Physician contracts generally cover many aspects of work and consider incentives and compensation. These agreements should reflect the behaviors that the hospital encourages in their employees and consider the rights of the contracted physicians.

This page is meant to provide information on the basic format of previous and current contracts between physicians and hospitals and aid in the process of updating physician-hospital contracts.

Past physician contracts have included group contracts where a group of physicians receives a set pay, payment was based on cash collections, and the amount of gross charges was used to determine a physician’s productivity. Certain types of contracts lead to increased accountability, better recruiting, streamlined payment processes, and increased productivity.

Contract Types

Updating or Creating Physician Contracts-

Staff Care recommends including these 10 Key Factors when creating or updating physician-hospital contracts. Below, 7 of those factors have been elaborated.

  • Work Status
  • The contract should indicate the employment status and type of contract:
  • Employee of a group (see ‘Group Contracts’ above) or hospital
  • Independent contractor
  • Shareholder
  • Partner
  • Productivity
  • Physicians’ production bonuses were historically based on billings or collections. Generally, this was used as a “50 percent” model in which physicians could keep 50% of their production.
  • Billings: Billing bonuses are allocated based on a percentage of total billings
  • Collections: Collections bonuses are the actual cash received from services rendered
  • Productivity incentives are now a popular method for physician bonuses. These can be based on the amount of work done by physicians, patient satisfaction, group governance, resource utilization, and profit share.
  • Productivity is measured in relative value units (RVUs) where physician’s effort is adjusted for case complexity
  • Income Guarantees
  • Supplying physicians with an income guarantee verifies that the physician will earn a certain income per month after accounting for practice expenses.
  • If the physician is contracted to make $10,000 a month after expenses and only makes $7,000 in that month, the hospital is responsible for making up the remaining balance.
  • Income guarantees usually only run from one to three years.
  • If the physician exceeds more than the hospital has guaranteed them, the physician can keep the supplementary amount.
  • If the guarantee is not met by the physician, the physician owes the hospital the difference. However, most contract income guarantees include a forgiveness clause. A guarantee forgiveness clause signifies that the hospital is willing to ‘forgive’ the amount that a physician may owe if the guarantee is not met. This is offered when the physician agrees to remain with the employer. Through this, the physician is ensured to make a certain income over a contract period and the hospital is assured of keeping a physician.
  • If the physician refuses to stay, the physician must pay the balance from the income guarantee.
  • Restrictive Covenants/ Non-Competes
  • Restrictive covenants and non-compete clauses obligate to not working for competitors for a specific duration after leaving hospital employment so as not to take patients away from the original employer.
  • This agreement can entail a commitment to not practicing within a certain mile-radius of the employer for a certain number of years (generally two).
  • These clauses are not legal in all states and can vary per physician’s specialization. Legal Nature serves as a source for determining the laws of non-compete clauses in each state.
  • Hours/ Duties/ Call/ Vacation
  • Hours: It is important to be direct about how many hours the physician is expected to work.
  • Wording: “Full-time practice is defined as…”
  • Average: 40-60 hours per week
  • Duties: This portion of the contract should include the job description of the physician and a general specification of what will be required of them – procedures, administrative duties, and services.
  • Wording: “Employee’s duties and responsibilities include, but are not limited to…”
  • Average: given as assigned by employer (e.g. hospital rounds)
  • Call: The contract should clearly state the number of call hours required weekly from physicians, as well as state when the physicians are expected to arrive and leave.
  • Wording: “Employee shall have on-call responsibilities…”
  • Average: one week per month
  • Vacation: This is typically a contract negotiating point where specialized physicians will have a higher number of vacation days. This fluctuates based on the number of physicians in practice.
  • Wording: “Employee shall be entitled to the following paid leave each year…”
  • Average: 3-4 weeks paid vacation per year
  • Benefits
  • Offering a variety of benefits to physicians is attractive and can increase physician-retention. Health-insurance, disability, and malpractice are pertinent considerations during negotiation.
  • Group Contracts
  • Path to Partnership
  • The path to partnership should be clearly laid out in terms of the number of years it will take, as it informs the physician when they will reach “full practice” status