Physician Employment Agreements: Read the Fine Print

By Steven M Hacker, MD
Author of The Medical Entrepreneur: Pearls, Pitfalls and Practical Business Advice for Doctors
http://www.TheMedicalEntrepreneur.com

I cover two physician employment agreement scenarios in my book: one is for a senior medical resident who is about to be hired by a physician employer, and the other is for the physician who is about to hire another physician to work in his or her practice. Both scenarios are common. Both scenarios are relevant to the same discussion about the physician employment agreement. A fair and legal agreement should be applicable to both scenarios. Whether you are being hired or hiring, all employment contracts for physicians should be prepared and reviewed by a board-certified health care attorney.  This article details some of the important aspects you should consider as you negotiate an employment contract.

Key Clauses and Regulatory Issues

There are many complex health care statutes that must be understood and negotiated as part of your agreement. Issues include noncompete clauses, nonsolicitation clauses, and various regulatory issues that require legal attention, such as anti-kickback statutes, Stark laws, False Claims Act, Fraud Enforcement Recovery Act, and Health Insurance Portability and Accountability Act (HIPAA).

Noncompete clauses restrict a terminated physician employee from practicing within a certain geographic distance of your practice. Be cautious of this clause.  It can be emotionally upsetting. If you are unexpectedly terminated, you may no longer be able to practice where you live, have to move your family, and establish new patients in a remote location. Always sign a contract considering the “what if.”  What if it doesn’t work, then what happens?

The noncompete clause must be reasonable; otherwise, it will not be enforceable. You cannot be restricted from practicing in an entire state. That restriction is too broad and would not be enforceable. Most restrictions need to “reasonable” to be enforceable. Reasonable may be three miles in a metropolitan city but may be thirty miles in a rural setting. Discuss with your attorney what distance would be reasonable given your situation. Additionally, you can add a liquidated damages clause for noncompetes. This is a nice “out” and gives you the option of setting a price to forego enforcing the noncompete clause. Always negotiate the shortest distance and time period for this clause. Try to make the noncompete clause enforceable for no more than eighteen months.

Nonsolicitation clauses refer to restricting the act of soliciting patients or employees from a practice at which a physician or other staff member was employed. This means that it is illegal for you for a certain amount of time to solicit your favorite employees or patients away from the practice in the event of your termination. Typically, there is a time element to this clause. Nonsolicitation clauses may be enforceable for twenty-four months or more. Always negotiate the shortest time for this clause.

The anti-kickback statute (AKS) results from amendments to the Medicare and Medicaid Anti-Fraud and Abuse Act and makes it illegal to knowing and willfully solicit, receive, offer, or receive payment of any remuneration for referring patients or arranging for acquisition of goods or services reimbursable by Medicare or Medicaid. Violations are punishable by a fine of up to $25,000 and up to five years imprisonment. Additionally, exclusion from federally funded health care programs such as Medicare and Medicaid may result. Do not sign any agreement that requires or induces you to perform or refer certain Medicare reimbursable services for payment. This is a contract issue that should always be reviewed by a board certified health care attorney.

Regulatory issues include the Stark laws. These laws protect against physicians referring to a lab or facility that they may have a financial interest in. The law was written to prohibit physicians from making a referral to an entity for the furnishing of designated health services paid by Medicare or Medicaid when the physician or his or her family has a direct or indirect financial relationship with the entity. There are a number of safe harbors within this complex law.

Malpractice Policies

The contract will need to detail financial responsibility for purchasing a malpractice policy. It will detail limits for malpractice. There are two types of malpractice policies: Claims Made and Occurrence. The Claims Made policy will only respond if the claim is made while the policy is in effect, while with an Occurrence policy, the carrier is responsible for the claim if the incident occurred anytime during the active policy period. If a Claims Made policy is terminated, then continued coverage (“tail”) should be purchased until such time that all possible claims that can be brought has expired. The employment contract should define who is responsible for purchasing “tail” coverage.

Employment Conditions and Term

Additionally, there will be conditions for full-time employment that must be specified in any contract. These conditions include obligations such as obtaining the appropriate licensure to practice medicine and prescribe medications. You must affirm that no medical board has disciplined you and that your license has not been revoked or suspended. You must also affirm that you have or have not been treated or sanctioned for alcohol or substance abuse.

General contract matters that must be considered include the term of the contract. This is often two to three years. Renewal may occur automatically at the end of the term. Termination clauses with and without cause should be defined.

Compensation

Incentive bonuses in the form of compensation or stock may be considered. Commonly, you may receive a bonus based upon revenue generated above a certain amount. This number may tie to the office overhead formula. For instance, assume a 50 percent office overhead and a physician’s annual salary of $150,000. You may receive an additional 25 percent to 50 percent of revenue generated after you have generated $400,000 in revenue. In this scenario, the practice theoretically makes approximately $100,000 on the first $400,000 generated (revenue – overhead – physician salary/package = practice net). Any additional amounts over that $400,000 generated, the physician and the practice share in an agreed-upon percentage. You must make sure a health care attorney reviews this portion of the contract as well to be sure there are no anti-kickback or Stark violations unintentionally included.

Key Points to Consider

Finally, I am including a table below that summarizes the most important points that need to be discussed with any potential employer.

1. Realistic and reasonable noncompete clauses.
2. Liquidation clauses for noncompete.
3. Malpractice issues regarding their responsibility for tail coverage.
4. Obligations, duties, and responsibilities for your practice.
5. Definition of the on-call schedule.
6. Definition of the necessity for maintaining hospital privileges.
7. Definition of bonuses, salary, and productivity requirements.
8. Partnership terms must be defined clearly.
9. Be certain nothing in the contract violates the Stark laws, anti-kickback statutes, and HIPAA.
10. Clarify the ownership of the patients’ records in the event of termination.
11. Understand Termination with and without cause.
12. Define who will pay for CME (Continuing Medical education) credits.
13. Define how many days will be paid for attending a professional meeting per year.
14. Define how much you will pay for licensure for boards, tests, exams, DEA license, medical society memberships, dues, accreditation for hospitals, and hospital staff fees.
15. Define duration of the clause for non-solicitation of employees.

The above article represents excerpts from a chapter in the book, The Medical Entrepreneur: Pearls, Pitfalls and Practical Business Advice for Doctors (Nano 2.0 Business Press 2010).