Negotiating Your Post Residency Contract

Retaining a Healthcare Attorney

A resident physician retained me to review and assist him in the negotiation of his post residency contract with an academic healthcare system. He thought this would be a straight-forward and simple engagement for a couple of hours of legal work. He was surprised to find how complicated and time consuming the engagement would be for both him and me.  Of course this was not a surprise to me, having represented many similarly situated residents.

Fortunately for my client, I do not bill on an hourly basis. Rather, I charge a flat fee for my services so my clients know in advance what the engagement is going to cost them. This is particularly advantageous for young residents who are cash strapped.

The Letter of Intent

The healthcare system offering my client a job as an Intensive Care Unit (ICU) hospitalist initially sent my client a letter of intent (LOI) to sign. Fortunately, I was engaged in advance of his signing of the LOI. LOI’s often spell out the skeleton of the contract terms, and there is ample opportunity to negotiate the terms of the LOI. This is rather important because what is set forth in the LOI should be incorporated into what is otherwise a formulaic template employment contract. I was able to negotiate the inclusion of several terms and conditions of employment beneficial to my client that he never contemplated.

Contract Negotiations

Now, the LOI is not equivalent to the contract and, as is often the case, the contract that was offered to my client contained multiple provisions restricting his rights. It was up to me to review these provisions with a fine tooth comb, and propose changes to eliminate the restrictions, and further obtain other concessions and benefits not set forth in the LOI.

Compensation and Benefits

In terms of additional benefits, the contract provided for health, life and disability insurance, a modest bonus, professional liability insurance, continuing medical education, and professional dues payment. I was able to negotiate the inclusion of a much more significant bonus, relocation expense payment, and a revision to  the professional liability insurance coverage to include umbrella coverage above $1 million/$3 million occurrence-based coverage. Professional liability insurance is a very complicated benefit. I educated my client on the difference between “occurrence” and “claims-made” coverage, extended reporting period endorsement or “tail” for claims-made coverage, and the limits of coverage. These are all very important issues that need to be addressed before signing the contract.

Claw-back Provisions

However, the hospital tried to limit these benefits by including “claw-back” provisions which allowed the hospital to recoup these benefits if my client was ever terminated from his employment, lost medical staff privileges, or failed to give adequate notice of his intent to leave his employment with the hospital. These “claw-back” provisions applied not only to his first contract year, but to each and every automatic renewal term. It is bad enough to allow “claw-back” if something goes south in the first year of employment, but to permit “claw-back” in every subsequent year is particularly unfair.

“Tail” Professional Liability Insurance Coverage

While I was unable to remove the “claw-back” provisions in their entirety, I was able to limit the “claw-back” to the first year of employment. This was particularly important to “tail” professional liability insurance coverage. In the latter regard, the contract provision proposed by the hospital provided for recoupment of the value of an extended reporting period endorsement or tail even though there would never be a need for the actual purchase of a “tail” given that my client’s liability coverage was under the hospital’s self-insurance program. This contract provision actually punished my client by requiring that he pay for the value of a tail that he would never need and would never be purchased by the hospital. If this was put into play by the hospital in subsequent years of employment it could cost my client upwards of $70,000. Fortunately, after a great deal of discussion with my client’s bosses (bypassing the hospital’s legal counsel who were obstreperous), his bosses agreed in writing never to impose this penalty. My client was greatly relieved.

Reaching Final Agreement

With the forgoing changes to the “claw-back” provisions made,  I recommended that my client sign the employment contract. He did so happily, and with some relief.