Employed Physicians, Protect Yourself from ‘Clawback’

It’s no surprise that employers do not like to refund federal or private payers for amounts paid to them for the services of physicians, especially when those physicians have already been paid.  Instead, many employers look to the physicians to come up with the cash to meet recoupment demands.  This “clawback” language can often be found in physician employment contracts and should be carefully reviewed by counsel for fairness:

A sample provision might look like this:

“Physician hereby agrees to cooperate in good faith with any post-service review, utilization review, post-payment review, audit or investigation of healthcare services rendered by physician during the term of this Agreement.  In furtherance thereof, Physician shall make himself or herself available at no additional cost to Hospital, and shall assist and cooperate in good faith with Hospital in responding to questions and inquiries concerning healthcare services rendered by Physician. 

In the event that a post service review, utilization review, post-payment review, audit or investigation resulted in overpayment determination by a third party payor related to healthcare services rendered by Physician at Hospital during the term of this Agreement, Physician agrees to reimburse Hospital for any compensation he or she received from Hospital for the healthcare services that are subject to the overpayment determination within sixty (60) days from the date of the notice of overpayment. Physician hereby indemnified Hospital for any costs, including legal fees, incurred by the Hospital in responding to or refunding amounts to a payor based on any audit or recoupment action against Hospital related to Physician’s services.  Hospital also has the right to reduce all such amounts from compensation otherwise owed to Physician from Hospital.”

There are many variations on this language and the following are some issues to consider when drafting or reviewing such a provision:

1. Does it make a difference if the employer is the one that provided the billing and coding services?  What responsibility does this place on the employer to hire knowledgeable billers/coders who self-audit their own billing efforts?  Physicians practice medicine and to the extent they delegate to the expertise of billers/coders, many believe that some responsibility should be shared by the employer in any recoupment action.  This is especially true if the physician followed guidelines that were provided, participated in the employer’s auditing programs, and otherwise had a reasonable expectation that their billing/coding and medical records were being reviewed for accuracy.

2. What if the physician and the employer have an arrangement where all professional receipts are shared 50/50 between the employer and the physician?  Under such circumstances, is it fair for an employer to demand that the full amount of recoupment be repaid to the employer?  It is always important to make sure the clawback provision lines up with the compensation formula.

3. While cooperation of physicians is essential in appealing the results of any audit or recoupment action, language requiring physician cooperation should take into account that physicians may relocate post-termination.  Costs may need to be shared by the parties if the physician’s presence is needed.

4. The results of any audit or recoupment can and should be reviewed and appealed as appropriate. Payment should not be required from the physician prior to completion of the review and appeals process. 

5. There is a cost to doing business!  In my opinion, mistakes happen and sometimes the business needs to absorb the error, especially where there has been no willful disregard for proper billing efforts, fraudulent activity, or other intentional misconduct by a physician.  Moreover, many malpractice insurance carriers offer coverage for audits by payers, which can offset the costs of legal and auditing support in responding to such an audit.  Failure to consider that in demanding payment from a physician is unfair and if there is an indemnification provision, it should apply on to the extent not covered by insurance.

6. Watch out for offset provisions that allow an employer to reduce amounts it believes it is owed from a physician’s compensation.  Some states do not allow for such offsets, but even more troubling is a reduction made without a final resolution being reached on a recoupment amount or any explanation of legal or other costs which are being charged to the physician. 

Physicians who thought it would be easier to work for a large employer or hospital because billing/coding issues wouldn’t be their problem may be surprised if they failed to notice a clawback provision in their employment agreement.  The best protection for a physician (in addition to properly drafted contract language) is to take an active role in assuring the best documentation and coding possible.  Physicians still need to rely on themselves to assure that their billing is being done right!