Employment Contract Reviews, Partnership Agreements, Acquisition Valuations, Renegotiations, Exit Agreements
Why Negotiate Your Contract
Many Physicians are reluctant to negotiate their contact for several reasons; they don’t have time, they are worried they will appear too concerned about compensation, they don’t have an educated grasp of the salary surveys or industry benchmarking, etc. As we work with Physicians, we advocate for the role they play – not only in healing humanity, but in generating business. While they create jobs for their staff, they make it possible for patients to get access to quality healthcare (not just with them but through a vast network of specialty providers). Most importantly, the average Physician generates more than $1.5 million in direct or ancillary income for the hospital in which they practice or are affiliated.
Physicians are an increasingly integral part of the American dream, yet few know how to ask for what they deserve and what is competitive.
That’s what we’re here for!
50% of Physicians leave their first practice within 2 years. This can be hugely disruptive to Physicians, their colleagues, their patients, and their families. Negotiating the right terms from the beginning can eliminate the need to leave. Each contract (and contract negotiation) fortifies a successive foundation year after year in addition to what is initially negotiated. Over the course of a career, this could amount to thousands or hundreds of thousands of dollars. This directly impacts when a Physician may retire and their financial picture when they achieve retirement.
Increasingly, Physicians are seeking employment from hospitals or large physician groups to survive health care reform. As a result, we are starting to see more issues related to unjust contracts. With so many health care compliance initiatives (PQRS, MU, MIPS, MACRA, etc.), it is all the more difficult for smaller groups to survive. At The Brake Group, we navigate the intricacies of the ever-changing landscape of these initiatives, keeping in regular communication with our clients regarding our progress on their behalf.
Reasons Why Physicians Get Paid Less Than Fair Market Value
Information is power.
That’s where we come in. You’ve worked hard to become a physician; you should help define your own earning potential and future. Together, we will create a strategic summary of the various bench marking tools with a market analysis for your desired geography that includes the potential options to achieve the kind of financial change that will create market-competitive compensation, benefits, and equity. Negotiating in a vacuum is almost always a potential source for an inequitable deal. Often physicians don’t take the time to conduct a due diligence assessment because they don’t know how to mine the right data, they don’t know which tools are the “gold” standard, and/or they don’t feel confident in negotiating for themselves or their group.
The Brake Group utilizes your professional and personal goals to create, draft, and negotiate a contract that reflects your professional and personal goals with terms that make for the best overall package. We break down your offer and benchmark it compared with other physicians with your experience, specialty, and desired geography considering the payment models and metrics used to measure:
Paid Time Off
Malpractice & Tail Coverage
Non-Competes or Restrictive Covenants
Medical Staff Dues
CME Allowance and Time Off
A poorly negotiated contract can impact your life in unexpected ways. For example, you may take an offer and move to a location only to find out that the call coverage shifts to a burdensome 1 in 3 requirement. This can interfere with your practice hours. Or, you may take a poorly negotiated position that becomes untenable after a year or two. Both examples may result in you having to move at a time when it is not convenient for your family. This could also result in repayment obligations for sign-on bonuses or income guarantee losses while setting up your practice after first joining the group.
Our CEO and Founder has negotiated internally and externally for Physician groups for 19 years. She has one of the most highly qualified teams in the nation. Their expertise comes from negotiating contracts across the country in every specialty, negotiating with many of the major health systems. This has substantially driven additional comparison and value in 95% of these cases.
Payor Mix Concerns
It is crucial that an Employment Agreement or Partnership Agreement specify whether the new physician will be expected to take all new patients, including Medicaid. Your ability to generate a competitive income will depend in large part on this one factor. It may even be enough that your revenue-generated numbers could delay your partnership track if they are too low.
Preserving the Relationship with Your Group
Allowing an expert to negotiate the contract details (which often includes negotiating around some pressure points) removes you from any potential back-and-forth that could get contentious. You don’t want to forgo negotiating on the right terms simply because it may cause some strain on the relationship, but the details are important. Often, the other party has an attorney that drafts the contract to overwhelmingly benefit them. It’s important that you start with an unbiased contract and negotiate to achieve an equitable outcome. Furthermore, this preserves your ability to come into the job with a fresh and positive working relationship and a clean start with your colleagues. The same applies to renegotiations; it is exponentially beneficial to have a third-party advocate from outside your practice to help you navigate the details with colleagues with whom you want to maintain a good working relationship on a day-to-day basis.
In addition to reviewing and negotiating Employment Contracts we review, negotiate, and make recommendations on:
Mergers & Acquisitions (click here for more)
- Non-compete Agreements (click here for more)
- Renegotiations (click here for more)
- Exit Agreements (click here for more)
- Shareholder/Partnership Agreements (click here for more)
Mergers and Acquisitions
The last few years have witnessed a resurgence in the acquisition and consolidation trend for physician practices. Most of the interest has come from hospitals or their related organizations (i.e. hospital foundations or IPAs). This increased trend stems from two sources: 1) hospitals recognize the increasingly complicated nature of health care reform and the challenge of physicians being able to achieve Federal and State incentive compensation on their own, and 2) physicians close to retirement recognize that they are able to monetize their value in a practice, should the practice be acquired, and their “share” of the practice can be turned into a valuable commodity in the value of their “stock” or their equity interests in the new organization that may have gone unrecognized at retirement without the acquisition.
While there are many forces at work in driving the number of acquisitions up, primarily there are: cost efficiencies, better competitive positioning in the market and in reimbursement, and an increasing number of physicians looking to retire.
There are several ways to carryout a practice appraisal: 1) the practice can hire the appraiser, preferably someone with a financial history with the practice because they can verify the history and stability of the practice and this can save quite a bit financially, 2) the group doing the potential acquisition can retain an appraiser (this might be done where the acquiring group remain concerned about objectivity of working with an established party), 3) both parties can jointly split the fees (the fees may be higher because there is an education that has to be done with both parties as to the findings and results) and 4) both parties can retain their own appraiser and compare and contrast the results of both (this is obviously the most expensive). We can assist within any of these scenarios and we typically partner with an accounting firm (we have one we use frequently with extensive experience and expertise) to verify the financials.
Due Diligence Phase
The Due Diligence phase is a critical phase of an acquisition in information gathering and evaluating whether the practice at question is strong enough to withstand a successful acquisition.
The following should be evaluated closely:
- Corporate Matters (bylaws, articles of incorporation, buy/sell agreements, each Physician’s equity, etc.)
- Managed Care Agreements
- Vendor Contracts
- Any current, pending, or potential litigation, judgments, or tax liens
- Employees (HR policies and procedures, accrued benefits, pay, non-competes, employee handbooks and performance evaluations, roles of current leaders or supervisors post-acquisition)
- Provider licensing
- Compliance criteria & Incentive Compensation (Meaningful Use, PQRS, MACRA, MIPS progress & status)
- Regulatory Issues (regulatory audits or investigations)
- Reimbursement issues (days A/R, delinquent accounts, etc.)
- Assets & Liabilities (real estate, leases, inventory/products, supply contracts, etc.)
- Leadership involvement during: Due Diligence, pre-acquisition (e.g. Medical Director contract—how long is it valid, are there any clauses about what happens in an acquisition?), and post-acquisition role?
Letter of Intent
This comes during the post due diligence phase and it usually involves a non-binding Letter of Intent and outlines the price to be paid, timing of the transaction, conditions of the transaction (pre- and post-acquisition), and it broadly outlines the details of the transaction. In most cases there is an asset or stock purchase agreement, post-transaction employment agreements, a merger agreement, financing agreements, lease transfer agreements, and other paperwork to finalize the details of the transaction.
Generally, non-compete agreements are considered to be a restraint on trade and a not well-thought of in the judicial system. Non-competes are considered a violation of an employee’s right to work and our society functions and benefits from the ability to move and change jobs as one advances in his or her career. In contrast, some believe it’s an employee’s right to agree by contract to limit their options in the workplace and that the courts should not stand in the way of their freedom to contract, unless it violates public policy or a statute.
We can help negotiate to limit the scope of the non-compete. Typically, it must be part of an enforceable contract and there must be consideration given in return for the non-compete. Typically, non-competes last 1-3 years and are usually limited to 20-40 miles from the service area, hospital, or practice. In some states there is legislation that allows Physicians to buy themselves out of the non-compete.
Over the course of a physician’s lifespan many life changes can cause the physician’s contract to no longer reflect his or her professional and personal goals. Especially, if employment contracts are not renegotiated periodically. The Brake Group works on your behalf to negotiate a new contract with the provisions that matter most to you. Typically, because both parties are familiar with each other and most often they have a healthy respect for one another, it is easier to request modifications, or renegotiations, in the current or future contract. After all, it’s easier to negotiate additional considerations for an existing physician that to go out in the market and recruit a new physician who may not be as productive, who may need time to build a patient base, or who may not be as good a fit.
Several items to consider: 1) What is most important to you (i.e. compensation, work-life balance, paying off student loans, call coverage, scheduling, etc.)? 2) Where are you at in terms of timing on your contract? Renegotiating within 30-90 days before your contract renews is the most optimal time, 3) Have there been any issues in your ability to meet productivity goals? Is the productivity formula reasonable and attainable? Have your colleagues been able to achieve their productivity goals? 4) Are there responsibilities you’ve had added without additional remuneration? 5) Are your collections and compensation consistent with Fair Market Value?
Our team will use MGMA data and our proprietary database to advocate for compensation that is fair especially as it relates to your workload and productivity.
Typically, Physicians leave because of two factors: 1) they have a new or better opportunity elsewhere, or 2) they feel unappreciated, under-compensated, or overworked.
There is a lot to consider before initiating this process. We’ll help you assess the potential risks associated with leaving a contract early, which can include: 1) repayment of start-up costs advanced to you by the hospital or practice, 2) malpractice tail coverage that might be your responsibility, 3) you likely will have to follow any reasonable non-compete clause, or 4) you may have to pay back any bonuses or advanced sums, etc. It’s important to decide if the new opportunity can compete with the existing opportunity after adding up these potential costs or paybacks.
Our group will help you decide on the best course of action in approaching your employer about exiting the organization. We can negotiate on your behalf to remove you from the back and forth with your employer. We approach the renegotiations from the perspective that you want to do what’s right and best for your patients.
But, time and life can change your perspective on where you want to be with your career and that you want the freedom to pursue this other opportunity while leaving things with the current employer on good grounds. It’s important that the employer sees that you will do everything in your power to set things up so the physician replacing you walks into a well-run practice.
Shareholder & Partnership Agreements
It’s important for a physician joining a practice to understand the key benefits and drawbacks: 1) Is there a partnership track and how long is it? 2) How much equity does each physician or partner have? 3) What happens when the practice recruits a new physician who will be eligible for partnership status (will the rest of the group give up equity)? 4) Who determines if the practice is to merge with another practice (is there a vote)? 5) How is the patient load shared amongst the group? 6) How is the patient load with regard to payor source distributed (do all new physicians have to accept Medicaid patients)? 7) How is time off to be shared, scheduled, or distributed? 8) What happens if the practice dissolves, closes, or goes bankrupt?
We’ll review your partnership contract to evaluate the individual partnership agreement, the Operating Agreement, the organizational structure (bylaws, operating agreement, etc.), buy/sell agreements, assets (real estate, leases, etc.), practice financials, etc. It’s important that each partner be privy to all the items listed above both for new physicians and existing partners. We’ll help you make sense of it and help you to negotiate for a fair deal.
We customize our services into a package that is a flat fee, with a full analysis of: 1) compensation and benefits, 2) financial health and viability of the practice, 3) current or future potential issues facing the practice (i.e. questions about whether the practice will achieve incentive compensation with a successful compliance program), 4) whether there is enough patient load to support a new physician both initially and long term, 5) the status the leadership of the group, 6) turnover rates in physicians and staff, and 7) whether the group’s physicians and partners meet their productivity thresholds on a regular basis.
In our representation of you, we’ll help negotiate a package that will help you to achieve your goals and protect your interests. We recognize that a physician’s career influences almost every aspect of their life. We partner with our physicians to get them the practice they desire so they can lead amazing, fulfilled lives.
NEGOTIATING ON YOUR BEHALF FOR YOUR FUTURE
HOW CAN WE HELP YOU?