Navigating the Process of Practice Contract Negotiations

This article originally appeared on HCPLive.com.

Navigating the process of contract negotiation for private practice requires vigilance, attention to detail, and hiring at attorney to review the contract, said Herbert Baraf, MD, Arthritis and Rheumatism Associates of Wheaton, MD, a private rheumatology practice.

Contract negotiations typically involve two types of agreements: an initial employment agreement covering up to the first two years, which is a finite agreement. The second contract, should things go well in the first year or two, is called a shareholder agreement, which Baraf called “the marriage.” At the 2010 Annual Scientific Sessions of the American College of Rheumatology, Baraf focused his remarks on the initial employment contract.

Before entering into a contract, take time to choose your practice setting, he told the audience. Decide whether you are more suited to a small, medium, or large group, and determine whether the practice will value your input. Decide if you want full-time or part-time employment -- especially for parents with small children at home. Also, think about whether you eventually want to become a partner and whether that is likely.

“Do your due diligence. Spend time at the practice to see if you are compatible. Be a fly on the wall and watch patients’ reactions. Are they happy?” he advised. “Determine the history of previous hirings and terminations, and see whether the younger physicians in the practice seem content.”

Baraf told listeners that his practice’s first-year contract agreement is 75 pages long. “You need to read it, take notes, and hire an attorney to look at it,” he emphasized.

The employment agreement typically covers such components as the term of employment, duties (including hours, on call hours, hospital coverage, and exclusivity of services), compensation, benefits, fringe benefits (pension or profit sharing, malpractice coverage, and life, health and disability insurance), restrictive covenant not to compete, and termination.

“Some things [in the initial employment agreement] are more negotiable than others, depending on how long the practice has been operating. The second person to join has more negotiating room than the 20th,” he stated. “Remember, in a negotiation, all parties have to win.” Regarding termination, he said that it is important to find out whether you can be terminated without cause and whether the obligations outlines in the agreement are in fact legal.

During the initial period of employment, typically the new “kid on the block” has a guaranteed income, while partners “eat what they kill,” he said. But then again, he added, partners assume more risks, both upside and downside. Compensation should be based on principles that promote practice success, he continued. Important elements of compensation include productivity incentives and whether a contribution to overhead is required.

In general, Baraf advised using the initial employment term to build a strong practice with patients and physicians in the area who may be future partners, as well as the medical community. “My parting advice is to do your homework in selecting the right practice, read the contract carefully, and hire an attorney. Keep your eyes on the prize — the initial contract covers only a short period of time. Finally, be careful,” he emphasized.