Physician Employment Agreements Roger Tracy, Assistant Dean Carver College of Medicine The University of Iowa K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

IMPORTANT CONTEXT Employment agreement =contract Integrated systems vs. independent medical practice K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

WHY HAVE CONTRACTS? K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

WHY? Define the relationship Avoid misunderstandings Reasonable expectation: unambiguous balanced/fair comprehensive competitive K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\powerpoint\RT presentations\Contracts\Contracts Waterloo updated 11-20-08 K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

TERM OF CONTRACT K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

INITIAL TERM - 1 or 2 years (“buy-in”) 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:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

RESPONSIBILITIES OF PARTIES Employer K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

COMPENSATION K:\graphics\ppt\rt presentations\contracts\Cedar Rapids 4-28-10.ppt K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

COMPENSATION Integrated system: Independent practice: 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

PC PHYSICIAN STARTING SALARIES* 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt PC PHYSICIAN STARTING SALARIES* (Not including recruitment incentives or production bonuses) 2012-2013 Starts Full Range: $140,000 - $225,000 Most (80%): $150,000 - $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. K:\graphics\ppt\rt presentation\contracts\Single Slide compensation rates update 11-8-12.ppt *These figures apply to all primary care specialties.

SIGNING BONUS >75% of employers offer one $5K — $75K Mean and mode = $25K Increasingly a “retention” bonus (repayable) K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

FRINGE BENEFITS Professional Dues Retirement Plan S-T Disability Profit-Sharing Prof. Liability Ins. Retirement Plan FRINGE BENEFITS S-T Disability L-T Disability Health Ins. Life Ins. K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

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? (401K/403K) Vesting schedule Disability insurance K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

TIME OFF (paid leave) K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

TERMINATION (of employment) K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

Termination Provisions (unbalanced) ISSUE Termination Provisions (unbalanced) K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

NON-COMPETITION CLAUSE (restrictive covenant) K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

Restrictive and Enforceable ISSUE Restrictive and Enforceable K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

LIABILITY INSURANCE POLICY ENDORSEMENT (“Tail”) K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

“Tail” Insurance Issue Applies to “claims made” form (and self-insured) Tail premium - 2.3 X annual premium Y1 - 1.4 X annual premium past Y1 (premium↑) ● Issue: Who pays? physician? employer? Push for vesting if phys. obligated Seek waiver in event of “ w/o cause” termination K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

ISSUE Entire Agreement K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

POSSIBLE ISSUE Buy-in Terms K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

BEST WAY TO DEAL WITH CONTRACT PROBLEMS: PREVENTION! K:\graphics\ppt\rt presentations\contracts\2013\Family 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:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt

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LOAN REPAYMENT/FORGIVENESS/SERVICE Has spread to other specialties from PC Frequency is above 30% and will go ↑ • Range $50K — $250K • Forgiveness/service period: 3 – 5 yrs. (up to 10) • Amounts per year: $20K — $40K (plus interest) Taxable as ordinary income (unless federal or state program) • Forgiveness interval drives tax on interest K:\graphics\ppt\rt presentations\contracts\2013\Family Medicine updated 8-12-13.ppt