Re-Defining Physician Labor

A few weeks ago, I had an anesthesiologist write and ask me:

“I have a potential new contract with the hospital in September to serve in a GME role. Would like to take this as 1099 income to a PLLC. A partner is in a similar arrangement but the hospital is refusing 1099 and instead doing W2 with tax withholding. We are not employed by the hospital currently. We work for an anesthesia management company contracted with the hospital. Not sure if you can help with this, but figured it was worth the time to type it out.”

Last week I spent some time unpacking this question by reviewing the classification system for workers by the IRS which simplistically forces businesses to either designate you as an employee or independent contractor. In the IRS’s view, everyone clearly fits one of these buckets and charges businesses with the responsibility to make the classification decision, in part based upon whether a work is considered permanent.

Permanent Labor

Permanent labor is classified by corporations as an employee and is the gold standard for a long-term worker. The hairs are split by corporations here via full-time and part-time identifiers that must comply with federal labor laws. Businesses are forced by both the IRS and the Department of Labor to make these classifications and then comply with the associated labor regulations. For the individual worker, there are benefits to this classification mostly due to the associated economic security of having a long-term job and the connected benefit package offered by employers.

This leads us back to the question this week from the anesthesiologist:

I have a potential new contract with the hospital in September to serve in a GME role. Would like to take this as 1099 income to a PLLC. A partner is in a similar arrangement but the hospital is refusing 1099 and instead doing W2 with tax withholding.

Corporations that hire you for your professional services will err on the side of calling you and W-2 employee, especially if you are not explicitly non-permanent labor-like locums. This tends to be safer for them as they seek to comply with IRS regulations. This is exactly the conservative position being taken by the hospital that wants to hire the anesthesiologist for the GME side work. They are considering this a long-term relationship and thus are unwilling to classify it as non-permanent labor.

To better understand their position, we need to take a deeper look at non-permanent labor which I believe will debunk their decision about not allowing this side job to be classified as 1099 income rather than W-2 income.

And as I will unfold the following paragraphs I believe that nearly all doctors hired by large corporations are in reality non-permanent labor, and should be given the choice to be considered an employee or a non-employee. That goes for both primary jobs and side jobs.

Let me explain.

Non-Permanent Labor

Non-permanent labor is often called temporary workers and can be classified in one of two ways: employees or non-employees.

It is noteworthy that non-permanent labor can still be considered an employee which is how I would describe most employed doctors today. They are unknowingly non-permanent labor. This may come as a surprise to many of you, but keep reading to learn more about why this can benefit you.

It’s also notable that there are many categories for non-employees, especially in our digital economy where labor comes in all forms of contingent workers including consultants, interns, volunteers, freelancers, independent contractors, and self-employed individuals just to name a few.

Correctly classifying a company’s non-permanent workforce defines, among other things, how they are managed, compensated, and taxed.

Contingent Workers

Contingent workers, also known as independent contractors or 1099 workers, are people who lend their skills and expertise to a business to complete specific tasks or projects. Working with these individuals can be beneficial to organizations that need to scale their workforce to meet demand, but can’t afford the financial and administrative overhead associated with hiring employees. Other businesses rely on contingent workers simply to bridge skills gaps within their current teams.

These independent contractors often provide expert professional services to meet a labor need for a company’s business plan. This can be both short-term or long-term based on the corporation’s strategic plans and the individual contractor.

Independent contractors can work for the company long-term, on a single project, or as needed. They are responsible for their own taxes and are not eligible for perks their employers provide to their employees. Unlike traditional employees who receive benefits and have ongoing employment stability, contingent workers typically have no job security with a corporation. Despite this lack of stability, contingent workers still provide essential services that businesses need in order to stay competitive in today’s increasingly global markets.

Contingent workers are becoming essential to the modern workforce and this includes medicine. Think about it, how many of you have worked with travel nurses or locums in the past year? Probably all of you!

Non-Permanent Workers in Medicine

The acceleration of telemedicine due to the COVID-19 pandemic has become a real game changer in the marketplace and has really opened the door for physicians to work as independent contracting contingent workers who fill this niche. With this option, doctors are no longer locked into a geographic location and can choose to do telemedicine as either a primary job or a side job. This includes the choice to do the work as an employee or a non-employee.

For example, I recently coached a couple from Toronto where the physician worked at his primary job, but he was also providing professional services to a start-up psychiatric telehealth company in the Midwest. Both jobs provided substantial income for this doctor with one being a W-2 employment position and the other being a 1099 independent contracting position. I believe virtual professional services are going to become increasingly common for physicians of all types and will allow for multiple professional business relationships for doctors all around the world.

Locums

Locums have long been the beachhead for doctors who want to work as non-permanent labor. The interest in locums is growing for doctors with more of you retiring younger as well as the professional preference for temporary work for Gen Z and Millennials. The demand for locums is also surging due to the growing physician shortage and the vacancies created by the number of burned-out doctors who are looking for a change.

Thus locums are becoming a progressively large labor category for staffing corporate enterprises. Although they cost corporations more money, their economic benefit stems from their prevention of lost revenue from physician vacancies and the maintenance of patient services that all funnel into the corporate enterprise. In the end, for corporations, this higher-cost labor is better than no labor when it comes income generating workers like doctors.

But because locums are a higher-cost form of labor, understandably businesses are incentivized to reduce this contracted labor expense in their books. For example, the large healthcare corporation that I work for has made eliminating contracted labor as one of their economic mandates due to the large financial losses suffered during the COVID-19 pandemic.

Long Term Non-Permanent Workers

Healthcare corporations typically want long-term physician labor due to their ability to build strategic business plans around them. Long-term doctors provide predictability and lower cost compared to locums. Therefore corporations prefer employed physicians or long-term independent contractors as a better option for their physician labor.

Something New In Physician Labor

With the physician labor markets shifting in parallel with the mindsets of Generation Z and Millennials the old bifurcation of classifying physician workers as an employee or a short-term independent contractors is vastly in need of a 3rd option that is labeled long-term independent contracting.

Corporations mostly want long-term physician workers and that labor need can be filled with a combination of employees and long-term independent contractors.

The physician labor space of long-term independent contracting is progressively gaining traction because it provides corporations with the predictability of a permanent worker, and is less costly than both traditional employees and short-term independent contractors. It fills a labor niche that is vastly needed in healthcare.

Employment Lite

Employment lite is an ideal long-term independent contractor structure that actually costs corporations less than locums AND costs them less than traditional employees. Yet it still provides corporations with all of the same alignment & economic features associated with traditional employment.

If you are not familiar with employment lite, here is what this business-to-business relationship looks like through your own micro-corporation.

Employment lite is the proverbial win-win physician labor space for both doctors and the corporations that hire them. He is why:

1. It saves a large number of dollars in labor expenses for the corporation hiring you as a worker

2. It provides you with tax relief by converting you from W-2 income to 1099 income that can then be worked through your micro-corporation business structure for significant savings.

3. It empowers you psychologically to be in control of your professional career through the management and operation of your professional micro-corporation. Empowered long-term independent contracting physicians are less likely to burn out than their traditionally employed peers.

Non-Permanent Long Term Contractor Labor

This “non-permanent long-term contracting” classification applies to each of you who have those 1-3 year employment agreements, which is the industry norm for physician contracts. Whether you are labeled an employee or a contractor, your contract points towards non-permanence.

Both employees and independent contractors who work long term for corporations equally provide professional services to the corporation’s clients (the patients are owned and controlled by the corporation) and both equally work under revolving 2-3 year contracts. For both the employee and the independent contractor there is no guarantee of continued work as the agreement winds up, thus it is non-permanent.

The short-term nature of these contracts galvanizes them as non-permanent. However, their length of 2-3 years extends them to the edge of what has traditionally been considered the 24-month boundary for short-term contractors.

Repeating Non-Permanent Contracts

The series of 2-3 year contracts that auto-renew for doctors are functionally repeating long-term independent contractor agreements. This is in contrast to the permanent nature of employment where theoretically there is no endpoint to the terms of your job. This has brought evergreen contracts to the forefront as a better contractual structure for employees. While this is true in the context that it auto-renews in perpetuity, it also has clever 90-day termination without cause clauses in it. Thus like virtually all physician employment contracts, they boil down to rolling 90-day agreements. More on this later.

The translation is that although the intent of both you and the corporation that hires you may be a permanent relationship, the legal terms of your contract truthfully point towards you being in a long-term non-permanent relationship.

I happen to believe that this is a good thing for both sides in the long run, especially if you have an employment lite agreement.

The nature of these repeating non-permanent contracts is a purposeful non-committal structure that allows either party easily separate within its short time frame, and thus not be tied down as a permanent employee. Both sides win in this kind of arrangement due to the built-in flexibility, albeit with a little uncertainty about job security. It’s all baked into the agreement.

Sports Analogy

Because I enjoy sports, it’s easy for me to view this from the vantage point of the owners and players of my favorite baseball team, the Chicago Cubs. The roster of players on the team is filled with a host of long and short-term contracts that all add up to a winning combination. There is no such thing as a permanent contract for the players, but there are various degrees of long-term commitments, however, most of these are < 5 years. Both the players and the owners typically like 1, 2 & 3-year agreements because it provides both sides with the flexibility of moving on if things don’t work out. It also provides the players with the option to take their professional services to another team via free agency. Neither side is committed long-term to the other. The very nature of the business is that one player rarely ever spends their entire career working for one employer or baseball team.

All these same concepts apply to you as an employed doctor. You are now a player on the playing field that is owned by large corporate owners. You have lost the power of ownership in medicine when you sign up to be an employee. You are now a professional asset that is controlled by ownership and they demand you to perform to their expectations or be let go. As the saying goes, “it’s just business” and “it’s not personal”. It’s no longer a calling, “it’s just a job”.

There is nothing about your job that is permanent. In most cases, you will experience the never-ending corporate changes that negatively affect your job satisfaction and regularly make you wonder if it’s time for a job transition. Recent surveys indicate that this represents 47% of you. In all likelihood, you will provide professional services work to multiple corporations over your career and you are very unlikely to stay at one primary job.

This represents a massive shift from a short 50 years ago when doctors went into private practice in one location and often stayed in that one location throughout their careers.

Medicine has changed.

Welcome To The Big Leagues

In the big leagues of medicine, you are now a player and not an owner and that is the painful truth.

What’s left of cottage physician ownership in private practice is now being purchased, assimilated, and eliminated by big corporations.

Direct medical care models are trying to help regain some traction by making us owners again, but that is largely outside of the massive system of healthcare that is now controlled by 3rd parties.

This systemic flaw is the subjugation of physician business power and professional autonomy to large corporations. This is the source of our soaring burnout rate.

We need to be owners again.

It is possible.

We all need that hope that we can regain control over our profession.

It doesn’t mean we have to abandon working for large corporations because what is hidden from many doctors is the possibility of both being a large corporate worker while at the same time being an owner of your own micro-corporation.

Give Doctors An Option

By accurately classifying doctors as non-permanent long-term labor, it would allow corporations that hire you the option of choosing to consider you an employee, or long-term independent contractor via a structure called “employment lite”. Here is another view of what that looks like.

I believe the option for employment lite should be offered to every doctor choosing to go to work for a large corporation. In reality, both parties know going in that your relationship is not permanent, but both are optimistic that it will be long-term. Thus the series of 2-3 year contracts that legally frame your work for them is acceptable to both sides.

Then if you look closely at your contract, you will notice there is a “termination” section in your contract. This section defines the time interval required for either the doctor or the corporation to terminate the agreement. In most cases, either party must provide at least 90 days’ notice to terminate the agreement without cause. Some employment agreements may extend this to 120 days or longer. Independent contractor agreements may require as little as 30 days’ notice.

The 90-day termination clause in a contract is an important element because it allows both parties to end the agreement without any unnecessary hassle. This means you have the same power to give your 90-day notice should you want to leave your current job.

90 Days is Not Permanent Nor Long Term

1-3 year contracts and 90-day no-cause termination clauses all add up to prove that more times than not, the contract that you are provided by your “employer” is a legally constructed non-permanent position that is veiled as a permanent job. That is because your contract length is only as good as the 90-day notice required to for either side to sever the agreement without cause.

Let that sink in. Your position and your compensation at your employed physician job is only guaranteed for 90 days. That hardly seems permanent. And this startling truth can be a little unsettling in the context of a long-term view of your personal and professional life in one location—with implications for housing, family life, and your career path. Just when you thought the nomadic life connected to your medical training was going to end by getting a “real job” with a guaranteed high income as an employed doctor. How does that feel? Yep, but it’s the harsh truth.

The translation is that although you are an employee, legally you are long-term, non-permanent contracting labor to the corporations that hire you. Yes, they can speak out of both sides of their mouth by calling you an employee and thereby vowing permanency to your position but in reality, their 1, 2, or 3-year contract with a 90-day notice clause doesn’t meet the mark for permanency.

Understanding these confounding elements of your employment structure is important for a number of reasons.

Psychologically it’s important for you to know that your professional life and career which is yoked up to a large corporation can evaporate in the next 90 days, without cause. Gone just like that. This reminds me of Benjamin Franklin’s famous quote that “nothing is certain in life except death and taxes.” You have to learn to live within the uncertainty of modern healthcare employment and most of you will probably manage this tension by telling yourself “that won’t happen to me because doctors don’t get terminated.” Well, you might not get terminated but you can certainly be made to feel miserable, undervalued, trapped, and burned out. This is why over 100,000 doctors left their jobs in 2021 and as many as 47% are contemplating a change by 2025.

Prepare For Your Best Professional Future

But all of this permanent and non-permanent chatter is why I believe it is fundamentally important for you to equip yourself to thrive within the framework of working for large corporations because they are here to stay. You have to be prepared for anything to happen within your contract including its renewal or non-renewal.

In the world of physician employment, nothing is certain, and you should adapt your professional life to be prepared for this uncertainty. To best do this, I believe you should house your professional services with your own micro-corporation and then contract those services out to a combination of both long-term and short-term business relationships.

For the purposes of this discussion, this means that your long-term primary job could be classified as either an employee or an independent contractor. Your worker classification at the time you are hired should be a mutual decision that can be framed as either an employer-employee relationship with renewable contracts or as a long-term independent contractor relationship with serial business-to-business contracts. Your decision to be called an employee or a long-term independent contractor should be based on the architecture of your professional life.

Just know that legally due to the 90-day clause in your contract, you are a serial contractor of professional services—even if you are classified as an employee, regardless of your contractual length.

Get Ready

In my next post, I will dive deeper into how you can get yourself prepared to thrive in the new healthcare economy as an independent contractor who can engage in a wide range of business-to-business relationships that include the better version of employment called employment lite.

But you have to get ready and not be passive about it or you will by default always be a traditional employee. It’s still a good job, but you deserve something better.