A physician employment agreement is the contract that sets the pay, duties, length, and exit terms when your practice hires a doctor as an employee. For an independent practice, it is also the single document that decides whether a new hire strengthens the practice or quietly drains it. Most practices get one part wrong. They sign a form written to protect the physician, or a generic template a vendor handed them, instead of an agreement built around their own economics and payer mix.
This guide is written for the practice making the offer, not the physician weighing one. It walks through the seven terms that matter most when you are the employer, the places independent practices leave money or risk on the table, and when to bring in a healthcare attorney before anyone signs. Treat it as practical business guidance, not legal advice.
Here is the backdrop. The country has shifted hard toward employed physicians. The share of doctors working in private practice fell from 60.1 percent in 2012 to 42.2 percent in 2024, according to the American Medical Association’s Physician Practice Benchmark Survey. Fewer physicians own a practice, and more are looking for a good employer. Yet nearly every guide on physician employment agreements is written for the physician reading an offer. The AMA, the American Academy of Family Physicians, and the specialty societies all publish checklists aimed at the doctor across the table. Very little is written for the practice that drafts the offer in the first place.
That gap is where an independent practice wins or loses. From structuring offers at a clinic our founder operates, three terms come up again and again as the ones practices leave vague and regret later: how the productivity bonus is actually calculated, who pays for tail coverage, and whether there is a real partnership track. We spend the most time on those.
What a physician employment agreement must do for your practice
Strip away the legal language and the contract has three jobs. It has to protect the economics of the hire, so the practice knows what it is paying and what it expects to collect. It has to set clear expectations, so there is no argument later about schedule, call, or what counts toward a bonus. And it has to make an exit clean, so that the day a physician leaves does not become a dispute over patients, records, and money.
When a term in a physician employment agreement is vague, it is almost always the practice that pays for the ambiguity, because the physician had counsel review the offer and you reached for a template. The fix is not a longer contract. It is a clearer one, written around how your practice actually earns.
1. Compensation, and the productivity formula that actually pays
Compensation is where most of the money and most of the mistakes live. You have three broad structures to combine: a fixed salary, a productivity model tied to work performed, and a collections or profit share. A pure fixed salary is simple and predictable, and it puts all of the risk on the practice. A pure productivity model shifts risk to the physician and can underpay a new doctor who has not built a panel yet. Most independent practices land on a base salary with a productivity bonus on top.
If you use a bonus, define exactly how it is calculated, in numbers a bookkeeper can run without a phone call. Is it tied to work relative value units, to net collections, or to a visit count? What is the threshold before it starts, and is there a cap? A formula that reads well in a meeting but cannot be reproduced from the books is the one that breeds resentment at the first payout.
There is a timing trap specific to new hires that templates never mention. A physician cannot bill a payer until credentialing and enrollment are complete, and that can take 60 to 120 days per payer. If the agreement promises full base salary from day one with no ramp, the practice pays a physician who legally cannot generate revenue for months. Build the ramp into the number, or start the salary clock at enrollment, and make sure the credentialing timeline is underway before the start date, not after it. The compensation model you choose should match the role and the payer mix, not a figure a recruiter floated.
2. Term, renewal, and how the agreement ends
Spell out how long the agreement runs and what happens at the end of the term. Many practices use a one or two year initial term that renews automatically unless either side gives notice. The renewal language matters as much as the start, because a contract that rolls over silently can trap both sides in terms that no longer fit.
Termination is the half owners skip and regret. Separate termination for cause, which should list the specific triggers, from termination without cause, which turns on a notice period, usually 60 to 90 days. Give both sides the same exit so the agreement reads as fair, and define what a departing physician owes on the way out. An agreement that is silent on the exit is an agreement that ends in a lawyer’s office.
3. Restrictive covenants: non-compete and non-solicit
A restrictive covenant limits what the physician can do after leaving. A non-compete restricts practicing within a set distance for a set time. A non-solicit bars the departing doctor from taking your patients or staff. These clauses protect the investment you make in a new physician, and they are also the most heavily contested part of any agreement.
Enforceability varies widely by state, and the law in this area is changing, so a clause that holds in one state may be void in another. Keep the scope reasonable in distance and duration rather than aggressive, because a court is far more likely to enforce a narrow covenant than to rewrite an overreaching one. This is the clause most worth a healthcare attorney’s eyes, measured against current law in your state, before you put it in an offer.
4. Malpractice coverage and the tail
Decide who carries malpractice coverage and, just as important, who pays for the tail. Coverage comes in two flavors. An occurrence policy covers any incident during the policy period whenever a claim is filed. A claims-made policy covers only claims filed while the policy is active, which leaves a gap when the physician leaves unless someone buys tail coverage to close it.
Tail coverage can cost a multiple of the annual premium, so the one sentence that says who pays for it is worth real money. State it plainly in the agreement. Leaving it out does not make the cost disappear; it just moves the fight to the day the physician resigns.
5. Benefits, time off, CME, and dues
List the benefits in the agreement rather than gesturing at a handbook. Health coverage, retirement contributions, paid time off, continuing medical education days and a CME budget, and professional dues and licensing fees all belong in writing. A physician compares offers on the total package, not the base number, so a clear benefits section is also a recruiting tool.
Keep the agreement and your employee handbook consistent. When the contract promises one thing and the handbook says another, the contradiction surfaces at the worst possible moment, and it usually favors the employee.
6. Call coverage and schedule
Define the schedule and the call expectation in the agreement, not in a verbal understanding during the interview. How many clinical sessions a week, which locations, and what share of nights, weekends, and holidays. Call is one of the most common sources of friction between a practice and a new physician, and almost all of it traces back to an expectation that was discussed but never written down.
Think of the schedule as part of your broader staffing plan. A new physician’s hours affect the whole team, from front desk coverage to the other providers who share call.
7. The partnership or ownership track
If part of the pitch is a path to partnership, the agreement should say what that path is: the timeline, the general terms, and what triggers the conversation. If there is no track, say so honestly rather than implying one. The fastest way to lose a strong physician two years in is to let them believe ownership was coming when it was never real.
You do not have to write the full buy-in into the first contract. You do have to be honest about whether a track exists, because a vague promise of partnership is the quiet reason many good hires leave.
Before anyone signs: credentialing, onboarding, and counsel
Two steps turn a signed physician employment agreement into a physician who is actually productive. Start credentialing and payer enrollment early, because a start date without enrollment underway is a start date that loses money. And put a real plan behind the first 90 days: a structured physician onboarding process is what turns a signature into a doctor who is seeing patients and billing on time.
Then have a healthcare attorney review the final document before anyone signs. The sections in this guide are where a practice should think hardest, but the restrictive covenant and the compliance language in particular need a lawyer who knows your state. If you want help structuring the offer and the economics before it reaches counsel, PMC’s practice consulting works with independent practices on exactly this. Call us at (706) 909-3271 or use the contact page to start.
Common questions
How long should the initial term be?
Most independent practices use a one or two year initial term that renews automatically unless either side gives notice. A longer first term gives a new physician time to build a panel; a shorter one gives both sides an earlier off-ramp if the fit is wrong.
Should the practice or the physician pay for tail coverage?
There is no single right answer, but there is a wrong one, which is leaving it unsaid. Tail coverage can cost several times the annual premium, so the agreement should state who pays for it before the physician’s first day, not after their last.
Can we enforce a non-compete against a physician we hire?
It depends heavily on your state, and the law is shifting. A narrow, reasonable covenant is far more enforceable than a broad one. Have a healthcare attorney check the clause against current law in your state before it goes into an offer.
What is the biggest mistake practices make?
Using a template written for someone else. The physician’s counsel reads the offer closely, so a borrowed form tends to protect the physician and leave the practice exposed on compensation mechanics, the exit, and tail coverage.
The practical takeaway
A physician employment agreement is not a form to sign and file. It is where your practice’s economics, expectations, and exit are decided, and it is worth drafting around how your practice actually earns rather than around a template. Get the compensation formula reproducible, name who pays for the tail, be honest about the partnership track, and start credentialing before day one. Do that, and the contract works for the practice instead of against it.
Practice Management Consultancy is a healthcare practice consulting firm that helps independent practices with payer contracting, compliance, credentialing, and the operations behind a strong hire. Reach the team at contact@practicemanagementconsultancy.com or (706) 909-3271.
