Common Issues in the Physician Employment Agreement
Many physicians negotiate their own employment agreements. But, they may miss the nuances of an agreement that an experienced healthcare attorney could point out. This guide highlights some of the issues common to Physician Employment Agreements.
Getting Down to Basics: CompensationWhen it comes down to it, we work to get paid. This is as true for physicians as it is for the 12-year-old who shows up at your door with a lawn mower and a gas can. But figuring out how much a physician will be paid can be considerably more-complex than asking the neighborhood kid whether she'll take ten dollars for the job.
Beyond the first year of employment, pure salary arrangements for physicians are rare. Instead, practices and hospitals tend to pass risk down to their physicians through compensation arrangements. Employers typically use an incentive model that ties pay above a base level to various productivity measures, such as charges, collections, or work relative value units ("RVUs" or "WRVUs"). Compensation may also be tied to value measures like outcomes, patient utilization, or patient satisfaction, thanks to additional quality pressures from payors arising from healthcare reform.
Regardless of the model, physicians should understand how compensation is calculated in their employment agreement and how that will impact their success. When reviewing the employment agreement, physicians should pay special attention to the following elements:
o Is the pay calculation method clear-cut and easy to understand, or will there be a constant struggle between the employer and the physician?
o Is the productivity measure related to job tasks that the physician enjoys, or could a focus on that measure mean the work environment is a bad fit?
o Are the productivity measures in the physician's control, or will the physician be dependent on a more-senior physician or on the efforts of the billing and collections staff?
o To what extent will the physician be held responsible for payor recoupment in cases where the physician is not at fault?
o How will compensation be calculated if the physician decides to leave the practice?
Of course, compensation is more than a paycheck. Total compensation includes everything a physician receives from the employer. This includes benefits like health and malpractice insurance, retirement plans, and reimbursement for continuing education and professional memberships. Some employers will include signing bonuses, moving expenses, and student-loan repayment plans in their compensation. Vacation and sick leave should also be considered (and used!).
Benefits in focus: Malpractice InsuranceOne of the most-important benefits a physician can receive through their employer is malpractice insurance. Also called professional liability insurance, physicians need to understand their rights and responsibilities regarding this essential protective tool.
Generally, an employer will pay for malpractice coverage. It is in everyone's interest that all employees are covered, and an employer has more ability to negotiate with insurance companies because they usually purchase more policies--sometimes substantially more--than an individual physician would.
Coverage is provided either on an "occurrence" basis or a "claims-made" basis. Occurrence policies generally cover claims that arise out of acts or omissions during the covered period, regardless of when claims are made. Claims-made policies generally limit coverage to claims that both arise out of acts or omissions during the covered period AND that are made during the coverage period. Clearly, a physician would prefer the more-protective occurrence policy, while an employer would prefer to purchase the less-expensive claims-made policy.
While the main policy is usually covered by the employer, the contract may vary as to whether the employer or the physician will pay for retroactive coverage of prior acts (a "nose" policy) or coverage for acts during employment that follows the physician after she leaves (a "tail" policy). In some states, such as California, an employee's right to indemnification makes tail coverage attractive to employers.
The amount of coverage required will depend on a number of factors, including the physician's (and employer's) appetite for risk. Many states require a minimum coverage amount. This can be provided by a statute or regulation, or it can be set by the state's Board of Medicine. In states such as Maryland, where there is no requirement that a physician carry coverage all, insurance providers may step in to require a minimum level of coverage, based on their actuarial experience. Knowing whether a state caps medical malpractice damages can also help physicians decide how much coverage they need.
The Physician's DutiesIn its simplest form, an employment agreement is a contract in which a person agrees to trade labor for compensation. Of course, there's never anything simple about a physician employment agreement. We've already addressed some of the complexities of compensation, so now it's time to discuss physician duties.
New physicians may be surprised to find that, in addition to the clinical duties for which they have been well trained, a physician employment agreement will almost always set out administrative and management duties. A physician may be expected to take part in practice management, administrative tasks, medical education programs, and even marketing.
Careful review of non-clinical duties is important in light of a physician's career goals--a budding hospitalist in a large health system may not get the same benefits from immersing himself in practice management as does the dermatologist who hopes to eventually buy an ownership stake in her new practice.
Clinical schedules should be worked out as specifically as possible. Physicians will often prefer predictable terms that set the days and hours required. Employers may prefer to simply state that the physician must work the number of hours required to perform her duties.
On-call duty is a sensitive topic. Again, employers usually want maximum flexibility to schedule, and so may want on-call duty requirements to be relatively undefined (e.g., on an as-needed basis). Conversely, physician employees prefer the security and predictability of a set schedule (e.g., every fifth weeknight and the third weekend of every month).
For practices with a wide geographic reach, duty location is an important element to define. Remember that otherwise reasonable duties may become burdensome when if is a long commute at both ends.
Location may also be an element if the practice has any third-party agreements, such as agreements to staff off-site hospitals or clinics. Understanding these third-party agreements is also important to set a physician's expectations of their day-to-day work life. A physician farmed out by a staffing agreement with a hospital may have a vastly-different experience from a physician working in the practice's offices.
Because it is so important, completion of medical records is often set out as separate provision. Both a clinical and an administrative task, proper and prompt completion of medical records is necessary to provide quality care. The contract should also set out terms regarding the ownership of the files--an issue that becomes important if a physician decides to leave a practice--as well as the physician's duty of confidentiality regarding the files.
One of the most-basic elements of a physician employment contract, duties can also be the most complex. No other terms in the contract have as much of an impact on the physician's day-to-day life. The physician's duties must be balanced against their career goals and the other terms of the contract.
Term Provisions: How long is this going to last?The term--or length--of a physician employment agreement sets the tone for the employment relationship. Shorter terms allow employers more flexibility in staffing, while longer terms can give physicians more stability and help employers to attract physicians willing to invest and build a practice.
The term of any contract is an essential provision that sets the period of time that the agreement governs the employment relationship. An employment agreement should specify when the agreement begins, when it ends, and whether the agreement automatically renews for additional terms. A term can commence on a set date, or it can start when a condition is met, such as when a physician is licensed or obtains privileges at a hospital. An agreement may also include an effective date that is different from the start of the term, often the first day of work.
PUSH AND PULL: WHY MIGHT EMPLOYERS AND PHYSICIANS DISAGREE ON A TERM?
Employers tend to prefer shorter terms--such as year-to-year contracts. Some agreements include very short terms in the form of probationary periods that are less than a year. If an employer doesn't think an employee is a good fit, they can simply wait until a shorter-term contracts lapses, rather than being forced to deal with the more-burdensome termination process in a longer-term contract.
In contrast, physicians and other employees tend to prefer longer terms that allow them a measure of job security. Employers hoping a physician will make contributions to build a practice may also offer longer-term contracts to entice physician to make those investments. A physician with a longer-term contract should be sure that the agreement provides for annual compensation increases or an annual review of compensation and benefits, so they are not limited to their first-year earnings.
Some physician employment agreements combine relatively-short terms with automatic renewal unless one of the parties gives notice before the term ends. Such "evergreen" agreements are attractive because they give employers the flexibility of a short-term agreement, give physicians some (potentially-illusory) assurance of security, and give both parties more certainty regarding the provisions of future agreements. Understanding the start and end dates of an evergreen agreement is especially important, as failure to give timely notice could limit the options of a physician or employer who did not want to continue with the employment relationship.
Termination: Start with the end in mind.A wiser man than I once said you should begin with the end in mind. A physician employment agreement will govern how the employment relationship will end. Physicians need to pay careful attention to these terms to understand their rights if things go south.
Termination of an employment relationship can happen in several ways. Sometimes, a physician employment agreement may simply run out its term, perhaps with one of the parties giving the required notice that the agreement will not renew. At other times, one of the parties must terminate the agreement, either with or without cause. In extreme cases, the agreement may terminate automatically.
Employers generally want the ability to terminate an employment agreement without cause. In addition to giving the employer the right to end the contract early for economic reasons, termination without cause avoids the need to state a cause on which the employee could base a lawsuit. From a physician employee's point of view, the right to terminate without cause should be bilateral, so that the physician can also end the agreement early. Notice of such termination is usually given as 30, 60, or 90 days, with employers (and employees in opportunity-rich markets) preferring shorter terms.
Termination for cause--also called termination for breach--is more serious, and generally requires one party to give notice and a chance to cure the breach before the contract is terminated. Notice periods tend to be shorter--15 to 30 days is typical--as the employer does want the breach situation to be unremedied for long.
Immediate termination is usually limited to serious events that threaten the safety or confidentiality of patients, or expose the employer to serious liability. These events can include loss of licensing, insurance coverage, or hospital privileges; being excluded from Medicare; or arrest for a crime.
Physicians typically prefer that few events trigger immediate termination, with most breach events triggering notice and an opportunity to cure under termination-for-cause provisions. This is especially the case if the employer is a hospital or other healthcare entity with formal peer review, in which case termination may trigger a report to the National Practitioner Data Bank.
Restrictive Covenants: Non-competes and how they threaten your freedom.In the past, most new physicians would at least consider opening their own practice. But today--given higher student loans and ever-more complex regulations and payer relationships--many new physicians seek employment with an existing practice or hospital instead. Employment with a large, established organization can give a physician a level of financial stability and lack of administrative headaches that is unavailable to someone who owns a practice.
Physicians, like most of the US workforce, can expect to have many jobs throughout their career as they search for a setting where they can truly shine. This is especially true of newer physicians looking for a place to establish their careers. Depending on the specialty, as many as 70% of physicians will change jobs within their first two years of professional work. Of course, there are many good reasons even seasoned physicians may decide to change jobs.
Among the biggest dangers to a physician's freedom to change jobs are restrictive covenants--also known as covenants-not-to-compete, non-compete clauses, or simply non-competes. Often a term in an employment agreement, non-competes limit where and when a physician can practice after separating from an employer. Typically, a non-compete will forbid practice within a certain number of miles from the employer for a certain number of years. Depending on the scope, a non-compete can require a physician to seek work outside of their community, sometimes for several years. This can prevent a physician from building a practice in their own community, require burdensome commutes during the term of the non-compete, or even force a physician to move from a community where they would otherwise put down roots.
Consolidation in the healthcare industry means fewer and larger employers, with more leverage to negotiate the terms of the employment agreement, and strong motivation to discourage competition. This means that non-competes are now routinely included in physician employment agreements. Courts will only enforce a "reasonable" non-compete, but even defending against an unreasonable non-compete can require large legal fees and take months or years.
As a result, physicians need to understand any non-competes in their employment agreements. Understanding the scope of a non-compete before signing an agreement ensures the physician understands the potential impact on their career and can help them in negotiations with an employer. A physician thinking about leaving an employer should also understand the effects an employment agreement can have on their plans.
Patient Self Diagnosis: Do you need an attorney to review your Physician Employee Agreement?Many--maybe most--physicians negotiate their own employment agreements. But--like the patient seeking a diagnosis through a web search--they may miss the nuances of an agreement that an experienced healthcare attorney could point out that might allow the physician to negotiate the provision or--at the very least--understand what they are in for if they accept.
Healthcare businesses operate in a constantly-changing legal environment of state and federal laws and regulations that all influence whether a business arrangement is allowable or subject to serious legal consequences. Payors continue to pressure providers to accept more risk--for instance, by requiring practices to tie payments to outcomes, rather than services provided. Many practices, faced with these pressures, try to pass that risk down to physicians through their compensation terms.
An experienced healthcare attorney can help a physician understand their rights and responsibilities under their employment agreement, allowing them to take control of their career in a way that may not be possible without professional guidance.