have policies that they don't work with third parties. So I think a small percent of the time it can come across as negative. When we've helped a physician go through that process, a lot of the employers actually think it's a great idea to have a third party and a third party who knows a lot about the market, who's asking good questions, who understands what standard language, who understands what contracts are going to be redlined. And what contracts are not a firm who doesn't want to drag out the process. We've had a lot of hospitals or a lot of groups be kind of happy that the physician has had a third party participate in it, simply because it sometimes speeds the process up. It gets the physician the questions that they have answered in a clear fashion in a timely way when the physician might be busy working most of the day. So it can kind of speed the process up. So I guess to answer your question, Jim, a small percent of the time it can come across as negative. The vast majority, at least from our experience, it's been looked at as a positive thing to move the process along in a quick fashion to get all the questions answered and then get the physician signed if that's the way that it ends up.

You know, the most common question I get from listeners about contracts relies on this idea of a non negotiable or a standard contract. What is the best approach when you are told a contract is non negotiable or this is our standard contract.

We hear that a lot. And with the consolidation of health care and systems, buying each other and you'll have these banners where one hospital system will have, you know, 1000 physicians, 2000 physicians, sometimes underneath it, they don't want 1000 or 2000 different contracts. So they may be non negotiable. As far as we're not changing the material terms, it doesn't mean that the physician doesn't have a lot of questions or that the contract contains all the things that they need to know. And so even if it's, quote, non negotiable, obviously there's still a lot of due diligence that the physician needs to do, understanding the compensation plan, how things are paid, when benefits start, you know, how the schedule's built. So there's lots of questions that still come up. Now, if there's something that a physician needs or wants and there's not, and you know, they've said, look, we don't negotiate, we don't modify, we don't change anything, sometimes there'll be success instead of asking for modifications to the contract because you know the answer, it's no. So instead of, you know, pounding your fist or getting frustrated at the account, not being willing to modify or change it, we've seen some success just asking for a side letter. So kind of like a letter of understanding. It's not a contract, but at least it's a letter of understanding saying, look, our understanding is you're working at the hospital on Lakeside Boulevard and your schedule is seven on, seven off and you don't have to work night shifts. So something that just kind of maybe lays out a little more detail that the physician wants to see, that's not necessarily going to be in the contract. Because to your point, they don't modify or they don't negotiate contracts. So if it's non negotiable, that's fine. We hear that a lot. It doesn't mean that there's not questions that the physician should ask as they do their due diligence. And it doesn't mean that we couldn't get creative with how a side letter could be provided to the physician to just kind of set the expectations a little more clearly.

Is that side letter enforceable like a contract would be? I mean, what's the difference?

Legally speaking, it wouldn't be enforceable, but I think it shows good intent. I think it shows that, you know, should a service line manager change or should the medical director leave and they've got someone new in the department. I think just having something makes the physician feel a little bit better, that at least now I have something that says my schedule, seven on, seven off versus you'll just work full time. So it's not a contract. But sometimes we've seen that to be at least some kind of middle ground for someone who's not willing to negotiate.

What are the best ways to find out what you are really worth?

It's a great question. So I think asking around, if you're training, asking around what your colleagues are receiving for offers, I think it's a great idea to survey the market. That means if you're in training going on five different interviews, don't just pick one job, go on five different interviews. Even if you know where you want to be, get five different offers so you kind of know what the different range is. Maybe have a couple of practice interviews even. I think as an attending physician, it's a good idea to contact recruiters every once in a while to go on interviews. If nothing else, to keep your interview skill up and just see what you're worth in the market. So what are people going to offer you for your experience now? Are they offering you finances that are, you know, that are fine with your experience level or your training for the market? Obviously we've got survey data may or may not be accurate. You can go online, you can search it. I think, like I said, I think asking your peers, I think using social media to pose the questions to groups, I think is a great way. We here at contract Diagnostics have lots of good internal data because we do a lot of contract reviews so we can share that with the physicians to say this is what we're seeing for anesthesia in Minneapolis, or these are the rates that we're seeing for emergency medicine outside of Chicago. So I think having some kind of granular data like that can help. But I think it's just a good idea for the physician to keep their ears open to the market. I do think it's a good idea to go out and do some interviews, you know, every other year, even if you're not looking around, just to kind of see what the market's bearing and then obviously follow trends. Conferences and those kind of things all provide good detail on that stuff.

So MGMA data is not the end all and be all of what you're worth.

Unfortunately, it's not. But so many employers use that to build their compensation models that we see that physicians salaries are dramatically different than that based on various markets. But a lot of employers tend to use that to build their compensation models. And obviously there's big regional differences from, you know, you're in the middle of Chicago versus 100 miles outside of Chicago. But there's survey biased with everything, as, you know, physicians well know. And who takes the MGMA survey? It's not everybody. The data's changed over the years with how they've broken out, your length of employment from new grad to established physicians. So it's changed a lot over time. And I think it's almost the best of what we have available for a lot of people. But I do think that there's other better sources out there than looking at a data set.

So you mentioned some regional variation. What are the regional variations in physician income? I know when I look at the emergency medicine data, it seems like docs get paid more in the Southeast and less in the mid Atlantic and the Northeast and then everywhere else, the Midwest and the west and the intermountain west is all somewhere in the middle. Is that the way you find it basically shakes up regionally for all specialties, or is that emergency medicine specifically?

I think that'd be accurate. There's regional differences, but then like I mentioned before, there's also, you know, Illinois being a region, Chicago being much different than 100 miles outside of Chicago. So we do see the regional differences, but we also see a lot of differences between a small private practice and, you know, a large system inside the city, you know, 100 miles outside the city, even if they may fall in the same region. And so that's why, I mean, looking at the data is important, but also having somebody who can guide you through the process, who can maybe look at the market a little differently and say, and then obviously hear the story, how long have they been hiring? Why is the position open? What's the individual skill set of the physician? Do they speak a separate language? Do they have a different skill set that the practice doesn't have? All those things, I think, play into what the physician's worth, not just looking at the data set, but I think what you mentioned, as far as, you know, what MGMA paints as a broad picture, I think is accurate. I'll never forget, I think it was two years ago. We had two neurosurgeons in here and one was in Southern California and the other one was smaller market Ohio. And the Ohio, their guarantee for the first two years was literally 3x the Southern California physician. So, I mean, there are definitely regional salary differences and we'd see it in a quite interesting way over here.

Yeah, I'm not surprised to hear that. I run into that all the time. A lot of people don't realize just how high that sunshine tax can be in California, unfortunately. All right, so here's a kind of an oddball question for you. What percentage of doctors do you think are currently underpaid?

You know, Jim, I want to say maybe 20% or 30% would be underpaid. I think it varies a lot, you know, based on where the physician is in their career, what their goals are. But I think if you just surveyed the market and you said based on what we're seeing in some situations, and if you look at the market underneath and the physicians who are currently contracted in that market, what percent of them would be less than we would expect? I would say maybe 20 or 30%. So a significant amount. The one thing, Jim, that I would say that everybody should be aware of is not taking a job out of training and then being happy with it and settling into it and not re looking at the compensation structure. I'll never forget we had a gal call us a couple of years ago, and she was eight years post training. She was in a job. Her friend used our service. So she was just calling us. She didn't want a new job, she didn't have a new contract. She just was calling to see, you know, would there be anything that we could help with. And she said, I love my patients, I love my practice. I get along great with my colleagues. I think I earn enough money. And we really didn't have anything to give Her. But I said, if you want to, we can just look at your contract. We charged her a small fee to look at the compensation structure. And we thought she was dramatically underpaid. She'd been there for eight years. She had an auto renewing contract. She didn't take any mind to the yearly changes in compensation. She just knew that she had a certain amount deposited in her paycheck every other week and she thought that was enough money for her. Once we dug into it, we found that she was dramatically underpaid. And by encouraging her to ask for certain things of the department, she was able to increase her compensation dramatically. I want to say it was almost on an annual basis, six figures. And so that was an example of. Not that everybody can do that, but I think it's a good example of what not to do. And that's just settled into your job. And, you know, they give you a 2% raise here and a 3% raise here, and they change the RVU structure there. Just not assuming that you can settle in and everything will be just fine. They'll pay you appropriately. We do see a lot of discrepancies in pay, sometimes with certain physicians who are willing to raise their hand and ask for things and other people who just kind of settle in. So I think what percent of people are underpaid? Maybe 20 or 30%. And a lot of them might be the attendings who have just kind of settled into the position and they really haven't revisited it for you.

Do you think that happens more often with women or people working part time?

I do, without a doubt. I don't think. I know we see it.

Let's get into some of the questions I got from listeners from the White Coat Investor Forum. One of our moderators, peds, asks, what benefit can you bring to the table for a Kaiser type area where negotiation is not allowed? Now, I know we talked a little bit about negotiation earlier, but anything specific about Kaiser, for instance, that could bring to the table with your services?

We've seen their contracts and they look good. They look fine. They're pretty simply written. There's not a lot of risk on the physician. What can we bring to the table? I think just hearing their story and giving them a couple of good questions to ask, it's not something that I would encourage them to spend a lot of money on. It's not something I would say buy the high dollar package or pay a local attorney hundreds of dollars an hour to review. I think that they need a simplification of everything but the contracts Read. Well, they don't have a lot of risk on them, and I think it's always good to have someone look at the contract to at least explain to you your risks and how to get out. But I wouldn't think that they would need much of a service from anybody else included.

All right, this one comes from slcob, who asks, do most hospitals pay for call coverage? What determines the payment? In areas with a more difficult time recruiting physicians, do they typically pay more or less? What about physician shortage specialties like OB and the large nighttime call burden? Can you talk a little bit about pay for call coverage?

Yeah, a lot of contracts will have it baked in, and it obviously depends on orthopedics versus primary care, but a lot of contracts will have it baked in. So here's your salary, and this includes you taking call. Now, how that's defined, if it's equal call. If it's up to 10 calls a month, sometimes we'll see a threshold and then after that we'll be paid. It does vary, of course, by specialty. A lot of saturated markets with specialties like orthopedics may not pay for call because people might want to volunteer for call to build their practice quicker than just sitting and taking call only, you know, three days a month because there's so many folks in the market. So it varies a lot. But in a smaller market where there's not a lot of OB help and obviously the call has to be taken for obviously we do see some physicians who can do very well as far as call compensation goes in some specialties, OB being one of them. But we always want to make sure that the contract is clear on what the call is, and we like it when it's capped, and if it's over a certain cap, then it's paid, and I think paid at a healthy rate.

Do you find that most doctors taking call are getting some sort of compensation for it, or is it typically just baked in with an expectation that you take call?

We usually see it baked in. It's maybe 60%, 65% of people have expected call based on their contract, and then the others are paid on a per call basis.

Forum member Brains428 asks, what can one do to reduce time to partnership? Is there a good way to ask if a private practice is planning to sell to private equity?

Again, it all depends on the situation. But what can people do to reduce their time to partnership? It depends on what the group's willing to do. If they've done partnership, you know, 20 times, and this is our process, it's a two year, it's a three year process. A lot of times those might not be flexible. We can get pretty creative based on the group story and the physician story and why they want to be in the market. Obviously different from dermatology to, you know, ob to ophthalmology. But it's a give and take, right? So if you want something like quicker partnership, what are you willing to give up? Do you take less salary? Do you say, I don't even want the bonus? So if you get paid a percent of collections over a certain threshold, do you forego that or have that put into an escrow account that can be used for early partnership purchase? Do you ask them what would make you thrilled with my production? Oh, if it's doing a million dollars in your first year, then what if I do 1.1, then can I be partner in the first year instead of waiting for two years? So I think there could be a lot of questions and a lot of back and forth that can happen on it. I think it does depend on the group and what things you could do to show that you are worthy of partnership early. We typically don't like partnership structures that are three years or four years. It shouldn't take a group that long to know if they want to keep you around long term. One year to partnership, two years of partnership. And maybe having a defined metric in the contract once you collect 700,000 in a rolling 12 month. We like to have defined metrics. Some groups are willing to do that and some groups are. But I mean, of course every situation is different, whether there's lots of ancillaries and real estate involved or whether it's just, you know, you're going to sign up and assume your portion of the rent every month. Now, the second part of the question, how do you ask about private equity? We see this a lot in certain specialties and there's little you can do. Obviously having a really good robust discussion with the account on have they ever been approached, what happened? Knowing the stories of the physicians there, how old they are, plans on retirement, how long is that going to be? Again, if it's a long path to partnership, those things can all play into that discussion on would you or will you or do you plan to sell the private equity? In rare instances, we've seen employers willing to put almost like, I'm not going to sell to private equity. And to prove it to you, if I do, I will give you X. And we've seen X defined as a big dollar amount so at the end of the day, there's little you can do. But if a practice is so adamant on. We are not. We are not. You could ask them to put something in the contract that says, if you do, you need to give me money.

Yeah, they should have no problem putting money behind their mouth, huh?

Yeah.

Yeah, that's a good tactic.

We saw one couple of weeks ago, and it was. The physician was so adamant about not selling. They actually put in there, if I do sell within the next 24 months. I think it was like $175,000 or something like that. It was a. It was a way to say, I'm not selling. And if I do, I'm putting my money where my mouth is. I'll give you the money.

Yeah, it should be easy to do if they really aren't going to sell, you know, it's pretty easy to do. I've done that similarly in some of the business contracts I've had with wci, you know, so it certainly helps people understand what your intentions really are. All right, this one comes from forum member mpmd. What do you think the frequency of an actual contractual issue is among physicians? My sense is that is very low. I'm getting to where I'm relatively experienced, and I still don't think I've really known anyone who suffered a major contractual issue as a doc. Am I just lucky or not paying attention? And it sounds like what he wants to hear are horror stories.

I wish we didn't have them, but we have lots of them when we need to get better at telling that story. So I think we're going to have some content coming up on these. I think fortunately for people to learn from maybe unfortunately, because we don't like telling these stories, but the frequency of something coming up. We've done thousands and thousands and thousands of contracts here, and we get phone calls sometimes saying that things are less than what they expected. And that might be something like, I didn't think I was going to do this many night shifts. And that might be something that would be minor as far as when is there a contractual issue like somebody needs to be sued or somebody needs to, you know, be in trouble? I don't know. I would assume it'd be very, very minor, very small. Those are things that we, of course, don't get involved in here. But I think overall the frequency of an issue would be pretty small. Now, disagreements. I guess it depends on the. How big the issue is, if it's just a disagreement on your schedule or if it's Something bigger where there's a breach of contract. I mean, obviously schedules change and expectations change and program coordinators or directors change. But I think as far as what the percent that there's a contractual issue, I think it's pretty small. Horror stories. I mean, we could do 10 podcasts on horror stories. There's a lot that we could go over. We recently had one where we went through. It was an OB deal. I'm sorry, it was a family practice with OB deal. And we went through the contract and she was working four days a week, and there was a defined dollar amount which we thought was appropriate. And we went through everything and she had a great discussion with them and ultimately signed. When she started, they had called her in and said, we unfortunately made a mistake in your pay. We did not structure your pay to the four days a week or the eight FTE. We kept it at what was a 1.0 for the department. So we're sorry, but we're going to unilaterally modify your pay structure starting next paycheck. Wow.

How'd that go?

She called us and we gave her some advice on how to have the conversation with the employer in a friendly, conversational way. And I don't think it was what we did. I think she was fantastic. She was able to have a conversation with them, and they honored the contractual terms that they signed to. So they kind of owned the mistake and said, you know, we'll take it for the first year and we'll reevaluate it for next year. So I was happy about the employer and how they handled it, knowing they could have handled it differently.

Has it been a year yet? Have you heard back what happened after a year?

It is not. No, it was recent. Yeah, it has not been a year. But I, of course, we told her to reach out to us nine months in and we'll start being able to tell the story with for how month 13 should go.

Any other horror stories that come to mind quickly that would be worth sharing?

There was an OB physician in Baltimore. She was moving to Florida, and she never had anybody look at her contract in Baltimore. She signed with a private practice out of training made. I think it was 230 a year for two years. She was out for two years. She was moving down to Florida. We looked at her Florida contract and of course I said, look, I haven't looked at your Baltimore contract, so I'm guessing everything's fine with that. You know, how to terminate and tail insurance and all that good stuff. And she said, yeah, I think I'm all good. And then she had us take a small peek at it. We have a cheap package that we can. We can take a small peek at it. And I mean, it said in there that was very clear that she had to purchase her tail insurance. And she had no idea what that meant. And I think it just goes to tell you the importance of having somebody who knows what they're doing look at these things. And she had no idea what that meant. And two years out of training for an object, and I had to break this news to her. I want to say her tail insurance, she had to pay for it. And I want to say it was 170,000 bucks, $160,000 and two years out of training. Even the most frugal white coat investor is not going to put together $160,000 of cash to buy a tail policy. Two years out of training with everything else that's pulling at you. So that was a situation where somebody didn't have a contract looked at. They didn't understand the terms, and they were leaving, and they had a big financial obligation that they did not know about. And of course, they didn't plan for. And tail insurance is one of those finicky things. Unfortunately, you can't finance it most times because unlike a car or a home, there's nothing to take back by the lending authority. So it generally has to be paid for up front. So that's a situation that was unfortunate for her, and I felt bad having to break the news to her.

Yeah, that's something I looked at very carefully when I came to my group. And we decided to set it up so that if I left early, I had to buy the tail, and if they fired me, they had to buy the tail. But we decided we better figure out what a tail was going to cost for us right up front when we did it, because they didn't know either. And so we got a quote from the malpractice folks. And it would have been 50 grand for me as an emergency physician after a couple of years. And I think it was a fully mature tail at like 55,000 after three years. But it was no small sum of money. It was really a little bit of golden hair handcuffs if things didn't work out for either one of us.

Yeah, but I think the way that you had it set up, if it's my fault, I'll buy it. If it's your fault, you'll buy it. And then you had the expectation with if you guys wanted to leave, what's it Going to cost. So if we have a job open up in Dallas, what's it going to cost for us to quit this and move down? And even if they said, look, we're not changing it at all, I still think it's a very good question to ask is what's a fully matured policy going to cost? And now we know. So at least you've done due diligence and you at least know what the policy would cost you. So you can transition if you'd like, knowing that you know you'll be buying it instead of like finding out later on because you never had anybody explain it to you. So I think you did a great job of doing due diligence and at least finding a happy medium with the group on who pays for what situation.

Yeah, they had a happy ending for me anyway. A year later we switched to an occurrence policy. So it worked out well for everybody. But it was interesting with the falling cost of malpractice, the occurrence ended up being cheaper than the previous claims made policy anyway. All right, our next question comes from another forum member, Adventure, who sounds like he's trying to minimize the cost of getting a contract reviewed. He asks, can you describe the typical contract negotiation cost structure? Is this ever something that's only paid for if a better deal is achieved instead of just paying dollars for time? And we'll hope a better deal is found. And also wants to know how much of it is really just contract review and contract lingo education to the doc versus insur any sort of negotiation.

I mean, in general, I would tell all physicians, I mean, like we said, have it looked at and have your pricing structure fixed up front. Know what you're going to pay. So you know, I wouldn't pay an hourly rate to an attorney or to any firm that could charge you more than would be required. I mean our packages are cheap and they go to not too expensive. But I think that having it, knowing what you're going to get up front and not having an hourly rate would be important. Not all contracts are negotiating salaries. And so to say if I get a better deal, that means that I'll pay the firm more money or I'll pay. It's not always about the finances. Sometimes it's about the schedule or it's about the benefits, or sometimes it's just about the malpractice insurance. And how do you put a cost on those things to say you started at 100,000, I got you to 110,000, therefore I get $100. I mean, it's hard to sometimes, you know, put dollars and cents and sometimes it might be there's no change to the base salary but there's a change to the bonus structure or there's a change to how the signing bonus is repaid or there's a change to the amount of vacation time. And so it's hard to put a dollar amount and say because of this the service should be paid more or less. Now I think there was another portion of the question as far as what all could be negotiated. We think it's kind of as creative as you can be from just the basic core of the contract to the termination clauses and how those kick in to the obligations of the physician after termination like pale insurance or non competes compensation structures. I mean there's really a vast area of what could be negotiated in any particular contract that varies so much based on the physician story. So if the position story is I'm going to be here for a year or two and then we're going to move, that's a different frame. As far as how do you negotiate that deal versus my family's from here and I want to raise my kids here for the next 30 years and this is the only group in town or this is one of ten groups in town. So having the back end story I think is also important. It's not just about the words say this on the contract and therefore this is what you should ask for. It's about knowing the individual's story and what they want for the future and then customizing it I guess to that individual situation. But there's, I mean there's a ton of things you could ask for in a contract as far as negotiating it.

Let's talk about some of those extras. This is a question that is asked in 15 different forms. In this list of questions I got from listeners. What you do when the salary doesn't seem to be more negotiable. What do you go to? I mean do you go to more academic times? Signing bonuses, moving expenses, loan forgiveness? I mean where do you find docs having success when they can't budge the salary? What else should they be considering?

I think all of those things. I think if it's academics, maybe you want like a defined amount for your research, you know, fund every year for the first three years. Maybe you need some equipment, maybe there's additional time off or flexible time. Maybe you need more CME dollars to train yourself on something. If you are working for a private group, maybe there's a scribe that you need to make you more Efficient. Maybe it's putting a metric in for having a physician assistant as a surgeon. So how busy are you going to be before they give you that resource? I mean if you can't negotiate your salary, maybe there's negotiating ancillary things like supervision fees for a nurse practitioner or putting in there, I'll take the call 10 days a month, but anything more than that I'm going to be paid $500 for. You could ask for maybe backfunding of COBRA insurance. If you got to buy COBRA insurance as you transition from one position to the next, we could go on and on and on with different things that you could negotiate. If they said compensation is 100% off the table, don't ask for anything compensation wise, there's so many things that you could still ask for or negotiate that maybe they'd be willing to give a little on. And those things may be like benefits that would be similar to financials. Or maybe there are things like giving you more spare time or more free time or vesting you in a certain benefit earlier or providing new equipment in the. Or there's lots of other things that you could put metrics around.

All right, this next question comes from Dak. Who wants to hear about locums. When you're considering locums work, what are some of the watch outs that one should pay attention to? What should we expect the recruiter to have, you know, a pretty standard TNC's contract or should we expect to negotiate each part and not just rate? Is it worth it to pay for a separate contract review for each short term locums engagement when going through an established agency? Or how would you approach this for someone who's interested in doing locums? You know, maybe just once or over and over again for a good chunk of a career.

So we've seen some locums contracts and I don't know that you need to pay much money at all to have them looked at. Especially not every single one. Things to keep an eye out for that you can decline an assignment that you can get out of an assignment. And if you take an assignment and you're in an assignment and you think a permanent placement might make sense, then understanding the fee structure behind that. We had seen in some situations where someone's providing locum services to an account, that account wants to hire the physician. And of course the locums agency has a contract with the account that says if you want to hire one of our people, you have to give us money. $20,000, $30,000 are typical rates for that. And we have seen hospitals then tell the physician, hey, here's your contract, we're excited to have you and there's no signing bonus. When maybe typically they offer 20 or 30,000 for a signing bonus. And the hospital will say, because we have to buy out your locums contract, we are not going to give you that sign bonus or we're going to decrease your salary for the first so many years because of whatever calculation we make on our end to make things, you know, fair, we're allocating 250,000 per head. Therefore we got to pay this fee of 20,000. We're going to decrease your salary or decrease your bonus or decrease something by 20,000 to make it neutral for us. And so that's one of the things to keep an eye out for if they decide to go down a route of I'm going to stick around and maybe do a perm placement off of a locums to make sure that they understand that if the hospital is going to try that, that the hospital understands that the physician expects the exact same deal that they gave the last person, if not better.

All right, let's switch tactics a little bit. Take a question off Twitter. This is from Christian McNeely who asks, Are non competes or these restrictive covenants negotiable? Now I'm sure the answer to that is it depends. Can you explain how it depends?

Yeah. A lot of it is just the situation of the physician. If you're the 25th hospitalist into a service line or the 30th cardiologist into a hospital employed group, the situation might be different than if you're the only pediatric endocrinologist in a 300 mile radius in the Midwest. So those situations when seemingly contracts or non competes are, quote, non negotiable. You have a pediatric endocrinologist going to a market or any highly subspecialist physician going to a market and they've been trying to hire that person for the last three years and they draw a line in the sand. I mean, you've talked and written about the batna before. They draw a line in the sand and say, look, I am not going to sign with this non compete period. Sometimes we see flexibility there. So are they negotiable? Yes. Sometimes it might be the years, it might be the radius, it might be how it's enforced, it might be a buyout provision. So maybe you tell the employer, I will give you a dollar amount to buy my way out. Some contracts have that pre specified in the contract. But maybe you want to negotiate that and have that instead of be one times your salary, you want it to be 30,000 or 50,000. And so at least again, just like when you were talking about your tail insurance obligation, if you guys were to take a different position, you know, if I want to leave this position and I want to compete with my employer, it's going to cost me this amount of money. So there's lots of different things that you can negotiate regarding the non compete, again, all depending on the situation.

Now there's always lots of talk out there about non competes not being enforceable. Can you talk a little bit about which ones are not enforceable and how you would feel about leaving one that doesn't seem like it would be enforceable in a contract.

So from our end at contract diagnostics, if there was a non compete in a contract, we would say follow the non compete. Sometimes you can't have a non compete. You can have a non solicitation. We see that in various states. We see some states changing how they view non competes. But we would always tell a physician if a contract has a non compete in it, we wouldn't violate it, we wouldn't breach it, we wouldn't want to wait and see what the employer did. Our guidance to them would be don't breach the contract terms in any way, including the non compete. If they wanted to ask for local guidance on that from a local attorney, then that would be a good idea.

Is that more from being a person of honor standpoint or is that more from the fact that it's a very expensive way to find out if it truly is enforceable?

I think it's a very expensive way to find out if it's enforceable. And we talked about litigation earlier and what physician wants to find out whether you're worried about litigation or not. A lot of contracts say very clearly, you know, we don't even have to litigate it. If you breach this, you owe us damages and they're defined damages and it's one times your salary or it's two times your salary. So a lot of non competes are almost taking the are they enforceable or not? Well, we don't know if you breach it, we will just send you a bill. Now will they or not? I don't know. I would want to find out.

You know, I hear some people talk a little bit about having a one year salary guarantee and then they're on some sort of RVU basis. And it seems like a lot of times for these folks they end up with a much Lower paycheck that second year. Can you talk a little bit about contracts that are structured that way and what to watch out for?

Yeah, we see the same job almost every other year because there'll be a big salary upfront. And then of course, like you said, you'll go on to production and then they can't meet the production. Their income is going to go down by $100,000 and they're going to transition to a different employment because they can't handle it. So back to the due diligence process. What are their expectations? What did the last surgeon or the last physician that they hired, what did they put up in terms of numbers? How much transparency do we have in terms of numbers? Do I get a monthly report from the employer? A two year guarantee versus a one year guarantee? I think a fair question is how often does someone in any department that you guys hire cardiology or family practice, how often does somebody come off of a guarantee and go down in income? And if that's the case, maybe they just don't have a good idea on how efficient physicians can be. But I think there's certain things that you can do to protect yourself by having maybe a longer guarantee, by having access to the report. So there are no surprises. If your production isn't where it's supposed to be. Should the employee come to the employer with ample notice and say, look, I know that I'm not hitting the numbers, I don't want to take a decrease in pay. If we cannot extend my guarantee, I'm going to have to give my notice 90 days or 120 days. Most employers in that situation would go ahead and extend the physician for another six or 12 months to see if they can get their feet underneath them. Because having a physician transition out of an employment, I mean, now they got to hire someone else. I mean, it costs $100,000 minimum to have physician. Sure. So we think that you can always ask for a longer guarantee, you can always ask about expectations. But at the end of the day, if you do come up to that timeline, to be able to have that conversation with the employer on, I can't afford to take a big decrease like this. What are our options? I think most employers would find some kind of happy medium with the physician in that situation.

Do you get the impression that there are a fair number of employers out there using these RVU based compensation structures, you know, a little bit nefariously trying to make there be a lot of moving parts so they can end up hosing the physician and getting them for cheap or do you think that a lot of the problems docs are running into with this is just because those docs aren't necessarily very efficient or very fast docs?

I think it's intentional by the employer to get a good deal on their labor. I'd like to say no, but we do see some overly complicated structures. And I don't know if it's administrators trying to fill their days with things to do to make themselves look important or feel important or if they're really what they feel is in the best interest of the patients and the physicians and, you know, and their revenue model. So I don't know. I don't. I would like to think it's not intentional to underpay the physicians, but we are seeing some employers slowly go towards these things that I know all physicians love, like quality metrics, and they're reducing RVU structures, you know, saying, okay, we used to pay 100% of the RVUs, now we're going to go to 80% of the RVUs and 20% quality. And then, oh, and we've had conversations with employers where their goal is to go more towards the quality. So we're going to get down to 50% RVUs and 50% quality and then 40% RVUs and 60% quality. And of course, quality in all the various metrics that come with that thing in a performance incentive plan, as you know, Jim, can be challenging to measure, challenging to report, and I think that poses its own problems and head scratching and everything else that we see with employers.

You know, it's interesting. I wonder how. What percentage of contracts these days have part of your compensation based on either quality or patient satisfaction? What percentage of contracts do you think you're seeing that some of your compensation is based on one or both of those things?

I estimate it right now at 20%, 25%.

Wow.

I want to say it was 10% three years ago. So we've seen a big shift, and again, we've been told by the employers that they are going to gradually shift more and more and more to these models. And a lot of employers have very, very spelled out plans over the next five to 10 years to slowly roll physicians more onto these plans. And they're formulating new compensation plans right now to be rolled out January of this year. In certain employer situations, certain models, that's.

Really concerning, especially with the difficulties in measuring quality, number one, and also the data that suggests more satisfied patients are actually getting worse patient care. So it's really worrisome that they're Basing physician compensation on that.

And like I said, we are going to see more and more of a shift towards that. And so how that changes compensation structures, it's going to be interesting. We talked earlier about survey data and how that changes those models is going to be interesting. Some employers are going to go faster towards it because they feel it the right way or they want a certain perception where other employers are going to push back on it and continue to pay physician fee for service. I mean healthcare is always interesting and we have an election coming up, of course. And so that all those things kind of play into what the employers do, how the employers build their models and how they look towards the future on not only their biggest asset being the physician, but also their biggest cost.

Any tips for VA docs or prospective VA docs? I talked to one yesterday at a conference who told me that they were working basically 1/4 time. I think they were working 10 hours a week and they had a full benefit package. Now I don't know if that's the standard contract or if that was specially negotiated, but anything in particular for VA docs?

No. You know, if somebody called and said I want my VA contract looked at and I want to pay you a bunch of money, I would discourage them from it. I don't know that those contracts need to be. I mean it's important to know what it says and how to, how to get out of it. But knowing that there's not a lot of negotiating room, if any in there, I think it's just understanding the benefits of working for the va. So what's the schedule? What are the benefits long term? What does the retirement plan look like? I mean. Yeah, working a quarter time and getting full time benefits. From what I know the VA has fairly good benefits. That sounds like a nice either part time gig for anybody out there or for someone who's doing 1099 work or just a good lifestyle to live.

Yeah, it sounded pretty good. It was an emergency dock and then they were basically doing, you know, high priced 1099 locums on the side.

So that's what I was really.

It was really sounded pretty lucrative to me.

Yeah, I was just thinking that would be a great job for, you know. Yeah, somebody like that who, you know, they were on the traveling team with an organization. They went around and they did. They just kind of filled in where they were needed and they got paid out a lot of money per hour in 1099 role. But now they have all their benefits picked up on a va. They just have to be working so many hours a week, so. And not measured on most of the things that we just talked about, RVUs or qualities or patient satisfaction and those kind of things. So. Sounds like a good gig to me.

Yeah. Well, we're getting to the end of this. We better wrap it up. But before we go, I mean, this podcast is going to be listened to by 20 to 30,000 people in the next month and maybe a thousand people a month after that. You know, who knows, 50 or 100,000 people by the time all is said and done are going to listen to this.

This.

So you have their ear. What would you tell them that we haven't covered yet today that you think is important for them to know?

I would say as long as they understand the importance of having their contract looked at, I would say whoever does it, make sure they have a lot of reps and they know what they're doing and they understand, you know, how physicians are different. But then as you go about the process with that person and as you go about the, you take it to the next step with the employer, have the frame from a negotiation perspective. It's not about you versus them or it's not about winning or losing because you both have the same goals and it's get you there. If you're talking to them, you're having the contract looked at, you're paying to have it reviewed. Obviously you've got interest in the position. So the goals are the same. It's to get you there, get you going, get you in front of patients, have the patients be happy, provide good care and lots of good care to patients, have you stick around long term. You guys have the same goals. So it's about how do we get from where we are now, where I don't understand what this 15 or 20 page contract says to I'm signed and I'm credentialed and I'm happy. How do we get there? You know, again, it's not you versus me. It's we have the same goals. And I think if everyone goes about it with that light, I think it'll be a smooth and an easy process. The due diligence is very important. But I think once they're convinced that it's not about just signing the contract and whether it's your first contract or your fifth, it's not about just signing it and showing up, there's lots of due diligence to be done. But knowing that you have the same goal as you go through the due diligence with the employer, I think is an important thing. And then the other thing I would say is we talked earlier about your worth in the market. Don't lose track of that because physicians, and everyone listening knows this, spend a lot of time on making their time very valuable. And I want to make sure that the physicians understand how valuable their time is and of course, that the employer documents that in the contract. So how much time am I going to give you and then how much in money and benefits will you return to me? And those things should be very clear in the agreement. And the physician shouldn't lose track of that over time. So they should continue to revisit it. They should continue to read online about physician salaries. They should know their specialty and how paid mixes are changing. They should reach out to a company, us or someone else to say, this is my structure. Is it fair or not fair? How should I have a conversation with them to make sure that I'm spending my time away from my family, my passions, my hobbies, and I'm being fairly compensated for it. So I think if everyone keeps those things in mind, I think they'll do just fine.

John Appino with contractdiagnostics.com thank you so much for being on the White Coat Investor podcast.

Thanks for having us, Jim.

Okay. That was great having John on. He's been advertising with me for years now. I think I've had one complaint in like five years of hundreds of doctors using their services. So really a great resource there. Now we've actually got three firms that advertise with us that do physician contract negotiation and review. You can learn about all of those if you go to the whitecoatinvestor.com under the recommended tab. And we have a little tab there for legal and contract review and all three firms and contact information is listed there. And you can choose the one that looks best to you and get that contract reviewed. But don't make a mistake like some of those horror stories we heard in this podcast. This is not an expensive service. I mean, typically it's 2, 3, $400, something like that. They spend an hour with you going over your contract explaining what it means. You can hire them to negotiate for you or you can just get some ideas on what you're worth and what you should negotiate and how you might do it. But you know, considering how much money we're talking about, especially if this becomes a long term job, you know, a couple hundred bucks is money well spent. This is not someplace to cheap out when it comes to your personal finances. No more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums trying to gain a financial education the way the hobbyists do for a fraction of the price of hiring a professional financial planner. The Fire your financial Advisor online course will take you from feeling anxious and having no plan to having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school or residency, but never was. Fire your financial advisor also has a version eligible for CME credit. Get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Coat Investor can help. Remember, you can sign up for our newsletter, including that new real estate newsletter@whitecoatinvestor.com newsletter. Thank you those of you who've left us a five star review and told your friends about the podcast. Mostly it grows by word of mouth, so thank you for telling your colleagues and your trainees and your attendings about the podcast is really helping us make a difference in the physician world. Head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor podcast. My dad, your host, Dr. Dalla, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.

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