Physician Employment Contracts and Compensation

Kyle Claussen offers invaluable advice for physicians at all career stages on how to navigate and negotiate their employment agreements effectively. Whether you are a mid-career physician or just starting, this conversation is packed with insights to help you secure a fair and favorable contract. Learn more about the legal, financial, and strategic aspects of physician employment agreements and gain valuable knowledge and practical tips from Kyle Claussen on mastering physician employment contracts and compensation.

This transcript has been edited for clarity and length.

Mike Sacopulos: My guest today is Kyle Claussen. Mr. Claussen is a nationally known attorney. He specializes in physician employment contracts and compensation. Kyle routinely advises physicians on legal, financial, and strategic aspects of their employment agreements. Kyle Claussen, welcome to SoundPractice.

Kyle Claussen: I appreciate you having me on.

Sacopulos: It is our pleasure. So, Kyle, how did you become interested in the area of physician employment agreements?

Claussen: Well, it's a niche within a niche of healthcare law, and so I don't think anybody goes to law school thinking that this is what their practice is going to be, but my wife is a physician, and I was fortunate enough while she was in training to meet and become acquainted with the founder of Resolve. And so that is how I got started in this, and it has been a great career for me and something that we are extremely passionate about. Obviously with my spouse being in the industry, I get to see a lot of that stuff up close and personal. And so yes, it wasn't my plan from childhood, but here we are.

Sacopulos: I understand. Now, you mentioned Resolve. What is Resolve? What products and services do you help physicians with?

Claussen: Resolve is a tech platform, kind of tech-enabled services where we help physicians understand fair market value, compensation data, and also connect them with expert legal guidance and attorneys to make sure that as they're going through their employment contracts or partnership agreements, renegotiations throughout their career, that they've got good advice and good access to information from a very national perspective. We work in all 50 states and all specialties, and so a lot of times that market view is really important when you are dealing with large health systems and things like that.

Sacopulos: Excellent. So, as you might imagine, since this is the podcast of the American Association for Physician Leadership, there are any number of mid-career physicians in our audience today, and I am sure that many of them are wondering about compensation when looking at new positions. Can you give some thoughts and advice on that to them?

Claussen: Yes, well, we know as attorneys, the words fair market value and commercial reasonableness and those types of things are important and have a lot of weight, and we know that systems want to comply with those rules and regulations. And we also know that there is not a set number, right? Fair market values are ranged, right? And we are negotiating between two parties at arm's length. And so, anybody who's mid-career, and anybody coming out of training, I mean, I guess it applies to everyone, but you want to make sure you know what your value is and you want to know what your colleagues who are doing similar procedures and seeing similar patient volumes are being paid. And that varies quite a bit by region, by specialty, obviously. And so, I think it's just really important regardless of where you're at in your career to make sure you're aware of that, so you go into a negotiation in good faith with good information to back up any asks that you're going to make.

Sacopulos: Do you see health systems often telling physicians, "Oh, we'd love to compensate you at a higher level, but we just can't because of some federal laws out there and whatnot and this, it would be illegal for us to do that," do you see that come up in negotiations?

Claussen: Yes, we do hear that, and I think clients and physicians hear that early on in the process sometimes, is that we have done a study or we have taken a look at comp and we know that this is within fair market value. That is usually how it is framed. It is not that we can't go higher, but we have been told that this is okay and this is compliant. And so, we don't disagree with that necessarily and that is when I think there is a range of fair market value, but it doesn't mean that you can't ask for more. We know it is extremely difficult to recruit and retain physicians. We know it is expensive to do that. And so, it is usually to both parties' benefit to keep somebody who is good and who has a full patient panel in place, rather than going out and losing revenue for a few months and then having to bring somebody up to speed new in the system.

Sacopulos: I think that makes sense. Let's talk a little bit about leadership. How are leadership positions for physicians typically compensated?

Claussen: Well, it depends on how much of their FTE status is dedicated towards administrative things, right? I mean, there are certainly some physicians who are now CEOs of hospitals or doing a CMO role full time. There are then, take it back a step where it might be a fractional CMO role or it might be that you are a medical director. And so, I think it just depends on how much of your day is allocated towards those things. But certainly, you want to make sure you are being paid fairly for both roles, right? Because there's data sets out there, and this is one of the things that we do with clients, is we are going to analyze if you are 20% an admin, here is the admin rate. If you are 80% cardiology and you are seeing patients all day, here is the rate for that, and making sure that that is bifurcated and weighted appropriately. And so, this is a long-winded way of saying it depends, right? But usually, it is more of either a stipend or by the hour for administrative and leadership type roles, and then it is usually going to be based on collections or work RVUs for the patient facing time.

Sacopulos: You bring up RVUs and so many physicians now are compensated in that way. I am always concerned that physicians don't have a way to check if they are being assigned the appropriate number of RVUs. It becomes an accounting issue, does it not? And how do you help people with that?

Claussen: Yes, you almost have to keep a second set of books to some extent, because every CPT code that you are entering, and every patient encounter has a corresponding work RVU value. And so, it's the system's job or your employer's job, and it could be a private practice as well, to translate that and to say, "Yes, for those 30 patients today, this is the number of work RVUs that you generated for that." And most bonus structures are set up to look at a threshold on either a quarterly or an annual basis to say, "If you've gone above and beyond what we expect, here's your bonus at a certain rate."

And so, we have had situations where clients have felt like, boy, my patient encounters are where they should be, they are at the median, but for some reason my work RVUs are at 30th percentile. Why is there a 20% gap there? And then, like you said, it is an accounting issue. You have to go back and actually look at what happened every day and to see if the correct values are being allocated appropriately.

Sacopulos: Let's get back to leadership. Unfortunately, there are some liabilities that come along with leadership positions. Can you talk about what those are and maybe how physicians should address these liabilities?

Claussen: When we think about professional liability, for most physicians, it is your malpractice insurance and it is the taking a look at what you are doing with patients. If you are in a leadership position and depending on what type of leadership position, you have got organizational risk then as well. And so most institutions, whether you are in healthcare or otherwise, there's different types of insurance policies, some E&O policies that you would expect to be in place to cover you for those actions. And so, what we advise clients is just making sure that when we get to that part of the contract, and we are talking about insurances and risk, that if there are those administrative pieces that the coverage is sufficient. And for medical directorships, sometimes they can bake that into their typical malpractice policy. If you are a C-suite member, usually it is a separate insurance policy that is there to cover you.

Sacopulos: And you are able to help your clients determine the appropriate amount of coverage and so forth?

Claussen: Yes, correct. So different states have different limits and tort rules and things like that. So, yes, oftentimes organizations have group insurance policies and so the rates are going to be set, and they want to be compliant as well. So, most of the time coverage limits are not an issue, but you certainly want to make sure you know what your coverage limits are and that you are double checking. It is kind of the trust and verify type of analogy.

Sacopulos: That makes sense. Kyle, as you know, physician employment agreements have traditionally contained noncompete clauses. Recently, we have seen at both the state and the federal level, a move to prohibit noncompete agreements. Of course, this triggered some pushback. What is the latest update on noncompetes in the physician space?

Claussen: Well, we don't like them, that is the personal update. That is as simple as it gets. So, the FTC leaned in on this and tried to do away with them on a federal level. That certainly would have been great for every physician that was out there, heavily discussed in those opinions. But at this point in time, that is stuck in the court system.

And so, we don't have a general rule yet at the federal level on whether that is going to go through. So, the long and the short of that means, every state gets to control whether these are applicable, and some states have done away with them for physicians specifically. California is kind of the big example of that one, and it has been there for a while. But most states, the majority rule is if they are reasonable, they are going to be enforceable. And so that puts physicians in a tough spot, I think, because knowing what is reasonable requires a judge to come in and say yes or no to it. And every specialty is different. Every location, whether it is metro or rural, is going to be different. Timing can change; geographic scope can change. And so, our preference is that if you can't remove it entirely, which would be the best answer, you need to make sure it fits your situation.

And so, some people, and clients of ours will take a job and let's say it is Midwest somewhere, let's say it is in Iowa. Knowing that they are from Florida and if this doesn't work out, we are moving back to Florida. Right? Well, in that setting, the noncompete doesn't become much of an issue for you because there is really not a lot of risk. But if you're like a lot of our other clients and you're moving back to hometown and you're moving to Charlotte and there's only two practices that fit your specialty in Charlotte, well, that noncompete might be the most important thing to you in the entire document. So, I think the weight of those really depends on the fact pattern and what the client needs.

Sacopulos: You mentioned how difficult it is now for organizations to recruit physicians. Does that help in the negotiations on noncompetes?

Claussen: I think, certainly. I think it helps on everything. I mean, if the organization is honest with themselves, they usually don't have multiple candidates knocking down their door for a position. There are certain markets where that might be true, but the general rule is that that is not the case. And so, the best organizations and the ones that are going to attract and retain the most physicians, are the ones that are going to be flexible in their contract that aren't going to slam a standard agreement down everybody's file, so to speak, and make the adjustments that are appropriate. Because I think if you do that, you are going to end up with happier employees that are likely to stay longer.

Sacopulos: Outside of the noncompete agreements that we have been discussing, what type of items should physicians look for when reviewing their contracts?

Claussen: Well, if you think about other exit pieces, we talked on insurance, the noncompetes, you want to make sure how you get in and out of the contracts, so the termination provisions we think are awfully important. Many folks that are transitioning, this would not be a renegotiation, but if you are taking a new job, you might have recruitment incentives that go along with that. So, signing bonuses, student loan forgiveness maybe, and those things have strings attached to them usually. So, you need to know if you are paying that back at what rate and what the amortization looks like. So that is important.

But then the other things that are probably more important to most clients are, one, they want to be paid fairly, so we have to hit on that. But then two, their duties and responsibilities are usually where people burn out. So, they're taking more call than they think they should, or they don't have the staff that they were supposed to be allocated, they're working a different location, a satellite that they were promised they would never have to go to and now they're driving out there once a week. Those things cause a lot of physicians to start to look for a new position down the road if those things are not honored. And so, we just think it is important to get clarity on that and to make sure the language is structured to allow for some flexibility but also protect the individual position.

Sacopulos: How frequently should physicians be reviewing their employment contract terms?

Claussen: Well if you are talking about compensation, I mean, that data changes annually. Right? And so, we have had clients that have come in and said, "Hey, I haven't really pulled the contract out of the drawer for the last decade, and I just wanted to get kind of a review to see what this looks like." And they will find out that they are short maybe six figures from what the market is currently, and that is pretty upsetting to them. As opposed to if you do it on an annual basis, you are going to have a better idea of maybe it went up 2% and you are fine, you leave it alone. If it jumps 10 or 15%, which can happen in some specialties. Right now, anesthesiology, radiology, I mean, there are a few specialties that are in extremely high demand where the market surveys are behind. So, you look at job postings and job offers and the real contracts that you're going to see on our site, they're going to be dramatically higher than any median you see from the survey because the market has shifted more frequently than that survey has come out.

So, we think every year is important to take a peek at it. As far as renegotiating it, usually it is on a kind of 18-month to 24-month schedule is pretty normal.

Sacopulos: Do you see younger physicians being more interested in quality-of-life issues, time off, limited call, those types of things, than older physicians?

Claussen: I think it depends. So, I actually think it is not necessarily an age issue of older versus younger, I think it is more on practice type. So, if you're going into a private practice where you're going to be an owner at some point, you're going to have real estate, you're going to have a surgery center, you're going to have whatever it is, employees that you're taking care of and you're sharing in the ups and the downs. We find that it is pretty much the same, regardless of age on that.

If you're talking about going into a health system or an employed setting, academic setting, something that's owned by private equity where you don't have any upside long-term, clients are much more focused on protecting themselves in those situations because they know they'll never have the ability to control it. And I think that makes sense, right? I mean, you are taking on more risk as an employee of what your job looks like day in and day out, as opposed to being an owner long-term. And so, in those employed settings, yes, things like call are really important. Things like, do I have the right office space? Do I have the support staff I need? Because there is no promise that the current administration is even going to be there two or three years from now. I mean, we know administrators move around just like physicians do. And so, getting your contract right really protects you long term.

Sacopulos: Let's talk a minute about private equity, because that's, I think, a relatively hot topic in the healthcare space. Do you find unique issues arising in employment agreements when dealing with entities that are controlled by private equity firms?

Claussen: I don't know that the issues are different. I mean, the same core pieces that you are trying to solve for are there in almost any setting. The thing that we see with organizations that are partially or fully owned by private equity, because you can have a mix on that, is the goals of private equity are pretty clear. Right?

Their job is to consolidate, their job is to expand margins, and then their job usually is to flip the asset in 5-10 years, sometime in that timeframe. And so, what we often see is that base guarantees are consistent with the market, but things like the production bonuses, there is a lot of margin there that they are trying to squeeze out. So, and maybe less flexible because not only does the physician need to have some of that profit, but then the private equity institution also has to capture that to show that they are making the right gains. And so that is not fault on their end necessarily, I mean, that is what they are geared to do, that is their job. But it also means if you are a physician going into that setting, you need to be well aware of that and careful on what you are willing to accept.

Sacopulos: It is certainly all about extraction when it comes to private equity, I think. Tell me, what is the best way for a physician to have leverage and negotiate the best contractual terms for him or herself?

Claussen: Well, we have a lot of experience in this, and we see a lot of different candidates coming through. And the ones that we think are best geared toward getting the outcomes that they want are the ones that have multiple offers within a fairly tight geographic area, or at least consistent employer setting. Sometimes if you are really wanting to be in academics, you are going to have to have a geographic area that is wider, but you can still have academic institutions that are roughly there. But if you have two or three good offers and you're willing to say, "Okay, if I don't get this term changed, I've got a really good option B," they're much more willing to push as opposed to the clients that come in that say, "Hey, this is hometown. I have already signed a letter of intent. I have already put an offer down on a house. I have to be there, and now let's negotiate the contract." Right? And you are like, well, they know you are coming, right? So, there is really no reason for them to make these changes. And I think sometimes physicians forget that it still is a business, and whether it is a health system or private equity or academics, they still want to keep their employment costs as low as they can.

Sacopulos: Right, absolutely. So, this is clearly an important topic to lots of our audience today. As our time together comes to a close, Kyle, can you please tell our audience how they can contact you?

Claussen: Yes, my suggestion would be just go to Resolve.com, there you are going to find good educational information. There are some free tools you can utilize, you can access compensation information, you can get connected with expert attorneys in this area. So, if it is something you haven't looked at in a while and you need to do that kind of mid-career review or if you know you are moving and you've got a couple offers, we'd love to work with you.

Sacopulos: Excellent. My guest has been Kyle Claussen. Kyle, thank you for being on SoundPractice.

Claussen: I appreciate you having me.

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