Physician Employment Contracts Explained

Physician Employment Contracts Explained

A physician employment contract determines far more than your salary. Compensation structure, malpractice coverage, and restrictive covenants shape your income stability, your financial exposure, and your ability to move freely later in your career. Understanding the key terms before you sign, especially around RVU-based pay, is one of the most important steps in evaluating any offer.

Compensation Models: Salary, RVU-Based, and Hybrid

Physician compensation is generally structured in one of three ways:

• Straight salary, offering predictable income regardless of clinical volume

• Productivity-based pay, most often tied to work RVUs (wRVUs), where compensation scales directly with clinical output

• A hybrid model, combining a base salary with a productivity bonus once wRVU or collections thresholds are met

Hybrid models are the most common structure among physicians today, though the split varies significantly by specialty. Procedural and surgical specialties lean more heavily toward RVU-based pay, while primary care and cognitive specialties more often use salary or salary-plus-bonus structures.

Understanding RVUs and the Conversion Factor

RVU-based compensation is where confusion and disputes most often arise, mainly because the terminology isn’t always used precisely.

• Work RVUs (wRVUs) measure the physician’s own time, effort, and skill for a given service, based on CPT codes

• Total RVUs combine wRVUs with two additional components: practice expense (overhead) and malpractice/liability cost

• Most physician compensation models pay based on wRVUs alone, not total RVUs, but contracts that simply reference “RVUs” without specifying which component applies are a common source of pay disputes later

Your compensation is generally calculated as wRVUs produced multiplied by a conversion factor, an employer-set dollar amount per RVU. Employer conversion factors commonly range from about $35 to $85 per wRVU depending on specialty, market, and organization. These are generally higher than the Medicare Physician Fee Schedule’s conversion factor, finalized at about $33.40 for 2026 for clinicians not in a qualifying alternative payment model, with a slightly higher $33.57 factor for those who are. The two aren’t directly comparable, though: the Medicare factor is applied to total RVUs, while employer compensation factors are applied to wRVUs alone, and each reflects a different overhead and payment structure.

Before signing, it’s worth confirming in writing:

• Whether compensation is based on wRVUs specifically, not total RVUs

• The exact conversion factor, and whether it’s calculated before or after shared overhead

• A sample calculation showing what your compensation would look like at a realistic production level, not just a theoretical maximum

A Real 2026 Development Worth Knowing About

CMS finalized a 2.5 percent downward efficiency adjustment to work RVU values for most non-time-based procedural, imaging, and surgical CPT codes, effective for 2026. The Medicare conversion factor did rise for 2026, but by a smaller amount that doesn’t fully offset this reduction for many procedural specialties. In practical terms, this means physicians in affected specialties may generate measurably fewer wRVUs for the same clinical work performed compared to prior years, which can affect whether a physician meets a contract’s bonus or base-salary production thresholds if the contract’s benchmarks weren’t updated to reflect the change. If your compensation is wRVU-based and your specialty falls into an affected procedural category, it’s worth specifically asking whether your contract’s production targets account for this adjustment.

Malpractice Coverage: Confirm the Type and Who Pays for Tail

Malpractice coverage terms materially affect the real value of an offer, and practices vary meaningfully by employer type and region:

• Occurrence policies cover incidents based on when they happened, regardless of when a claim is filed later, and require no additional coverage after you leave

• Claims-made policies only cover claims filed while the policy is active, and require tail coverage to protect against claims filed after you leave for work performed while you were still there

• Larger health systems and academic centers more commonly provide occurrence coverage or employer-paid tail; smaller private groups more commonly use claims-made coverage with the departing physician responsible for their own tail

Tail coverage can be a genuinely significant cost, sometimes cited in the tens of thousands of dollars or more depending on specialty, and is effectively deferring compensation that comes due when you leave. Confirming in writing who pays for tail coverage, and under what circumstances (voluntary departure vs. termination without cause, for example), is one of the most financially consequential details in a physician’s contract.

Restrictive Covenants and Non-Compete Clauses

Non-compete enforceability for physicians varies significantly by state, and this landscape has been legally unsettled in recent years at the federal level, so state law is what governs enforceability in practice. When reviewing a non-compete clause, pay attention to:

• The geographic radius and how it’s measured (straight-line distance vs. driving distance, and from which specific location)

• The length of time the restriction applies after you leave

• Whether it applies regardless of who initiates the termination

• Whether non-solicitation clauses covering patients or staff are included separately

A broad non-compete, one that would force a move out of a specific metro area, can have a significant long-term financial impact if you leave that position, so geography and duration are worth negotiating specifically rather than accepting boilerplate language.

Clawbacks, Audits, and Ambiguous Terms

A few contract mechanics are worth reviewing carefully, since they can undermine compensation that looks solid on paper:

• Broad recoupment or clawback rights with no time limit can expose you to repayment demands years after compensation was earned

• Unlimited or vague audit lookback periods should be negotiated down to a defined, reasonable window

• Ambiguous definitions of “net collections,” RVU attribution, or shared-visit credit are common sources of underpayment, and should be clarified with specific, auditable language rather than left general

Negotiation Strategy

A few approaches consistently help physicians negotiate more effectively:

• Compare your offer’s conversion factor and production targets against regional MGMA or specialty-society benchmarks, rather than relying on national averages alone

• If base compensation is firm, shift focus to secondary terms: signing bonus, CME allowance, retirement match, or employer-paid tail coverage

• Get every verbal assurance written into the contract itself, since undocumented promises are difficult to enforce later

• Have an attorney experienced in physician contracts review the agreement, particularly when RVU definitions, clawback provisions, or non-compete terms are ambiguous or unusually broad

Final Thoughts: Read the Whole Formula, Not Just the Number

A physician contract’s real value depends on far more than the headline compensation figure. How RVUs are defined and converted to dollars, who bears malpractice and tail coverage risk, and how restrictive the non-compete is all shape what an offer is actually worth and how much flexibility you retain afterward. Reviewing these terms carefully, and getting ambiguous language clarified in writing before signing, puts you in a far stronger position than accepting an offer as presented.

At Zeal Med, our team helps physicians understand exactly what’s in an offer, including how compensation is actually calculated, before they sign anything. See current opportunities or reach out, and we’ll walk through your next offer with you.