PHYSICIAN CONTRACTING

Contract Terms

A.Compensation

o Hospitals and their affiliates are bound by law to provide only “fair market value” total compensation (including base and any productivity bonus) to employed physicians.

o To identify FMV for physician compensation, many opt to rely on data from reputable compensation surveys such as the “physician compensation and production survey” published annually by the Medical Group Management Association.

Types of Compensation:

Fixed salary (amount and frequency paid)

Performance component – know what it is and whether you can control it.

AMA Principles for Physician Employment provides:

o “When a physician’s compensation is related to the revenue he or she generates, or to similar factors, the

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physician should be clear in his or her understanding of the factors upon which compensation is based.”

B. Benefits

o Insurance – consider importance of health, dental, vision, disability, and life.

o Pension plan

Employer contribution of matching funds into 401(k).

o License fees – paid by employer.

o Professional society dues – paid by employer.

o Vacation

How much time?

Can you actually take the time?

o Holidays

o Mid-week time off

o CME paid for by employer, and time off for CME paid for by employer.

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C. Liability Insurance

o Who pays for it? Prefer that employer pays

o Types of insurance

Occurrence coverage – covers acts of negligence, which occurred while the policy was in effect, regardless of when the claim is made.

Claims made coverage – covers claims reported against the physician while the policy is in effect.

o Some academic medical centers cover the physicians under the hospital’s self-insurance reserve, rather than going out and buying insurance.

Have attorney review actuarial analysis to be sure the reserve is adequately funded.

o What are the insurance limits?

At least $1M/$3M

o “Tail Coverage”

Need tail for claims made insurance coverage (covers claims that are made during the policy period for any occurrences), after the last policy

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period. This covers occurrences that happened while you were employed, but the claim for which is made after employment ceases.

D. Physicians Duties

o Described in a job description attached as an exhibit to the agreement.

Physician should make sure the exhibit is incorporated by reference to the agreement, and that any revision to it requires mutual written agreement of the parties.

o Provision requiring physician is to abide by the employer’s policies, procedures, rules and regulations in the performance of his/her duties.

This becomes problematic where the employer may bind the physician to unknown and amendable obligations outside of the employment agreement.

o Either:

[a] Such language should be deleted; or

[b] The agreement must specify any of the employer’s policies, procedures, etc. to which the physician must abide, and either [i] attach them to the agreement or [ii]

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include them in a document referenced in the agreement, which is provided to the physician prior to execution of the agreement, and [iii] which may not be unilaterally amended by the employer.

o The agreement should be carefully worded so that nowhere does it oblige the physician to adhere to a standard of care that is higher than required by law – usually set by state law. Under no circumstance should the physician agree to provide services “according to the highest standards of competence,” or “of optimum quality.”

These standards may create unwarranted liability by holding the physician to a standard of care that is higher than normally imposed in malpractice actions.

o Hours

o Will you be working full-time or part-time, and specifically what does “full time” or part-time” mean.

o Call coverage

o The call provision in an employment agreement may be more onerous than the provisions of the medical staff bylaws and department rules.

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The physician needs to deal with this as a negotiable item.

Call coverage should be reasonable in terms of frequency and scope of services.

Compensation – the agreement should address the FMV of the call compensation.

o Research time

o CME time and funding

o Administrative responsibilities

o Billing and Compliance

o AMA Principles for Physician Employment provide:

“Employed physicians have a responsibility to assure that bills issued for services they provide are accurate and should therefore retain the right to review billing claims as may be necessary to verify that such bills are correct. Employers should indemnify and defend, and save harmless, employed physicians with respect to any violation of law or regulation or breach of contract in connection with the

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employer’s billing for physician services, which violation is not the fault of the employee.”

o Restrictions on practice

o Admit to one hospital

o Refer only to physicians w/in hospital

AMA Principles for Physician Employment provide:

o Physicians should always make treatment and referral decisions based on the best interests of their patients. Employers and the physicians they employ must assure that agreements or understandings (explicit or implicit) restricting, discouraging, or encouraging particular treatment or referral options are disclosed to patients.

o Intellectual property rights – employer typically claims ownership of IP created in the course of employment.

E. Employers Duties

Pay physician

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Provide benefits

Provide facilities, personnel, equipment, office expenses

Pay business expenses of physician (subscriptions, CME, society dues, business development, etc.)

F. Term of Contract

o If it doesn’t say anything, there is no particular term and the contract can be terminated “at will” of employer.

o Most desirable to have multi-year agreement of 3 years or more.

Even if contract says term is for 3 years, if contract also allows termination “without cause” then the contract is really “at will” employment. The only difference is the notice that may be required in a termination “without cause.”

o Contract can renew automatically (“evergreen contract”), unless notice given of intent to terminate in advance of expiration date.

You need to include provision for negotiation of annual salary increase.

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G. Termination of Agreement

o Two types of termination provisions:

For cause

Without cause

o Termination “For Cause”

o Permits employer to terminate employee or for the employee to quit, on little or no notice because the other party has done something so serious to materially breach the contract.

o AMA “Principles for Physician employment” provide:

o Physician employment agreements should contain provisions to protect a physician’s right to due process before termination for cause. Physician employment agreements should specify whether termination of employment is grounds for automatic termination of hospital medical staff membership or clinical privileges.

o Termination “for cause” can be abused.

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Physicians should consider each “cause” listed in a termination “for cause” provision and either be willing to live with it or remove it.

Ambiguity is the principal problem with many “for cause” provisions. The provisions may not adequately describe the conduct that is forbidden. Such common vague provisions include:

o Unprofessional conduct

o Conduct tending to place the practice or hospital in a bad light.

o Conduct injurious to the reputation of the practice or the hospital.

o Disruptive behavior.

o The physician employee should try to remove or restrict such ambiguous provisions.

Modify such terms to require repeated and serious conduct (such as “frequently repeated conduct seriously injurious to the reputation of the hospital”)

Link the terms to patient care (such as “disruptive behavior directly affecting patient care”)

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o Common termination “for cause” provisions, which can be cured:

Failure to maintain proper medical records.

Failure to prepare medical records in timely manner.

Failure to bill and code properly.

Repeated disruptive behavior.

Repeated failure to cover call.

o Common “for cause” termination provisions, which are incapable of cure.

Death or permanent disability

Loss of license to practice medicine.

Exclusion from Medicare or Medicaid

Conviction of a felony.

Loss of medical staff membership

Loss of clinical privileges necessary to perform services.

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o Termination “Without Cause”

o Employment contract provisions that allow termination “without cause” allow either party to escape an unacceptable professional situation without having to prove the other party has done something bad like materially breach the agreement.

The key issue with termination “without cause” provisions is the time frame for termination (i.e., the “notice period”).

o Time Frames

Termination without cause clauses typically allow either party to end the agreement by giving the other party somewhere between 30 and 180 days prior notice.

From the employee’s perspective, a longer notice period is preferable to a shorter period.

A longer period means that the employer will either have to allow the employee to keep working and earning, or the employer will have to pay the employee the value of his/her services for the notice period, in exchange for the employee leaving employment sooner than the contract requires.

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The physician employee should seek a 180-day notice period.

o It is important that termination provisions not allow the hospital employer to find fault with the physician for reasons that do not make sense from the physician’s professional perspective. The physician needs to be the sole judge of the standard of care, and determine what services ought to be provided to his/her patients. Nothing in the termination provisions should undermine the autonomy of the physician employee in said regard.

Principles for Physician Employment provide:

(a) “Employed physicians should be free to exercise their personal and professional judgment in voting, speaking, and advocating on any matter regarding patient care interests, the profession, health care in the community, and the independent exercise of medical judgment. Employed physicians should not be deemed in breach of their employment agreements, nor be retaliated against by their employers, for asserting these interests.”

H. Notice to Patients When Physician Leaves Employment.

o Ability to send notice to patients so they can follow you.

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Need access to patient lists and medical records.

How are costs related to this to be handled? Who pays: you or employer?

I. Covenants Not to Compete

o Acceptable during term of employment.

o A well-written noncompetition provision will prevent a physician from practicing within a certain geographic area surrounding the employer, and for a prescribed period of time after termination of the physician’s employment.

o AMA Principles for Physician Employment provide:

“Physicians are discouraged from entering into agreements that restrict the physician’s right to practice medicine for a specified period of time or in a specified area upon termination of employment.”

J. Dispute Resolution

o AMA Principles for Physician Employment

“Physician employment agreements should contain dispute resolution provisions. If the parties desire an alternative to going to court, such as

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arbitration, the contract should specify the manner in which disputes will be resolved.”

Physician should prefer single arbitrator to a panel, which is more expensive.

Attorneys fees

Who pays for dispute resolution

If contract says loser pays, it means physician could get stuck paying both his/her own attorney fees and fees of attorney for employer. Should try to avoid this.

K. Amendment of Contract

Physician should require mutual agreement of the parties to any amendment.

L. Assignment Clause

o Many contracts allow employer to assign the contract to a successor organization.

Physician may not want to be in another organization and not want assignment.

Difference between hospital employment and medical staff appointment

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o Employment and medical staff appointment are two different things.

Medical staff appointment is a condition of employment.

Employment may also be a condition of medical staff appointment (exclusive contract for services)

Because of federal and state law, physicians have fair hearing rights to protect their medical staff appointment.

Yet there is no such right to a fair hearing before losing employment.

The physician should assume the employment agreement controls employment, and hearing rights conferred by the medical staff bylaws do not apply to employment, but rather only to medical staff membership.

This is not to say that physician employees have no rights regarding employment, but the physician employees usually have to enforce those rights in a lawsuit, often having been terminated.

The physician should be certain before signing the employment agreement that all employment rights the physician wants are included in the agreement.

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As to medical staff rights, a physician should be vigilant and not inadvertently waive any medical staff rights by virtue of becoming an employee.

Good Axiom for Physicians entering into employment contract negotiations:

From The Rolling Stones –

“You can’t always get what you want, but if you try sometimes, you might find, you get what you need.”

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