WDS Career Corner: Advice for Negotiating Physician Contracts in the Post-Covid Era

Advice for Negotiating Physician Contracts in the Post-Covid Era

Special thanks to James D. Kelso, JD, LLM of The Kelso Health Law Firm, PC for taking the time to speak with us and providing invaluable advice for negotiating physician contracts.
 

His law firm specializes in addressing the needs of health care providers and is almost exclusively limited to Health Law Services. His firm reviews hundreds of physician employment agreements and his guidance is incredibly helpful for our WDS members.

How have contract negotiations changed in the post-covid era?

• Ultimately, contract negotiations have not been significantly impacted by COVID. 
• Force Majeure clauses were added to most agreements. This allows a party to terminate in the case of a riot, pandemic, war, etc. These were never found in physician agreements before COVID because physicians were supposed to go to work sick. You want this type of clause to apply to both parties equally.
• In the height of the pandemic, practices were less likely to offer base salaries. This has now returned to pre-pandemic norms of a guaranteed base salary in the first year of practice.

Are physicians no longer bound by non-competes?

• Not yet, but physicians may more easily exit contracts under the Federal Trade Commission’s new proposed rule that would block companies from limiting employees’ ability to work for a rival.
• Currently, it is too soon to tell what this will mean for physicians, and there is a long way to go before a federal ruling will displace current state laws.

What should we consider when negotiating contracts with private equity (PE) vs. physician-owned practices?

• Base salary offers from smaller, physician-owned practices will be lower than those from private equity (PE) groups. PE groups will entice a new physician with a large base salary and a high bonus but will offer much lower compensation and no real partnership. Long term, this leads to lower compensation but helps fund the higher initial salary and bonus. The difference from being a partner in a practice and being a PE employee is about 10% of Net Collections. Most dermatologists generate over $1 million in collections. At $1 million, that is $100,000 per year and $1 million over 10 years at the lowest level.
• While PE offers a better initial guarantee, make sure to evaluate the collections percentage. In the end, a higher collections with a smaller practice will be more lucrative.
• PE may claim the lower percentage will be offset by high collections but PE is not necessarily able to negotiate higher reimbursement rates.
• Management in PE groups can be very variable, which can result in high staff turnover rates.

What are new trends emerging in dermatology practices?

• Despite the increase in PE presence in dermatology, many physicians are still starting their own private practices.
• Consider starting your own private practice. While there are some startup costs, the autonomy and long-term benefits can be fulfilling.
• Concierge practices may result in a lower patient volume compared to other private practice setups. This has been discussed but not become a real trend because patients may not be as interested in paying a fee for quick access.
• It is difficult to find a 100% sub-specialized practice such as in Mohs or dermatopathology. Most often, the subspecialists will provide some general dermatology services.

What should we consider after joining a practice?

• If your practice is violating a portion of your contract, they are in breach. A lawsuit can be considered due to a calculation of Net Collections or a misallocation of benefits (e.g. cessation of retirement investments).
• If your practice is considering selling to private equity, discuss with other members of the group. PE will provide similar offers to all members of the group. If no one takes the new PE based contract, the purchase will normally fail. The new agreement will have the remaining physicians taking lower salaries to “fund” the purchase. Additionally, consider that the office staff may change with a change in ownership. Often, many people leave after a purchase.
• If supervising mid-levels, ensure that there is a caveat within your contract that the supervision will occur after the mutual agreement of the parties. You should be paid for the additional work and increased liability. The average in private practice should be 8% of the net collections of the supervised APP.

Any additional pearls?

• Support and advocate for the specialty by participating with large groups such as the AAD, WDS, or AMA.
• Advocacy needs to continue to force changes in Congress, such as the coding/billing changes of 2021 and lobbying for changes in reimbursement with inflation.
• Lack of involvement allows corporations to command the specialty and limit physician autonomy
• Negotiating can be very important even if you don’t get what you want.
• Negotiating can provide an insight into how your employer handles difficult issues.
• Consider hiring a contract lawyer and ensure that they understand the business side of dermatology to best interpret your contract.