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 Evaluating and Negotiating Contracts

In the following question and answer format, Mark Smith, president of NewPhysician and Merritt Hawkins & Associates, discusses how new physicians can evaluate and negotiate contracts.

New Physician: What are some of the common mistakes new physicians make when evaluating contracts?

Smith: The main mistake is not asking questions. Many new physicians are uncomfortable asking questions because they may not have much knowledge of contracts or the business of medicine. Generally, this isn't taught in medical school or residency. But new physicians should feel no compunction about asking for definitions of terms or probing for specifics. Of course, it helps to know what to ask.

New Physician: Should the physician move based on a letter of intent?

Smith: No. The letter sets the framework of discussions, but the physician should not move based solely on a letter of intent. They must have the contract in hand.

New Physician: How can you tell if the contract is a good deal financially?

Smith: There are now a variety of surveys available that track physician compensation by specialty. It is not too difficult to get a range for what is competitive by referring to these and by talking to recruiters and peers. This is an important step for new physicians. Some have an accurate idea of what is competitive in their specialties, but others are way off. Usually, they are too low.

In addition, physicians must be clear on how the compensation is to be achieved. Contracts that are heavily production- or collections-based are not always a good idea for new physicians, because it can take time to build up a practice. It's important to ensure that adequate compensation will be in place through a salary or guarantee during the start-up period.

New Physician: What about work load? How can new physicians ensure they won't be doing all the dirty work while the partners reap the benefits?

Smith: It's important to ask about work load expectations and hours. These can be specified in the contract. But it is also important to ask about who your patients will be. How will patients be assigned? They should not be assigned based on payer type, with new physicians handling all the uninsured or underinsured patients, particularly if physicians will be paid based on collections. So, are you being brought in so the practice can dump the Medicaid patients on you? This is something you have to ask about but also observe as you interview—which is addressed on this site in How to Interview.

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