7-minute read • For residents and fellows signing their first contract
Imagine this scenario. It plays out for physicians more often than you’d think.
A hospitalist signs what looks like a great offer: $310,000 base, $40,000 signing bonus, two-year commitment. Three weeks in, life happens. A family situation, a spouse’s job change, anything. She needs to leave.
What does that exit actually cost her?
Roughly $187,000.
Prorated signing bonus repayment. Full relocation clawback. CME repayment. And a tail coverage bill she didn’t know she owed.
Every dollar of it is in a contract like the one she signed. None of it is in the offer letter she got excited about.
And this isn’t a worst-case outlier. It’s the kind of math that surprises good physicians constantly. People who reviewed their contracts the way most physicians do: quickly, on a Tuesday night, between charting and a kid’s bedtime.
Here’s the part nobody tells you in residency: the difference between a good contract and a bad one isn’t usually the base salary. The base salary is the part everyone obsesses over. The money is in everything around the base salary itself. The bonus formula, the tail, the non-compete, the repayment terms. That’s where six figures live.
Below are five of the most expensive places that money hides. (I cover all ten in my upcoming webinar. Link at the bottom.)
1. The word “discretionary”
Open your contract right now and search for the word discretionary.
If it appears anywhere near your bonus section, your bonus isn’t guaranteed. It’s a tip.
I see this constantly: “Physician shall be eligible for a discretionary bonus of up to $X.” The phrase reads like a benefit. It functions like a maybe. The employer has full control over whether you ever see that money, and I worked really hard is not a legal argument that compels payment of a discretionary bonus.
The same goes for these cousins:
- “As determined by the Compensation Committee”
- “Employer may modify the bonus methodology in its sole discretion”
- “Subject to achievement of quality benchmarks established by…”
If your bonus depends on a number someone else gets to define and change, your bonus is whatever they decide it is.
2. The non-compete circle nobody draws
Find the non-compete clause in your contract. Find the mileage number: the radius.
Now open Google Maps. Drop a pin on every location where you’d be working. (Watch for “any location at which Physician practiced.” That can mean five hospitals, not one.) Draw the circle.
Physicians are stunned by what they see.
A 10-mile radius in Chicago covers the entire North Side, the West Loop, and parts of Evanston. A 15-mile radius in Manhattan covers your borough plus parts of New Jersey. A 25-mile radius in rural Iowa is two counties of farmland: annoying, but you can drive past it.
The real question isn’t whether you’d stay at this job for the full term. The real question is: if this job doesn’t work out in two years, am I willing to uproot my family to take my next job?
Because that’s what you’re signing.
And no, don’t sign one assuming “non-competes aren’t enforceable against doctors.” That’s Reddit folklore. Enforceability varies dramatically by state, and properly drafted clauses are enforced against physicians all the time. Sign one you can live with.
3. The tail coverage trap
This is the one that makes physicians most upset when they find out about it three weeks before leaving a job.
Most physician malpractice policies are claims-made. They only cover claims that get reported while the policy is active. Leave the employer and a patient sues you a year later for something that happened during your employment? Your old policy doesn’t cover you anymore.
To stay covered, you need a tail, an extended reporting endorsement. And tails are expensive. Typically one to two times your annual premium. For procedural specialties, I’ve seen tails run $50,000 to over $100,000.
The only question that matters in this clause: Who pays for it?
There are four versions of this answer in physician contracts:
- Employer pays. (Best case.)
- Physician pays. (Worst case.)
- Shared, sometimes based on who terminated.
- The contract is silent. This is the trap: silent usually means the physician pays, because the employer’s policy ends with employment.
Some recruiters will tell you “oh, don’t worry about tail.” Verbally. Get it in writing. Verbal does not pay your $80,000 tail.
Search your contract for tail, extended reporting, or claims-made. If those words don’t appear at all, get a lawyer.
4. The “without cause” asymmetry
Every contract has two flavors of termination. With cause means you did something wrong. Without cause means nobody did anything wrong, somebody just wants out.
The “without cause” clause is the one that matters. Look at the notice period on both sides.
I see contracts all the time where the employer can let you go in 60 days, but you have to give them 180 days. That’s not fair on both sides. That’s six months where you can’t take another offer because you’re stuck giving notice.
Then look for:
- Cure period language. Do you get to fix problems before being fired with cause?
- What survives termination. The non-compete and tail obligations usually survive. That’s normal. But know it.
- Whether you can take a new offer during your notice period. Sometimes you can’t.
The question to ask: If they decide tomorrow they don’t want me, how fast does my paycheck disappear?
5. The clawback you didn’t read
Everything an employer gives you up front has strings. Signing bonus. Relocation reimbursement. CME advances. Student loan assistance. The strings are repayment provisions. Leave early and you owe some or all of it back.
Three things to negotiate here:
The prorating. If you sign a two-year deal with a $40K bonus, leaving at month 18 should mean owing 25% back. Watch for “full repayment if Physician separates within the term.” That’s cliff-vesting on a clawback. It’s brutal.
What counts as a triggering event. If the employer terminates you without cause, do you still owe the money back? In a fair contract, no. Push back on that.
Student loan assistance. Increasingly common. Read it carefully. Some require you to stay 5+ years for full forgiveness. Leave at year four, you owe the whole thing, sometimes with interest.
Consider how brutal cliff-vesting can be: a physician leaves at month 23 of a 24-month signing bonus commitment, one month from the finish line. The contract says “full repayment if separation occurs prior to 24-month anniversary.” Every dollar gets clawed back.
With prorating negotiated on the front end, the same exit might cost $1,667. Without it, the full $40,000.
The mistake that costs the most
Here’s something I genuinely don’t understand.
Physicians will hire an accountant for their taxes. A financial advisor for their investments. A realtor for their house. A wedding planner for one day of their life.
And then they’ll sign a five-year employment contract worth two to four million dollars in compensation, after twenty minutes with a PDF in the call room.
The cost of a contract review by an attorney who actually does this work is typically $800 to $3,000, a flat fee. The cost of one bad clause is $20,000 to $200,000+.
The math isn’t close. The math has never been close.
The only reason physicians skip review is because nobody told them they were allowed to ask for one. The recruiter sure isn’t going to suggest it.
So consider this your permission slip.
The other five mistakes, and what to do about them
The five above are a starting point. The full list, which includes the RVU traps, the call provisions disguised as “reasonable,” the negotiation hierarchy that tells you what almost always moves vs. what doesn’t, and the seven specific phrases to search for in your contract tonight, is what I cover in my 60-minute webinar for residents and fellows.
If you’re within 12 months of signing your first contract, this hour will save you more money than it costs you. By a lot.
| Reserve Your Seat • $FREE Live Webinar A focused 60-minute webinar for doctors entering into a new employment agreement. The 10 Physician Contract Mistakes That Can Cost You Hundreds of Thousands 60-minute live webinar + 15 minutes of Q&A Includes recording, the 7 Red-Flag Phrases reference sheet. Register at: JUNE 9 WEBINAR – REGISTER NOW |
You spent a decade learning medicine. Spend an hour learning the contract that gets paid for it.
John McCormick is an attorney with 15+ years of experience reviewing physician employment contracts. He represents physicians directly, not health systems. This article is educational and is not legal advice. Every agreement is different.