A Hundred Grand Lost On an Employment Contract

We all had to sign an employment contract before starting work. My first physician employee, I had a very brief two page agreement between us. Luckily, this first employee turned out to be amazing and it did not end up coming back to haunt me so far. I’ve unfortunately had the exact opposite experience with my second physician employee.

For my second physician employment contract, I hired a lawyer. I wanted to make the agreement as formal as possible. However, even getting a lawyer to write up the agreement, I still left myself open to lots of loopholes by someone who borderline took advantage of my kindness.

By the time everything was said and done, I was out about $100,000 in salary plus overhead below what this person brought in for collections.

Here is what went wrong.

Deciding On Payment Structure

I decided to take the risk off my shoulders and put some of that risk on my employee. At least so I thought.

I made a deal with this physician employee #2. I would take 40% of collections for overhead and another 5% beyond this for my profit. Sounded pretty good to me at the time since my overhead was somewhere around 30% and as low as 25% some months. I thought it would leave me wiggle room for increased expenses as they would need their own monthly support in various financial ways.

The other payment structure that this physician was interested in was flat salary plus an incentive bonus. Since I did not have a lot of money coming in to support this at the time, I decided against the flat salary of around $10,000 a month with incentive bonuses on top of this.

Benefits To No Flat Salary

It turns out that the benefit to not paying a flat salary for employment agreements are as follows.

1. Even if the doctor does not work at all, my potential financial losses are limited.
2. When getting a bank loan, not having a recurring guaranteed payment to a physician significantly improved my balance sheet in the eyes of the bank.
3. I theorized that this would put more money in the physician’s pocket and take some of the risk of my plate. This can work if the physician employee works regular, full-time hours.

What Went Wrong

In the middle of the pandemic, there were numerous opportunities for locums shifts to be done at quite a high rate of pay.

It turns out that physician employee #2 was taking days off and saying that they were spending time with family, only to in reality be taking shifts doing locums making even more money than they would in clinic.

I had a stipulation that this physician employee would have to get work “okayed” by me before doing the work. This physician employee #2 sent me an email asking if he could pick up some locum shifts on his time off and I said sure, as long as it does not interfere with your clinic duties when you are in clinic.

Well, taking “personal” time off to go work locums did not technically interfere with clinic work since they were taking time off for personal reasons.

Some Of The Loss Is On Me

Let me just take a break for a second since I’m telling you one side of the story. I am also so far putting 100% of the blame on physician employee #2. That is not completely fair to that individual.

During the pandemic, most medical practices had a decrease in patient volume. My practice was no different. Some of the loss did come from this drop in expected patient volume at the start of the pandemic.

I would like to take a moment to say that it is not 100% fair to blame the previous physician employee. I did my best to fill their schedule, but there were days where they were not 100% full.

No one could predict a pandemic, and I didn’t predict one in my financial projections. That is part of the reason why I lost so much money.

Okay. back to the article…

Still Paying Overhead

This physician employee took 6 weeks off in the first 6 months of 2021.

That means that they did not work 25% of the workweeks in 2021! That is on top of the regular holidays. It is also on top of the week we were closed due to a snowstorm. I estimate that this physician worked about 67% of a full-time schedule.

Meanwhile, I still had to pay overhead. This overhead for the doctor included:

• Malpractice Insurance ~$800/month
• Medical assistant ~$3,000/month (including all benefits)
• EMR ~ $150/month
• Billing Platform $330 / month
• Phone $40/month
• HIPAA Email / secure texting $50/month
• Dictation software $100/month
• Health Insurance ~$800/month
• Vision/Dental $60/month
• Their share of rent $3,000

Total = $8,300 /month

So while this doctor was out making more money doing locums, I still had to pay the overhead of almost $10,000 a month when you added up other small things that would come up that we would split overhead with the physicians.

My Employment Contract Did Not Account For A Full Time Physician Working Part Time

In my estimated overhead financial plans, I did not account for a physician who I was hiring as full time essentially working a 67% schedule. Of course, this would be a huge problem for paying the doctor and calculating profit.

Most full time jobs will have you “full time” at 80% of a 40 hour workweek.

Since my assumptions were wrong, in some months, I was losing over $10,000 per month by employing this physician. A big financial oops.

I had no safeguards in my contract that if they were to drop below certain status, that the contract would need to be re-negotiated or a different pay structure would be valid.

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Out Of Network

Since the physician employee was doing locums, other groups were trying to credential them to receive payment. Many insurance companies will kick you out of network with your previous group when you start the credentialing process with a new group.

Every time they tried to get credentialed, it seemed that at least one of the insurance companies tried to kick him out of their network in our clinic.

This meant that I had to have my biller and credentialing team spend many hours trying to get him back in network with these plans. Getting kicked out of a network meant delayed payments, upset patients, and lots of headaches.

It is hard to quantify the exact financial loss of time spent on this headache. I would estimate 100 hours worth of work for my group.

Protecting Myself Going Forward

My contracts all now have a contingency plan. I previously assumed everyone I hired full-time would want to work full-time. Since I had no paid time off for the physician employee, I figured they would want to work as much as possible to make as much money as possible.

I could not pay as much as some desperate hospitals who were dealing with COVID-19 surge who were willing to pay him as a locum to come work there. That really screwed me in the end.

I need a team player. It is a bit hard for me to be mad at this physician. He saw an opportunity in his contract, and he took it upon himself to take advantage of it to make as much money as possible for himself. After all, it is just business.

Now, my contracts all have stipulations about time off, what happens if they no longer meet full-time criteria, and plans for sharing overhead should someone take more time off than planned.

I also do not provide any blanket statements anymore and better phrase my words when giving the okay for work outside of the office.

Not Willing To Throw Good Money At Bad

You might be asking yourself, well, why don’t I try to legally enforce the contract about getting outside work “okayed” by me which he didn’t really do?

Technically, he has an email from me with a broad stroke of me saying that if he is off from work and it’s not interfering with his job when he is in the office, I don’t care. Huge mistake making a general statement of “okay” on my part.

Technically, one might interpret that email as I only care if he does some other job while physically in the office. Since he was not in the clinic and took the time off, only for me to find out later he was doing locums, this is a huge gray area. There is nothing in the contract about maximum amount of time off allowed to be taken.

I’d personally rather move on instead of trying to get into some legal argument about the gray zone here.

My Worst Financial Loss To Date

By the time I calculate overhead into the equation, I’m about $100,000 down from collections minus payments to the doctor + overhead.

I thought the Aetna debacle of tens of thousands of dollars would be my worse loss, but sadly that is not the case.

It is honestly a bit depressing to think of all the extra work and stress I took on to make the clinic stay afloat during the pandemic, only to have a physician employee do locums or tele-med instead of working my clinic to put more money in their pocket.

I believed the best in people and assumed this physician employee would want to do what I wanted in every way to make the business successful. Wrong. They have their own life, their own financial obligations, and needs. They, at the end of the day, had to look out for their own interests, and I’m not at all mad at that.

I can’t lie, though. This one experience might leave a bit of a scar. I am not sure I will ever allow a contract like that again. One that exposes myself to someone who is supposed to work full-time but essentially make themselves part-time.

This whole experience has hardened me to think of this solely as a business. I thought I was doing something “friendly” letting this person have time off to be with their family. In reality, some of that time they were simply working elsewhere to make more money while I was still paying all the overhead.

It is a business.

Medicine is a business.

I can be friendly and even friends with my employees to some degree. However, at the end of the day, it is just business. I have a six-figure lesson here to remind me of that.