A letter of intent (sometimes called a “term sheet”) can be useful for physicians and those who recruit them. The purpose of letters of intent in physician contracts is simply to ensure that both parties are “on the same page” as far as the major terms of the agreement they hope to enter. For example, if you expect to be paid $300,000 a year, but the employer is expecting to pay $200,000 a year, there may not be any value in continuing negotiations.
Since the purpose of letters of intent in physician contracts is to determine if further negotiations are in order, the terms in the document are generally not legally binding. However, certain provisions of a letter of intent are legally binding. Specifically, the document may provide that each party is responsible for its own attorney’s fees, and that the negotiations will remain confidential.
These provisions generally are legally binding (even if you do not sign a definitive agreement, you are still bound to pay your attorney’s fees and keep the terms of the negotiations confidential).
Remember that the purpose of a letter of intent is to make sure that you and your potential employer are on the same page with respect to the major terms of the employment agreement you hope to finalize. Although there will be countless terms and conditions of the final agreement that will be negotiated, you should assume that anything you agree to in a letter of intent is “off the table.”
Accordingly, your potential employer may be seriously ticked off (sorry for the legal jargon) if you sign a letter of intent that sets forth a specific salary and then attempt to negotiate a higher salary later.
A letter of intent is a good way of starting off negotiations for your physician employment agreement. The employer will generally emphasize that the letter of intent is not legally binding. That is true, but don’t treat the letter of intent as meaningless. Suppose there is something you are uncomfortable with (for example, the salary offered). In that case, you can attempt to retain flexibility for further negotiations by asking that the hard number be replaced with a phrase such as “an annual salary of approximately $X, to be determined in the definitive physician employment agreement.”
I’m frequently asked if a lawyer should be involved in negotiations’ letter of intent stage. The classic lawyer responds to any question: “It depends.” A physician may not need an attorney before the first draft of the actual employment agreement is tendered as long as the employer isn’t led to believe that a specific term has been accepted.
However, it would be prudent to have a competent physicians’ attorney review a letter of intent before signing it if all of the provisions aren’t completely clear. If you are uncertain about the fairness of the compensation offered, obtaining an MGMA compensation analysis would be prudent before executing a letter of intent. I may be a bit biased (since I make my living doing this stuff), but I think it is a good idea to err on the side of caution to make sure you aren’t inadvertently “agreeing” to something you don’t want in the final agreement.
Dennis Hursh is a veteran attorney with over 40 years of experience in health law. He is founder, Physician Agreements Health Law, which offers a fixed fee review of physician employment agreements to protect physicians in one of the biggest transactions of their careers. He can also be reached on Facebook and LinkedIn.
