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Join us for an insightful podcast episode featuring Dennis Hursh, a veteran attorney with over 40 years of experience in health law. Discover the importance of letters of intent in physician contracts, their purpose, and the legal implications involved. Gain valuable advice on negotiating agreements and when to involve an attorney. Don’t miss this essential episode for physicians navigating employment contracts.
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.
He shares his story and discusses his KevinMD article, “The dos and don’ts of physician employment contracts: Understanding the role of letters of intent in negotiations.”
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Transcript
Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast, and get CME for this episode by clicking on the CME link in the show notes. Today we welcome back our regular guest, Dennis Hursh. He’s a veteran attorney, and you can find him at Physician Agreements Health Law. Today we’re going to talk about letters of intent. His KevinMD article is titled “The dos and don’ts of physician employment contracts: Understanding the role of letters of intent in negotiations.” Dennis, how are you doing?
Dennis Hursh: I’m doing great, thanks.
Kevin Pho: So today, like I said, you’re a regular guest, with very valuable contributions to an area that a lot of physicians simply just don’t know enough about: contract negotiations. So today we’re going to talk about letters of intent. Tell me exactly what that is from a physician context.
Dennis Hursh: Well, sometimes it’s also called a term sheet, but basically a letter of intent is designed to make sure that the two parties are kind of on the same page. You know, let’s not develop a 30-page contract, an employment agreement in particular, if the employer thinks they’re going to pay you $200,000 and you think you should get $350,000. We probably don’t need to get the attorneys involved. We’re not going to close that gap. So it’s basically a way of making sure we’re on the same page. Before we move forward and maybe pay for attorneys, let’s make sure there’s some possibility this thing’s going to come about.
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Kevin Pho: So where in the relationship would a letter of intent come into play? Is it after a couple of conversations, when the employer shows interest in that position? When would you expect a letter of intent?
Dennis Hursh: After the interview. So at this point they’ve interviewed you, and they’ve decided they want you. It’s the first step in getting an employment agreement with you. So at this point, as I said, they’ve decided that they want to hire you.
Kevin Pho: And what are some typical things that this letter of intent would contain?
Dennis Hursh: Well, the thing that almost always is in there is salary, because that’s one of the biggest things that we’re likely to get tied up on. From there, it depends. I’ve seen some that are very involved. Some will say, “We have a restrictive covenant,” period, but some will have the restrictive covenant from the contract included in there. A lot of times they’ll say, “This is the vacation you get, this is the CME you’ll get,” and some of the really major aspects. It’s not going to have a lot of details. A lot of times it won’t address call at all, but it will be, “These are the general parameters. This is kind of what it would look like.” And I think the expected response is, “Yeah, I think once I see the contract, I could agree to that.”
Kevin Pho: All right, so if a prospective physician is interested, there’s mutual interest in that position, and he or she gets that letter of intent, what’s the next step?
Dennis Hursh: Well, the biggest thing is to realize what the intent is. A lot of physicians get tripped up because letters of intent are never legally binding. In other words, you can’t go back and say, “I signed a letter of intent with you, employer, so even though the credentialing came back bad or whatever, you have to hire me.” So there’s always language in there that says this is not legally binding, and that’s fine, but that trips up a lot of physicians. A lot of physicians look at it and say, “Oh, this is just meaningless paperwork. I’ll sign it, and then we’ll negotiate the contract.” And the problem is, as far as that employer is concerned, you’ve pretty much agreed to what’s in that letter of intent. So even though it’s not legally binding, they don’t want you coming back and saying, “I signed a letter of intent that said $200,000 a year, but I want $350,000 a year for salary,” for instance. They’re going to think you’re not negotiating in good faith.
Kevin Pho: So an employer presents a physician with a letter of intent. That’s really the time to negotiate what’s in that letter of intent. Is that correct?
Dennis Hursh: Yes. Don’t treat it as a meaningless document. If you’re not sure about the salary, try and put some parameters around it. You know, again, I’m biased because I do these things for a living, but I think an attorney should be involved at the letter-of-intent stage. I’ve had a lot of times where I’ve been presented with a letter of intent: “I signed this, and now here’s the contract.” And I’ll come in and say, “Hey, the compensation’s below MGMA median,” and the response is, “Well, the physician’s agreed to that, so we don’t want to talk about salary.” So it is important that if you’re not totally comfortable with it, don’t sign it in the letter of intent.
Kevin Pho: So other than the salary, when you receive a letter of intent, what are the key points that need to be negotiated at this stage?
Dennis Hursh: Well, I usually don’t negotiate things that aren’t in it. So if it doesn’t address call, I’m not going to say, “Hey, we need to talk about call.” If it doesn’t address vacation, I won’t talk about vacation. But for example, if it has a restrictive covenant and it’s not reasonable, that’s the time to bring that up and say, “Hey, I think it should be a reduced area, reduced time, or whatever. Let’s talk about where the radiuses are drawn.”
And the only thing I usually address that isn’t in the contract is if there’s something that should be in there. So for instance, if it’s silent on a signing bonus, that’s something I’m going to bring up. If it’s silent on a relocation allowance, that’s something I’m going to bring up. You know, don’t just say salary. I assume that if the letter of intent does not include a signing bonus, they’re not intending to pay you a signing bonus. So those are the things I bring up.
Kevin Pho: So once you have that negotiation and that letter of intent is modified to each party’s mutual satisfaction, what is normally the next step after that? Does a contract follow after that?
Dennis Hursh: It depends. Sometimes you don’t even sign a letter of intent. Sometimes, you know, we’ll come back and say, “Well, you’re proposing this salary. Here’s the MGMA median,” and they’ll come back and say, “OK, well, we’ll draft the contract.” So sometimes you don’t even sign the letter of intent. Some people will just keep firing off letters of intent until you sign that, before they generate a contract. So it kind of depends. To me, it would make sense, and I think the most efficient way is for them to just say, “Yeah, OK, we can give you these first two points. Yeah, we have a signing bonus. Here it is. We’ll prepare a contract.” You know, we’re close enough.
Kevin Pho: And how common are letters of intent? Is this typical of most employers, or do some of them go straight to a contract? Approximately what proportion of employers offer letters of intent first?
Dennis Hursh: It’s probably less than 20 percent. Many do say, “Hey, we want to hire you. Here’s our contract.” So it certainly isn’t something you should be concerned about if you don’t get one, but it’s common enough that I think physicians should be aware of it.
Kevin Pho: So tell me some horror stories. You’ve gone through so many of these. You alluded to one earlier, about how a physician signed a letter of intent but wants to change it afterwards. Tell us some horror stories about what we should not do.
Dennis Hursh: Well, again, don’t sign it if you’re not comfortable with it. That is the classic one, and it doesn’t just happen with salary. I’ve had it with restrictive covenants as well, and I’ve also had it where I’ve come in and it was silent on a signing bonus. I’d say, “Hey, the median signing bonus is $30,000,” and the answer comes back, “No, the physician’s agreed. This is what she’s being compensated.” So I think the biggest thing to be concerned about is if it isn’t in there and it should be, you’ve got to raise that as an issue, or if there’s something in there you don’t like, you’ve got to raise that as an issue before you sign it.
Kevin Pho: Any specific issues as it relates to, say, outpatient versus inpatient practice, or generalist versus specialist practice?
Dennis Hursh: I haven’t seen too much of that, no, because there’s a great variance in the letters of intent. I’ve literally seen a letter of intent, I don’t even know why they bothered, that said, “We’re going to send you an employment agreement to work for us,” and that was it. I mean, there was certainly nothing objectionable in that. And I’ve also seen five pages that talk about, here’s the compensation system, here’s our leave, here’s CME, here’s our restrictive covenant. So there’s really a huge variety in what you’re going to get.
Kevin Pho: Correct me if I’m wrong, I’ve heard of some cases where employers simply use a letter of intent in place of a contract, where the letter of intent itself is a contract. Have you heard of that before?
Dennis Hursh: Yeah, I think we’re talking terminology. With academics in particular, I’ve seen two-and-a-half-page letters for an academic position, and that was the contract. So, you know, I guess I’m nitpicking, but from a lawyer’s perspective, there’s a letter agreement versus a letter of intent, and a letter agreement is as it sounds: Once you sign this letter, we have an agreement. Yeah, I’ve had that a lot with academic contracts. People sent me the letter they signed and said, “I’m waiting for the contract, and you negotiate it when it comes.” The answer is no. You signed it; you have a contract.
Kevin Pho: So how would a physician know whether what they’re signing is legally binding or not? Because you mentioned a letter of intent is not necessarily legally binding, but some may act as a contract. So how can you tell the difference?
Dennis Hursh: A lot of times there’ll be language in it. A letter of intent almost always will say something to the effect that this is not legally binding, whereas a letter agreement usually has terms like “we are in agreement that.” A letter of intent is usually very, very open: “We would pay you this much. We would have this much leave. You would have this much CME.” Whereas if it says, “We agree that your salary is this,” that’s an indication it’s a letter agreement. But they usually do identify themselves. They don’t usually try and slip it in.
Kevin Pho: I asked you for some horror stories earlier. Tell us some success stories, some successful negotiations where physicians successfully included some things that weren’t initially included or negotiated better terms from the initial letter of intent.
Dennis Hursh: What happens a lot is they’ll offer a salary, and we’ll come back and say, “Hey, the MGMA median for a starting position is this much,” and they’ll raise it. A lot of times the letter of intent won’t say there’s a signing bonus, and they’ll add that, and I’m pretty sure that they would not have added that were it not for us negotiating. So anytime you can get something added, I think that’s definitely a plus. And my presumption is they’re going to tell you everything important about money. So if they didn’t mention a signing bonus, it’s not that, “Oh, we give everybody $30,000.” That’s probably not the way it works.
I’ve also had some success in reducing restrictive covenants, these crazy 30-mile restrictive covenants. We’ve gotten reasonable restrictive covenants, and we’ve gotten them drafted so that they were only around where the physician was working, not every location that the employer had. So yeah, a lot of times they are open to negotiations. It depends on the entity. In particular, private practices don’t have access to benchmarks. A lot of times they’ll talk to people they went to med school with and say, “Hey, have you hired anybody? What did you pay them?” So a lot of times they are very open to saying, “Oh, that’s below benchmarks,” or, “Oh, people are paying signing bonuses.” And here’s a benchmark, not just, “We’d like $30,000.” It’s very different to say, “The median signing bonus for a starting position is $30,000 in this specialty.”
Kevin Pho: You mentioned earlier that the letter-of-intent stage would be a good time to involve an attorney, but let’s say a physician wants to do it themselves and negotiate on their own behalf. What are some tactics and techniques and things that they should do when they want to do that but not necessarily involve an attorney at that point?
Dennis Hursh: Well, I think, again, just don’t put too much faith in this statement that this is not legally binding. If it’s in there and you think you’re entitled to more compensation, now’s the time to bring it up. You really don’t sign it and then say, “Hey, by the way, the compensation’s light. I found out. I looked around.” So make sure that you’ve educated yourself on what you want out of the contract, and make sure it’s in there. Again, the major things should be compensation, and that includes signing bonus and relocation allowance. Don’t assume, “Oh, they’ll pay my relocation. Everybody does.”
Kevin Pho: Now take us into that negotiating room, per se. So let’s say a physician wants to negotiate compensation. What are some phrases, what are some ways that they can approach their employer to ask for that? Is this something that they’re going to respond to in writing, or do you simply ask? What are some phrases they should use?
Dennis Hursh: Oh, I think, “I’m concerned about this provision. I’m concerned that there doesn’t appear to be a signing bonus.” I would never, you know, go at them and say, “Why aren’t you paying me a signing bonus?” because then they’re going to respond with why there’s no signing bonus. So I think just saying, “I’m concerned there doesn’t appear to be a signing bonus,” gives them the option, without looking like we’re negotiating, to say, “Oh, yeah, well, we were going to pay a signing bonus of this.” And, “There doesn’t appear to be a relocation allowance.” In an institution, a lot of times they’ll say, “We have a policy. Here’s the policy,” and then you can look at it and see if there’s any flexibility there.
But I usually use the terms “I’m concerned” rather than a kind of accusatory “You are not paying this” or “You are not doing that,” because that tends to dig them in. If you just indicate maybe it’s my problem, “I don’t see where there’s a signing bonus here,” I think it makes for smoother negotiations.
Kevin Pho: Do you find that a majority of physicians don’t involve an attorney at this point?
Dennis Hursh: I find a lot of them don’t. Yeah, I’ve had that statement, “The physician has agreed,” told to me more times than I’d care to remember. Usually, well, I don’t say usually, but frequently I can get them to agree when I say, “Well, look, the physician didn’t have MGMA data, and, you know, the physician just wants to be paid what’s fair. That’s all. And I have the MGMA data. Here’s the data. The physician would like to be paid what’s fair. You know, the number looked reasonable to her when she saw it, but now she has the data, and again, we just want what’s fair.”
Kevin Pho: We’re talking to Dennis Hursh, a longtime guest on The Podcast by KevinMD. He is a veteran attorney with over 40 years of experience in health law. You can reach him at Physician Agreements Health Law. Google that and he’ll come up. We’re talking about letters of intent in physician contract negotiation. Dennis, tell us some of your take-home messages that you want to leave with the KevinMD audience.
Dennis Hursh: The number one big one is to treat the letter of intent as a very serious document. Don’t look at the language that says it’s not legally binding and feel that it is not going to put obligations on you. So when you see a letter of intent, assume that everything that’s in that letter of intent is going to be in your contract, and if you’re not comfortable with that, go back and try and get it changed.
Kevin Pho: Dennis, thanks again for coming on the show and sharing your valuable time and insight.
Dennis Hursh: It’s my pleasure.
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