Human Resources: Physician Employment Agreements

So you’re practice is ready to hire a new physician? You’ve conducted the interviews, held executive-level staff meetings to discuss candidates, performed background checks, and think you’ve finally found the right person. You’re all set.

So what’s standing in your way?

Don’t let it be your contract.

Almost every employed physician has an employment agreement, and just about every employable physician will expect or demand a contract. It’s a good idea that can protect both sides, but not everyone knows what should be included in an employment agreement.

Maybe you think you can scrape by with that old agreement your former employer put together for you 15 years ago, or maybe you found something on the Internet that you think you can use. Think again.

Experts agree that when it comes to legally binding agreements, it’s always best to have a lawyer involved, especially one who knows the ins and outs of medical practice models.

And because lawyers need time to review the paperwork, you should pull together a basic agreement even before you start the recruitment process. The last thing you want to do is cause a delay in finalizing the hiring of the candidate you’ve settled on because you didn’t have a contract in place, says Dave Witte, vice president of The Curare Group, a physician-recruitment firm based in Bloomington, Ind. “Attorneys are notorious for taking their sweet time on these things,” says Witte. “You could lose that candidate. They get tired of waiting, and they have other people who are looking at them. If somebody else puts a contract in their hands and it looks good, they’re going to take it.”

But even if you talk with a lawyer first, you still need to understand what belongs in a basic physician employment agreement and why. So here’s (almost) everything you need to know about contracts but were afraid to ask.

The simple stuff

Everyone worries about the financial terms, but usually this is the easiest part of any employment agreement. Salaries and terms differ wildly from specialty to specialty, and even from one area of the country to another, but you and your partners probably already have a good sense of what is standard for your area. If you, the partners, and your accountant have done your homework, you should have a good idea how much you can afford to pay your new physician, and how much new business you need that physician to bring in to justify her income.

Most candidates have roughly similar expectations. Expect to leave some negotiating room, but negotiations rarely break down over salary.

The same probably holds true for basic things like vacation and benefits packages. If your practice has been in business for any length of time, you have already established a standard for physician benefits. You’ll have to outline these in the contract, but unless your practice’s benefits are vastly different than other organizations in your area, you’re unlikely to be surprised by candidates’ reactions to them.

The important thing is to make sure all of the salary issues and benefits are spelled out clearly. “It’s all a lot of legalese,” says Witte. “But I think the simplest thing is to make clear in the contract what you expect from the person that you are hiring and what can they expect from you.”

That means a description of what the job will entail. It may also be wise to address office hours and location in the agreement. Richard Edwards, chief operating officer at Society Hill Anesthesia Consultants, a 62-physician practice based in Philadelphia, Pa., says he tries to keep this description open-ended. “We’re a multisite organization with 13 locations,” says Edwards. “What we try to do is keep ourselves as flexible as possible by getting the right wording into the contract that basically says, ‘While you may be employed to work at one institution, there may be a need in the future for us to use you at other locations.’”

Society Hill Anesthesia Consultants also addresses the issue of professionalism in its contracts. “We are a service-oriented practice in the sense that anesthesia doesn’t have its own patients,” explains Edwards. The practice depends very much on word-of-mouth and return business, so it insists that every physician in the group lives up to a certain ideal. “We’ve tried to put in wording that reflects that we’re looking for a certain level of [decorum] from everybody.” Another area you may have to address is how new patients are allotted. In certain specialties, such as primary care, physician candidates will expect some kind of discussion about this. “Every doctor out there has heard a horror story where they join a practice and the senior doctor takes all the insured patients and gives the new person all the Medicaid patients,” says Witte.

It’s all about expectations: What does it take to work at this practice? What does a physician get in return?

The really, really hard part

“The best contract is the one you’re going to sign and put in a drawer and never look at again,” says healthcare attorney Joan Roediger, partner at Obermayer Rebmann Maxwell & Hippel in Philadelphia. “The only reason you have a contract is if something goes wrong.”

Though none of us wants to think about it, the simple fact is that sometimes bad things happen with seemingly good people. That can make things really difficult for your practice, so it’s crucial that your employment agreement outlines appropriate and reasonable grounds for termination.

The very short list of termination-for-cause items includes:

• The loss of a medical license;

• An inability to secure malpractice insurance;

• The loss of hospital staff privileges; and

• Being convicted of a felony.

You may also want to include language about unprofessional conduct or other expectations of professional performance similar to Society Hill Anesthesia Consultants, but both Roediger and Witte warn against trying to make this section too long and detailed.

You also don’t want to make the grounds for dismissal overly pejorative. “These days where you see lawyers go off into uncharted territory is about what happens if the cost of your malpractice insurance goes up,” says Roediger. “That’s not a basis for immediate termination, by the way. That’s ridiculous.”

Similarly, Roediger suggests keeping to genuine infractions for dismissal. “If you lose your hospital staff privileges, [termination] should not be for something like a record suspension. It should be if you permanently lose your hospital staff privileges.”

If a physician does breach the agreement, he should have some sort of notice and period of “cure” to correct any violations. Roediger suggests a 30-day cure period be specified in the agreement.

Most employment agreements also contain a notice provision - either the practice giving notice of termination to the physician, or the physician giving notice of resignation to the practice. Because the standard notice term is 90 days, says Edwards, “we jokingly say these are just 90-day contracts, as opposed to one-year or two-year contracts.” However, since both the physician and the practice will need time to prepare for the physician’s departure, the notice period should be same for both sides.

Protect the interests of your practice, but be sure to give physicians a chance to live up to your expectations, too.

The restrictive covenant

Is there any practice that doesn’t want noncompete clauses in its employment agreements? And are there any physician job candidates who aren’t wary of them?

You are entitled to reasonably protect your own interests by preventing departing employees from taking business out the door when they leave. But job candidates don’t want to find themselves unemployable in your community if things don’t work out at your practice.

That’s why crafting noncompete clauses (sometimes referred to as restrictive covenants) is a delicate matter, says Edwards, whose multistate practice has more than 60 physicians and more than 100 certified registered nurse anesthetists. You want to avoid language that “scares people away because it is too onerous,” but isn’t “so soft that what is the point of actually having it?”

So where’s the middle ground?

First, make sure you’re clear on the geographic area you most need to protect. Roediger asks her practice-clients to go through their patient base and find out where 80 percent of their patients come from. “I think that it is important for them to not just willy-nilly assign an area that they want to protect,” she explains. “I think it is important for them to really figure out where their practice service area is and to derive a noncompete based on reality, not just fear.”

Many practices simply put a 50-mile restriction in their agreements, but they might have an easier time attracting qualified physician candidates if they discovered most of their patient base came from only a five-mile area. The same holds true of more general geographic areas: A departing physician expects to move if your practice is in a small town, but not if it’s in a major city.

Roediger’s exercise also can be useful if the practice and the physician ever end up in court. “You can say, Your Honor, before we even hired this person we did a ZIP code analysis and we figured out that this is where all the patients came from. . . This was founded in fact.”

Chasing your tail

With the cost of malpractice insurance skyrocketing, it’s no wonder the issue of malpractice insurance has become a sticking point in many employment agreements. It’s not just a matter of who pays, but how. Your contract with any new physician should specify the overall level of coverage, as well as the type of coverage mandated - occurrence or claims made.

Occurrence coverage, as most people know, covers any claims for services rendered during the period in which coverage exists. Claims-made coverage addresses any claims while the policy is in effect, but once payment stops the coverage is gone. While claims-made coverage is often cheaper for practices, it opens the question of what happens when a physician leaves. Does the practice pay for the extra “tail” coverage that covers anything the physician did under the claims-made policy, or is it the responsibility of the physician?

Society Hill Anesthesia has come up with what it thinks is a fair solution to tail coverage. If a new physician leaves the practice within 12 months of being hired, then he or she is responsible for 100 percent of the cost of the tail. If the physician leaves within two years of being hired, then the practice will split the cost of the tail with the physician. After two years, the practice will pay the tail itself.

“What we’ve basically addressed in the contract is a commitment to the organization,” explains Edwards. “If we’re willing to hire you and you decide that this is not the job for you in a short period of time, we don’t feel it’s fair to expect us to cover that tail coverage.”

Partnership: To be or not to be?

In Witte’s opinion, partnership is a double-edged sword in most employment agreements. On the one hand, he thinks many employment agreements would get signed faster if terms for partnership were included; on the other hand, he knows practices sometimes are leery of committing themselves to partnership terms at such an early date.

But Roediger thinks practices have to expect questions about partnership from physician candidates. “If this is a private-practice situation, and particularly if there is a restrictive covenant, it is reasonable to expect that the associate is going to want to know more about the partnership arrangements in the contract,” she says.

This is a situation in which practices may have to overcome their reluctance and commit to partnership terms in advance. In the first place, you should already have made a business case for taking on a new partner in the practice, so you should already know some of the financials behind your decision. An accountant will be able to help you fill in the remaining details about increase in revenues, planned growth, and buy-in.

Secondly, you’re much better off being clear about the practice’s expectations in advance instead of letting them cause problems later. “I have seen more situations fall apart, whether it is one or four years later, and the associate feels they have helped build the practice so why shouldn’t they buy in at that time? It’s half their practice, too. You also feel this is your practice, you have built it up from the ground,” explains Roediger.

Edwards has a slightly different perspective. Working with such a large practice, he has been through a lot of physician hires and observes, “Not everybody wants to be a partner.”

Society Hill Anesthesia defines partnership as a full-time position with full call, and not every physician is looking for such a heavy call schedule. “We’ve changed our questioning to ‘What are you looking for?’ rather than automatically assuming that everybody wants to be a partner,” says Edwards. Society Hill Anesthesia now has different agreements for employment vs. shareholder track positions.

Make sure that both you and your candidate are clear about what you want the position to become once the term of the agreement is over. Do you both see partnership at the end of the road?

Confidentiality and access

Although most employment contracts contain standard clauses about HIPAA and patient confidentiality, few practices think to include language about practice confidentiality. To protect your practice’s business, it’s not a bad idea to make sure the physicians know they can’t share proprietary information about practice operations, patient demographics, and finances with outside parties.

Roediger looks at hundreds of physician-employment agreements every year, and one area she hardly ever sees addressed is post-termination access to records. “In the event that a doctor ever gets sued or investigated, he or she has the right of access to their records,” says Roediger. Also, depending on the physician’s specialty, she may need access to records for purposes of board certification. Roediger recommends adding that into the contract as well.

Keeping it fair

Everyone enters the process of negotiating a contract with some degree of trepidation. It’s only natural to be on guard against potential injury, and it seems like an employment agreement is the perfect opportunity to describe every expectation, outline every potential offense to avoid, detail each practice policy and performance requirement. But most experts urge practices to keep the employment agreement as simple as possible.

“Sometimes you need to balance the need to protect yourself with the need to bring somebody in,” says Roediger. “You have to have some common sense in reading the agreement and realizing that something that is 30 pages in length and single-spaced - something the size of ‘War and Peace’ - is going to scare off candidates.”

It’s one reason why Roediger doesn’t like to see indemnification language - clauses that require the incoming physician to assume all financial and legal liability for anything from billing and coding to … well, anything. “When you think back to what really is the traditional principle of employment law, you, the employer, have a duty to supervise your employee,” she explains.

On the other hand, if you feel you have come up with an agreement that is fair to both you and the prospective physician don’t feel you have to compromise yourself. Society Hill Anesthesia Consultants, for example, uses a standard boilerplate contract from which it rarely deviates. According to Edwards, prospective candidates often come in knowing that the practice’s contract is a standard deal that all physicians in the organization receive. That has gained the practice a certain credibility in the marketplace.

But it doesn’t mean that Society Hill Anesthesia takes a hard approach to negotiation. “Many people have come back to us and said, ‘My attorney has a problem with the wording of the restrictive covenant, they think it’s too broad,’” says Edwards. “I will immediately explain the concept of what we’re trying to accomplish there and say: ‘If you do come into this organization as a shareholder, wouldn’t you want to protect what you have created?’”

Explaining the reasoning behind certain elements of the physician-employment agreement has worked well for the practice and gives candidates an idea of what working for Society Hill Anesthesia will be like. On the other hand, says Edwards, “If you come back and you say ‘Look, it just is the way it is,’ people tend to get a little turned off by that.”

Witte agrees and recommends that practices be proactive when it comes to contract negotiation. “A lot of things that hang up employment agreements can be avoided by really talking to the candidate about what is going to be in the agreement before they even see it,” he says.

Robert Anthony, a former associate editor for Physicians Practice, has written for the healthcare and practice management industries for six years. His work has appeared in Physicians Practice, edge, Humana’s Your Practice, and Publisher’s Weekly. He is based in Baltimore, Md., and can be reached via bkeaveney@physicianspractice.com.

This article originally appeared in the June 2008 issue of Physicians Practice.