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Join Tod Stillson, a family physician and entrepreneur, as we explore the often-overlooked world of physician contracts. Discover the hidden menu of business-to-business contracts in the medical industry and learn how transitioning to self-employment as a micro-corporation can empower physicians with autonomy and financial security. Gain valuable insights into tax benefits, job stacking, and navigating the complexities of contract negotiations.

Tod Stillson is a family physician, entrepreneur, and Amazon best-selling author of Doctor Incorporated: Stop the Insanity of Traditional Employment and Preserve Your Professional Autonomy.

He discusses the KevinMD article, “The hidden menu of physician contracts.”

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast, get CME for this episode by clicking on the CME link in the show notes. Today we welcome back Tod Stillson. He’s a family physician and entrepreneur. Today’s KevinMD article is “The hidden menu of physician contracts.” Tod, welcome back to the show.

Tod Stillson: Hey Kevin, it’s great to be with you and to be with your audience again. I love sharing information and educating physicians about all the options they have in the marketplace.

Kevin Pho: So Tod’s been on multiple times. Go to KevinMD.com/podcast to hear his story and prior episodes. Today’s KevinMD article we’re going to talk about is “The hidden menu of physician contracts.” So for those who didn’t get a chance to read it, tell us what this one’s about.

Tod Stillson: Yeah, so Kevin, physicians as they enter the marketplace often believe they have basically a binary choice of either A, being an employee, or B, going into private practice. And the fact of the matter is that those who choose to go to work for a large employer, i.e. an employee, often think there’s just one sort of contract that exists that they can choose to work for a large employer.

And the fact of the matter is that there’s a whole hidden menu of options that exist for doctors when it comes to the types of contracts they can engage in that go far beyond the traditional employment contract. So today I want to kind of make our listeners aware that those exist and talk a little bit about that.

Kevin Pho: In general, the trend, as you know, has been going towards more and more physicians being employed by a large employer, it could be a hospital or medical institution, and fewer physicians owning their own private practice. Do you have a sense of what the numbers currently are in terms of the percentage of employed physicians in the United States today?

Tod Stillson: Yeah, so that percentage is growing, unfortunately. It’s nearly 70 percent, well, 60 to 70 percent of all physicians are working in some sort of employment agreement space, OK, not independent. And among the new graduates, more than 90 percent are choosing traditional employment as their initial job option. So it is a huge, huge number.

But the most alarming thing to me about that, Kevin, is, I see what’s happening in the marketplace, but I also see, and we all know this, right, the trend line that follows that exact same trend line is the trend line of burnout. And I know some of us are kind of tired talking about burnout, hearing about it, but 62 percent of all physicians actively working now exhibit some sign or symptom of burnout. That’s a horrible statistic.

It is just amazing to me how our tribe has allowed itself to be morally injured and placed in a position of compromise. And I think it’s directly linked to this movement, our trend lines to employment and loss of autonomy. So it’s kind of a big deal. And at the end of the day it has a lot to do with the fact that employers have placed themselves in a position of control over us, and we’ve lost some of our own control and autonomy in the process. And that’s part of my message today, is, you might be giving up far more than you need to if you knew that there are other options that exist.

Kevin Pho: Talk about how important that autonomy is, because running a private practice, as you know, that’s a lot of work as well, right? You’re running your own business. So why is it that loss of autonomy in employed settings, why does that tend to lead more to burnout versus, say, owning your own practice and working hard in that scenario?

Tod Stillson: Yeah, I think at the end of the day, again, it has to do with your sense of individual empowerment to make decisions and choices in your professional life. Whether it be how your hours are being micromanaged and how somebody’s defining how much work you’re doing, which drives us all crazy, or whether it be how the quality of your work is being defined by somebody’s opinion online as opposed to your own individual awareness of how you’re taking care of patients, all the way up to somebody in a C-suite who knows nothing about medicine, has no medical training, who’s trying to force on you some of their kind of business objectives that have nothing to do with what you do in medicine.

All of these things can be so incredibly frustrating day after day after day that it just sort of gets to be mind-numbing, and you lose touch with the patients in the process, and lose touch with kind of your purpose and meaning in what you’re doing, which ultimately erodes our sense of enjoyment or pleasure in what we do, i.e. it leads to burnout.

And so any way that we can make efforts to empower ourselves to have control of our professional and personal life is always going to have a positive effect on our well-being. I’m all for physician resilience, I’m all for mindfulness, I’m all for creating work-life balance, there’s so many options and opportunities for doing that. But the most fundamental part for any physician to be able to thrive has to do with them having control over their own professional life, and when they lose it, it gradually gets eroded.

Kevin Pho: And you’re finding that a lot of new physicians and early career physicians, they simply just aren’t aware of any other option other than being an employed physician. Is that correct?

Tod Stillson: Yeah, let me put it this way, Kevin. When you go through medical school, when you go through your training and residency and fellowship, who are the people training you? They’re employees of large corporations, OK. That’s what you see, that’s the model that exists. You’re not taught any business training through that entire vortex. You’re modeled, in terms of the people who are training you, to quote be a good doctor and act like them, is to be a good employee, not to be an independent physician.

You might be lucky enough to run across a private practice physician or a mentor or somebody who maybe shows you a different way, but the fact of the matter is we’re conditioned to become employees, because that’s who’s training us. Employees are training us to be employees. And so you really have to know that there’s another option out there that exists.

I want to kind of build an idea here for physicians when it comes to these hidden menus, and bring to light a couple things for you. Number one, I’m not totally opposed to traditional employment. I was a traditionally employed doctor for about 10 to 15 years, till I almost got burned out from it, and have been in an employment lite contract now for 10 years plus, which basically is a type of long-term independent contracting contract. Employment has a lot of good advantages to it and a lot of positives to it.

But bottom line is, traditional employment is an individual to business contract. You are signing up as an individual to go to work for another business.

There’s another model that exists that is a business to business contract. That’s when you form your own micro corporation and you contract your professional services to that company in a business to business contract. Now it’s a contract between two businesses, not you as an individual. When you do that, you are empowering yourself to have control over your professional life when it comes to how you interact with that business.

The third space that we also see growing in the US is back to the old model of business to individual, right? That’s the old private practice model, in which physicians would really engage with a group of individuals in a community who would sign up to see them and let them take care of them. But the nuance of that now is direct primary care and direct medical care. So some of those are fully taking out third parties from the equation, just directly contracting with individual patients.

And there’s this flourishing of this that has to do with two things. One is, patients are tired of third parties controlling medicine, but also doctors are tired of third parties controlling medicine. So the solution to put the two back together is take out the third parties and allow them to contract with each other.

But that sort of global idea of individual to business, business to business, or business to individual contracts, are important for us to conceptually understand that there’s more than one option.

Kevin Pho: So tell us the differences for the physician, or the benefits for the physician, if they’re contracting with an organization as a business versus as an individual.

Tod Stillson: Yeah, so there’s a lot of benefits. First of all, it allows you to have control over your autonomy, number one, as we’ve already talked about. You get to control your medical practice and control how you professionally interact with the patients, as well as that business that you’ve contracted with.

The other big benefit that you get is a tax minimization process, because W2 employees, especially as physicians, pay a lot of taxes. And this time of the year, when you’re filing your taxes, you’re coming to that realization that the average doctor pays $80,000 to $200,000 or more for their taxes each year. And a small business, micro business structure such as I’m talking about allows you to minimize your taxes.

The other thing that this provides is an opportunity for what we call job stacking. That means that you can add more than one source of professional income into your life, and do it quite easily through variations of either W2 or 1099 income. And with as many as 50 percent of doctors now having side jobs, that’s a very common experience for doctors. And so this sort of structuring yourself as a business provides the greatest flexibility for you to do job stacking, especially as medicine becomes more location independent and could be done a lot online and so on and so forth, so you can really do a lot of work even beyond your own geographic boundary.

And then the last element to it is, if you start out a relationship with a company, say another business that you’re working for, if you started out as a business to business relationship, it’s much easier for you to continue to navigate and negotiate and work through that and contract renewals than it is to start out as a W2 employee and then later try and convert to an independent contracting relationship with them.

That’s the problem I see with a lot of physicians that I talk with at SimpliMD. They start to recognize about years three to five, up to year seven, where they’re like, man, this is not a great deal, I’ve lost control of my professional life, I’m paying taxes like crazy, I’m restricted by professional covenants to do side work, I don’t like this, I want to do something different. And they reach out to me, and we kind of work through the process, but at the end of the day they end up having to go to their employer and say, would you be willing to change our contract relationship to that’s business to business?

And at that moment the employer really has all the power to be able to say yes or no. And oftentimes they say no, because guess what, they don’t want to give up control. So they know that they have control over you. So if you can organize this at the beginning of your entry into the marketplace, you have empowered yourself in the marketplace to be a business, not an individual.

Kevin Pho: What are some common misconceptions or hesitations physicians have towards negotiating as a business or transitioning to some type of self-employment model?

Tod Stillson: Well, first of all, they worry about having to manage a business, because they often mistake that a virtual micropractice is the same thing as a private practice, and it’s not. You do not have a medical office building necessarily, you don’t have employees that you have to manage other than yourself, you’re the only employee of the organization, you don’t have contracts to manage.

And so basically we’re talking about you working as a contractor in a business to business relationship. And it depends on the terms of that contract, but the most common business to business contract that I see in the marketplace is the employment lite contract or the locum tenens contract. So locum tenens is short-term independent contracting, employment lite is long-term independent contracting, but both of those allow you to off-put a lot of those management issues to the employer that you’re working for, and the only person you have to manage in your micro corporation is yourself.

So that’s one thing that physicians fear, the management responsibilities. Then they also fear just operating a business, and again, I remind physicians, and see this all the time, it’s easy to outsource to an accounting professional.

And then you do have to obtain your own benefits if you are independently employed as a self-employed contractor. So again, that’s one challenge that physicians will find, but again easily overcome. You just have to shift your mindset a little bit and try to personalize it. So those are really some of the more common barriers that I really think are more mindset barriers than they are actual real barriers for physicians doing this.

Kevin Pho: So for new physicians who don’t have that background in business, what are some techniques or ways they can uncover these hidden menus of contract options?

Tod Stillson: Yeah, I think it’s a long road to educate themselves about options and opportunities, OK. And so that’s why I’ve created SimpliMD as an online educational environment for small business for doctors. You’re not going to get an MBA from SimpliMD, quite honestly most doctors don’t need an MBA, they just need some functional, practical small business education about what their options are.

And so I encourage folks to sign up to be a subscriber for SimpliMD and get our blog posts, and begin to walk through that self-guided education process that physicians are really well known for, right? We are lifelong learners and self-guided learners. In fact, we love reading, we love picking up new things, and really growing our own professional development. And so this is just a professional development space for doctors to grow.

There are a host of other books online, there are a host of other resources out there that doctors can use. What I see, Kevin, in this space, is there’s a lot of growing resources for personal finances for doctors and wealth management for doctors, that is really great and powerful, that haven’t always been there, in their online products, OK. However, I don’t see a lot of the small business stuff, and so that’s why I developed SimpliMD, because it’s kind of an empty space, there’s not a lot of small business education going on for doctors. And so, join in and begin to learn and grow, bit by bit, piece by piece, and grow your understanding and empower yourself in the marketplace.

Kevin Pho: Can you give us a case study or scenario of a success story where an early career physician perhaps, or a new physician, would go into a negotiation for a contract and successfully uncover some of these hidden options, and perhaps he or she went with those? So tell us a success story.

Tod Stillson: Yeah, so I had a physician who was a family doctor who had engaged in his first contract as a W2 employee, again very common, three-year contract, a good practice, growing, and had been promised to be converted to a productivity model from a salary model, again very common, as you grow the practice.

And he became aware of the employment lite option that existed for physicians, as opposed to the traditional W2 employment. And so he approached his employer as his contract was coming up, to transition to employment lite from W2, continue to work for that employer, and all the same compensation structure would be in place, and just pay him as a 1099 rather than W2.

He worked for a company that was a large national health care corporation, and again, the response was, nope, we don’t do that, we are a cookie cutter sort of contract and you can take it or leave it, you can be W2 or see you later.

So the doctor wisely began to look for other options, because he knew that he wanted to maintain his professional autonomy, and he’d already in three years begun to feel the squeeze. So he reached out to a hospital that was smaller, close by, that was independent, about 30 minutes from his home, and began to engage with them in a contract relationship. And lo and behold, they offered him an employment lite contract and allowed him to open his own micro corporation and engage in that employment lite contract.

As part of the negotiation process, again using professional resources beyond himself, including our team at SimpliMD and our legal team, basically negotiated a contract that led to about a $70,000 raise compared to what he had been getting as a W2, in addition to the estimated $50,000 in taxes he was going to save by going through the small business experience. And that estimated $50,000 in taxes was based on a real analysis of what that would look like in an as-if model with his tax statements.

And so the swing for him, $120,000, OK, $70,000 more in income, $50,000 in tax savings. But even more profoundly than the wealth benefit and the income benefit for him was that he maintained and grabbed control of his own professional life, and has already begun to think about what that looks like and how he wants that to look in two or three years. That includes the potential for transitioning to a direct primary care practice later, because now he’s empowered as a businessman.

And also it empowered him to follow through with his own long-standing passion for being a pilot. He’s a pilot and has an airplane, and so he’s going to pursue interests in aviation medicine as well. But all that’s empowered by having the mentality of being a business person as opposed to simply being an employee. So there’s a positive story for you, that exists for a lot of physicians just like that.

Kevin Pho: From your experience in general, how do employers feel about these employment lite contracts?

Tod Stillson: So first of all, they look at them with a little bit of suspicion, because they’re afraid that doctors who are asking for a little more independence are eventually going to leave the structure of their highly aligned employment processes.

But again, it’s all about approaching an employer with the idea of, let’s have a win-win relationship. It is possible to still have high alignment, but yet you get to maintain some of your professional autonomy as well as some of the tax benefits of being a small business person. They can gain all that they want, which is high alignment and throughput of all of your downstream revenue that goes through them still, as a sort of 1099 long-term contractor.

So it’s possible to see it in that way, but when you approach them you have to first of all disable that sort of, like, why do you want to do it, what’s your motive for doing this. It’s not to escape them, it’s to actually align in a way.

Kevin Pho: We’re talking to Tod Stillson. He’s a family physician and entrepreneur. Today’s KevinMD article is “The hidden menu of physician contracts.” Tod, as always, we’ll end with some of your take-home messages to the KevinMD audience.

Tod Stillson: Yeah, so the take-home message for all our doctors out there is, you are a part of the labor force in the health care marketplace, and if you enter it passively, you’re going to let large organizations define what type of contracts you’re going to be offered.

However, if you look at the marketplace as you are actively entering the marketplace and empowering yourself to preserve your professional autonomy and to maximize your income benefits, you will enter it as a micro business and control what happens to you in the marketplace.

I’m all about physician empowerment, so I encourage you to actively think through how you want to be looked at in the marketplace. Consider a virtual micro corporation as the veil that surrounds you, and then engage in the marketplace and all the various contractual options that exist out there, before you just follow the herd and by default do what you’re conditioned and learned and taught to do, to join up as a traditional employee. It’s a good gig, but in the long run it’s not a great gig.

Kevin Pho: Tod, as always, thank you so much for sharing your perspective and insight, and thanks again for coming back on the show.