[FPMD: this guest post is provided by Colin Nabity of LeverageRx, a comparison site and online financial help desk for doctors, dentists and other medical professionals. Full disclaimer: LeverageRx is a sponsor of Future Proof, MD]
According to the American Medical Group Association’s (AMGA) Physician Retention Survey, almost a third of all new physicians will switch employers within their first three years of practice. Many factors play into why physicians may leave an employer, but regardless of reason, it’s important to understand potential consequences of terminating an employment agreement as it can become extremely expensive. There are multiple factors to consider if you find yourself wanting to find a different employer.
1. Tail Coverage
Who is picking up your tail coverage? Some agreements require the employer to purchase extended liability coverage, or tail coverage, for a period after termination of a physician’s employment. It is important to understand the two main types of malpractice insurance: claims-made and occurrence-based insurance. Claims-made insurance covers you only if the claim is filed while you are still with the employer. Occurrence-based insurance covers you even if a claim is filed after you leave the employer. Tail coverage is needed only for claims-made coverage, to cover you for claims that are filed after you leave the employer.
Other agreements will require that you (the employee) obtain and pay for tail coverage in the event that your agreement is terminated. If your employer does not cover your tail insurance in termination, it is important to purchase your own supplemental insurance policy. This can get extremely expensive. Premiums for tail insurance coverage are generally 150-300% of the most recent policy premium. Tail coverage is expensive because it protects future claims that may not appear for several years. It can cost in excess of $100,000 for physicians in high-risk specialties.
2. Signing Bonuses, Relocation Reimbursement & Student Loan Assistance
Did you receive a signing bonus? In the event you terminate your agreement early, you may be required to pay back an amount of any reimbursements for moving expenses and signing bonuses. It is common to be on the hook for an amount equal to the fraction of the term that remains incomplete multiplied by the total of the moving expenses and signing bonus. For example, if you have fulfilled 2 years out of a 3-year contract and received a $20,000 bonus and $10,000 in relocation reimbursement ($30,000 total), you may be on the hook for $10,000 payable to your employer.
If termination occurs toward the end of the contract term, you should only repay a small percentage, or prorated portion of the benefit, not the entire amount. Repayment typically occurs only if termination is your “fault” - for example, you terminate without cause or the employer terminates with cause. The more prematurely a physician leaves the contract, the higher the prorated repayment of signing bonus can be.
It is also popular for employers to provide assistance with student loan payments as an incentive or benefit. This could be a monthly set rate or a percentage of the outstanding balance paid remaining on the student loan paid annually. You can find yourself in the same position as with signing bonuses and relocation assistance. Make sure that you aren’t required to repay any student loan payment assistance before you end your contract.
Do you love the city you are in but not fond of your employer? If so, it’s incredibly important to understand your non-compete clause. Non-compete clauses can be one of the most important, and least understood aspects of an employment agreement. These clauses seek to prohibit the physician from practicing medicine following termination for a specific time and geographical scope. A typical duration is 1-2 years, and the geographical scope can vary from rural to urban settings. Also watch for what your geographical scope is tied to – if your employer owns and operates multiple locations throughout your city, you may be forced out of those areas as well. This is a critical issue and legal counsel should be sought to fully understand the ramifications of any non-competition clause in your Agreement.
In closing, it’s extremely important to fully understand the ramifications of terminating your employment agreement early. Sometimes the costs that will be incurred may be worse than finishing out the term of your contract. Working with an attorney that specializes in employment contracts before you sign can help alleviate potential future headaches and negotiate provisions that will give you more flexibility in your employment contract.
This post was contributed by Colin Nabity of LeverageRx, a comparison site and online financial help desk for doctors, dentists and other medical professionals. To get free financial and legal advice or to compare products and services for medical professionals, visit LeverageRx.com.
Full disclaimer: LeverageRx is a paid sponsor of Future Proof, MD.