Physician Employment Agreements

Physicians finish training with a decade of clinical education and no preparation for the document that will govern the next several years of their working life. The agreement arrives from a group or a hospital system, is described as standard, and contains provisions that determine where the physician may practice after leaving, who pays a malpractice tail that can cost tens of thousands of dollars, and whether the compensation described in the recruiting conversation is actually guaranteed.

The Law Offices of Albert Goodwin reviews and negotiates physician employment agreements in New York City, for physicians and for the practices that employ them.

Compensation: Read the Formula, Not the Number

Most physician compensation has a base and a productivity component, and the productivity component is where the disputes are.

• Work relative value unit models. Confirm which schedule year's values apply, whether the conversion factor is fixed or subject to annual adjustment, whether the threshold before productivity pay begins is stated in the contract or set by the employer each year, and how credit is assigned for supervision of advanced practice providers, procedures performed with a co-surgeon, and non-clinical time.
• Collections-based models. Confirm whether you are credited with gross charges, net collections, or collections after an overhead allocation, and how that overhead is computed. An overhead percentage the employer can adjust unilaterally makes the compensation formula meaningless.
• Guaranteed periods. Income guarantees during a ramp-up are common and frequently contain a recapture provision requiring repayment if the physician leaves early. Read the repayment schedule.
• Signing bonuses and loan forgiveness that must be repaid on early departure, often in full rather than pro rata.
• Call coverage, medical directorship, and administrative time, and whether they are separately compensated or expected within the base.
• What is not in the number: continuing education allowance, licensure and board fees, professional dues, relocation, health and retirement benefits, and paid time off with a stated accrual and payout on departure.

One constraint shapes all of this. Where the employer bills federal health care programs, compensation arrangements must be structured to fit an exception to the physician self-referral law and, where the intent analysis applies, the anti-kickback statute. In practice that means compensation should be set in advance, be consistent with fair market value, and not vary with the volume or value of referrals the physician generates, although productivity based on services the physician personally performs is generally permissible. A compensation term that seems unusually generous relative to the work is worth examining for this reason as well as for the obvious one. See Stark and anti-kickback compliance.

Malpractice Coverage and the Tail

This provision is worth more money than most physicians realize, and it is frequently negotiable.

Malpractice policies are typically written on a claims-made basis, meaning they cover claims made while the policy is in force, not incidents that occurred during it. When employment ends, the policy ends, and claims arising from care already delivered but not yet asserted are uncovered unless extended reporting coverage, the tail, is purchased. Given the length of the limitations period for medical malpractice claims in New York, and the discovery rule that applies to certain claims, the exposure window is long.

The cost of a tail is commonly a multiple of the annual premium and can run well into five figures for higher-risk specialties. Contracts allocate it in different ways: employer pays in all circumstances; employee pays in all circumstances; employer pays unless the physician resigns without good reason or is terminated for cause; or the obligation phases out over several years of service. The last two are reasonable compromises and are obtainable.

Where coverage is written on an occurrence basis, no tail is needed, which makes occurrence coverage worth asking about even though it is less common. Also confirm the limits, whether they are shared or separate per physician, whether consent to settle is required, and whether the physician is indemnified by the employer for claims arising within the scope of employment.

Restrictive Covenants

New York has no statute banning physician non-competes, and legislation to ban non-competes generally has not become law. Enforceability is decided under the common law standard: a restraint is enforceable only to the extent it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public, and not unreasonably burdensome to the employee.

New York courts have enforced physician non-competes and have also declined to, and the analysis is fact intensive. Considerations that matter:

• Geography measured how. A ten mile radius from a single office is very different from a radius drawn from every location the group operates, which in a multi-site group can effectively cover the entire city. Radius clauses drawn from hospitals at which the group has privileges are especially broad.
• Duration, commonly one to two years.
• Scope of activity, and whether it prohibits the practice of medicine generally or only the physician's specialty.
• Patient non-solicitation, which is narrower and more readily enforced than a geographic bar, and which interacts with the physician's obligations regarding continuity of care and patient access to records.
• Partial enforcement. New York courts may narrow an overbroad covenant rather than void it, so an obviously excessive restriction is not necessarily unenforceable.
• Carve-outs to negotiate: the covenant should not apply if the employer terminates without cause or fails to pay, and a buyout provision setting a fixed sum to be released is often achievable and gives both sides certainty.

See non-compete defense and non-solicitation agreements.

Termination Provisions

Read these before the compensation section. What matters:

• Without cause termination, and the notice period, which typically runs both ways. A ninety day mutual notice provision means your employment is effectively at will with three months of runway.
• The definition of cause, which in physician agreements often includes loss or restriction of licensure, loss of hospital privileges, exclusion from federal programs, loss of insurability, a malpractice claim above a threshold, or conduct the employer determines is detrimental. Employer-discretion language should be narrowed where possible, because cause termination usually triggers the tail obligation and the restrictive covenant.
• Immediate termination events that operate without notice or cure.
• What happens to earned but unpaid productivity compensation on departure. A provision requiring active employment on the payment date can erase a year of production, and whether that compensation counts as wages under the New York Labor Law affects the remedies available. See unpaid bonus and productivity claims.
• Cooperation obligations after departure for claims and records, which should be reasonable and, where they require significant time, compensated.

The Provisions Physicians Overlook

Ownership of intellectual property and of anything developed outside clinical hours. Assignment of the agreement, which matters enormously when a private equity backed platform acquires the group and the physician finds themselves working for a different organization under the same contract. Partnership track language, which is frequently aspirational and unenforceable unless it states the criteria, the timing, and the buy-in formula. Moonlighting restrictions. Requirements to maintain privileges at a specific hospital. And the integration clause, which extinguishes every promise made during recruitment that did not make it into the document.

For Practices Doing the Hiring

We also draft and negotiate these agreements from the employer's side, where the priorities are enforceable restrictive covenants drawn narrowly enough to be upheld, compensation structures that satisfy the federal exceptions, clear termination rights, and protection of the practice's patient relationships and referral sources. An overbroad covenant that a court declines to enforce leaves the practice with nothing, which is why restraint in drafting is a practical matter and not a concession. See non-compete enforcement.

You can contact us by phone at 212-233-1233 or by email at [email protected].