Question 1

What is a physician letter of intent?

Accepted Answer

A physician letter of intent is a preliminary written agreement between a physician and a healthcare organization (hospital, medical group, health system, or private practice) that outlines the principal terms of a proposed employment or partnership arrangement before a definitive employment agreement is drafted. The physician LOI addresses healthcare-specific terms that are not found in standard employment LOIs: compensation models (base salary plus RVU-based productivity, guaranteed salary, or collections-based), call coverage obligations, malpractice insurance arrangements (occurrence vs. claims-made policies and tail coverage), hospital privileges and credentialing timelines, non-compete covenant parameters, partnership track provisions, and ancillary income opportunities. The LOI establishes a framework for the definitive agreement and prevents both parties from investing significant time and legal expense in contract drafting before the fundamental deal points are agreed upon.

Question 2

Is a physician LOI legally binding?

Accepted Answer

Like most letters of intent, a physician LOI is typically structured as non-binding with respect to the substantive employment terms, while certain provisions are expressly binding. Non-binding sections include compensation, benefits, clinical schedule, call coverage, and partnership terms — these are subject to further negotiation and documentation in the definitive employment agreement. Binding provisions typically include confidentiality (protecting proprietary financial information, patient data, and business strategies shared during negotiations), exclusivity (preventing the physician from negotiating with competing organizations during a specified period), expense allocation, and governing law. However, physicians should be cautious because courts have enforced LOIs as binding contracts when the language was insufficiently clear, particularly when the physician began providing clinical services or relocated based on the LOI terms before the definitive agreement was executed.

Question 3

What compensation models should a physician LOI address?

Accepted Answer

The physician LOI should clearly identify the proposed compensation structure, as healthcare compensation models vary significantly and have profound implications for income potential, risk allocation, and work-life balance. The most common models include: guaranteed base salary (a fixed annual amount regardless of productivity, common for new physicians during a ramp-up period); productivity-based compensation using work Relative Value Units (wRVUs) where the physician earns a dollar-per-wRVU rate for clinical services rendered; hybrid models combining a base salary guarantee with productivity bonuses above a threshold; collections-based compensation where the physician receives a percentage of net collections; and eat-what-you-kill models where the physician's income is directly tied to billing. The LOI should specify the model, the specific rates or percentages, any guaranteed minimum compensation period, and how ancillary revenue (lab services, imaging, procedures) is allocated.

Question 4

Why is malpractice insurance critical in a physician LOI?

Accepted Answer

Malpractice insurance is one of the most consequential terms in any physician employment arrangement and must be addressed in the LOI to prevent costly surprises. The two primary policy types — occurrence and claims-made — have fundamentally different coverage structures. An occurrence policy covers any incident that occurs during the policy period, regardless of when the claim is filed. A claims-made policy covers only claims filed during the active policy period. When a physician leaves a claims-made arrangement, they need tail coverage (also called an extended reporting endorsement) to cover claims filed after departure for incidents that occurred during employment. Tail coverage premiums can range from 150% to 250% of the annual malpractice premium, potentially costing $50,000 to $150,000 or more depending on specialty and location. The LOI must specify who pays for tail coverage — the employer, the physician, or a shared arrangement — as this obligation has significant financial implications that should be negotiated early.

Question 5

How should non-compete clauses be addressed in the physician LOI?

Accepted Answer

Non-compete (restrictive covenant) provisions are particularly significant in physician employment because they directly affect the physician's ability to continue practicing medicine in their community if the employment relationship ends. The LOI should address the key parameters: geographic scope (typically defined by a radius from the practice location or the employer's facility locations), duration (usually one to three years after termination), scope of restricted activities (clinical practice in the same specialty, any medical practice, or practice combined with solicitation of patients), and exceptions (academic medicine, government employment, locum tenens). Some states like California, North Dakota, and Oklahoma have banned or severely restricted physician non-compete agreements. Other states impose reasonableness requirements that courts evaluate based on geographic scope, duration, and whether the restriction serves a legitimate business interest. The LOI negotiation is the appropriate time to push back on overly broad restrictive covenants.

Question 6

What should the LOI say about hospital privileges and credentialing?

Accepted Answer

Hospital privileges and credentialing represent a significant timeline risk in physician employment, and the LOI should address how this process is managed. The credentialing process — which involves verification of medical school graduation, residency completion, board certification, licensure, malpractice history, and peer references — typically takes 90 to 180 days and must be completed before the physician can begin seeing patients at the facility. The LOI should specify: which party is responsible for initiating the credentialing application; whether the employer will provide administrative support for the process; what happens to compensation if credentialing delays the start date; whether the physician will receive a guaranteed salary during the credentialing period even if they cannot yet generate clinical revenue; and the consequences if the physician is denied privileges. For multi-hospital systems, the LOI should specify at which facilities the physician will hold privileges and whether the employer will cover the costs of obtaining and maintaining privileges at multiple locations.

Question 7

Should the physician LOI address partnership track opportunities?

Accepted Answer

If the employment opportunity includes a potential path to partnership or ownership, the LOI should outline the basic terms even though the detailed partnership agreement will be a separate document. Key items to address include: the timeline for partnership consideration (typically two to four years after employment begins), the general criteria for partnership eligibility (clinical productivity thresholds, patient satisfaction scores, committee participation, peer evaluations), the financial terms of buy-in (capital contribution amount, financing availability, payment schedule), the expected income differential between employed and partner compensation, the partner's share of expenses and liabilities, governance rights (voting, committee membership, management participation), and exit provisions for selling the partnership interest. Addressing these terms in the LOI prevents the situation where a physician completes a multi-year employment track only to discover that the partnership terms are unacceptable.

Component	Purpose	Key Details
Compensation Structure	Defines income model	Base salary, wRVU rate, productivity thresholds, guarantee period, quality bonuses
Call Coverage	Sets on-call obligations	Call frequency, compensation, weekend/holiday rotation, backup coverage, trauma call
Malpractice Insurance	Allocates liability risk	Policy type (occurrence/claims-made), limits, tail coverage, premium payment responsibility
Hospital Privileges	Addresses credentialing	Facilities, privilege categories, application support, credentialing timeline, interim privileges
Non-Compete Covenant	Restricts post-employment practice	Geographic radius, duration, specialty scope, buyout provision, state law limitations
Clinical Support	Defines practice resources	Medical assistants, nursing staff, office space, equipment, EMR system, billing support
Partnership Track	Outlines ownership path	Eligibility timeline, buy-in terms, governance rights, profit sharing, exit provisions

Free Physician Letter of Intent Forms

What Is a Physician Letter of Intent?

Clinical Terms

Compensation Structure

Malpractice Coverage

Physician LOI Form Preview

Letter of Intent

Key Components

How to Negotiate a Physician Letter of Intent

Research Market Compensation Data

Evaluate the Compensation Model

Negotiate Malpractice and Tail Coverage

Address Call Coverage and Clinical Schedule

Define Non-Compete Parameters

Secure Signing Bonus and Relocation Terms

Physician Compensation Models

Stark Law Compliance

Frequently Asked Questions

Official Resources

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