Contracts for Physicians

Introduction, Medicare Kickbacks and Safe Harbor

DON’T TRY TO DO IT YOURSELF! — Medical or health care professionals, particularly physicians, tend more and more to work under written employment agreements that are personalized for them. I still see contracts where the medical facility presents the same contract to each professional, with only the salary changed, but that’s becoming less common in my experience, particularly for physicians. I think the main motivator for this change has been the aggressive enforcement of the Medicare anti-kickback regulations, with their “safe harbor” provisions.

Here is a link to a list of US Government documents regarding the safe harbor provisions. In a nutshell, the government’s “safe harbor” regulations promise that you will not be prosecuted for illegal kickbacks if you meet the safe harbor criteria. Your employment agreement can be good evidence either against you or for you in an enforcement action. A poorly written employment agreement can, on its face, seem to violate the anti-kickback regulations and get you in a lot of trouble, even if in reality you are not in violation. I believe that a well written employment agreement should address the anti-kickback regulations and the safe-harbor provisions, such as by clearly and thoroughly explaining the physician’s compensation scheme in such a way as to remove all doubt about whether the physician is receiving a share of the proceeds of kickbacks, or otherwise receiving an illegal incentive for referrals.

Each physician’s specific assignment, practice area, patient makeup, and compensation scheme may be different, so the medical facility and physician need to work hard to make sure that the employment contract accounts for the physician’s unique role in the organization in order to properly meet the safe harbor criteria.

Non-competition agreements (also known as “non-competes”) are enforceable in Missouri against physicians, but the court will apply basically the same criteria as it would to non-competes in the non-medical sector in determining whether your particular non-compete will be enforced against you. Read my article on non-competes for more information of a general nature about how Missouri courts view non-compete agreements.

Special challenges for physicians employed with small groups:
Physicians have more than their fair share of trouble in contract negotiation

Doctors have more than their fair share of trouble in contract negotiation. Physician contract issues are really far too legally complex for the novice to fully comprehend. The contract offered to you has usually been drafted, at perhaps great expense, by a savvy lawyer on behalf of the medical partnership. The contract has been perhaps carefully crafted with interlocking provisions, so that any significant change to one provision requires changes to several other carefully crafted provisions. The contract was not designed to be good to you; it was designed to maximize the partnership’s protections against you and minimize the promises the partnership makes to you. Significant changes will cost the partnership some legal fees in having its lawyer re-work the contract scheme.

Consider how complex such contracts might be. Physician contracts commonly include provisions regarding some or all of the following subjects, each with its own complexities in determining the real value to you:

• safe harbor provisions (always present, or always should be present)

• non-compete provisions (commonly present)

• multi-tiered compensation schemes including bonuses (commonly present)

• provisions for obtaining a partnership in a closely-held company (commonly present)

• malpractice insurance provisions covering the employment and the period after the employment ends (should always be dealt with).

• provisions for dealing with your current patient base, and provisions for taking your patients with you when you leave (should always be dealt with).

• provisions for providing you time off and reimbursement for professional education (should always be dealt with).

• provisions for providing you with adequate staffing and materials (should always be dealt with).

• provisions for outside employment or moonlighting (should always be dealt with).

• provisions for handling dispute resolution and breach of contract issues, such as damages and attorney fees (should always be dealt with).

• provisions defining your role in the organization, and your rights and benefits (should always be dealt with).

• provisions defining your remedy if terminated without good cause (should always be dealt with).

The sum of the legal effect of such provisions constitutes whether you have a “good” contract or a poor contract. For one very simple example, if a provision promises “The Board, in its sole discretion, may consider you for partnership after 1 year” then the provision does not promise you much of anything and has little or no real value. The Board is free to offer you partnership at any time with or without such a provision, but you might be inclined to accept a bad contract because “partnership” has been dangled in front of you. For another example, not so simple, the employer might sneak in an awful provision (buried in a 10 page single spaced contract) such as the following, which may render the entire contract unacceptable to you if you catch it: “You shall provide acceptable tail coverage to the partnership after your employment ends.” [Do you know what that means? It means you have to buy malpractice insurance for the partnership after you leave, and it’s very rare that you would be asked to do this, and it’s quite expensive.]

The legal technicalities and interplay between all of those provisions are more complex than even a well-educated layman can fully comprehend, in my experience. Your employer trusts his lawyer, and his lawyer may be telling him that the exact language of the first contract draft is critical and can’t be changed. Considering the complexities, how can your employer (who is a legal layman) second-guess his own lawyer and accommodate your concerns if your concerns are significant? To a lesser extent this problem exists in all contract negotiations, but the inherent complexities of physician contracts magnifies the problem.

Sometimes I serve physicians best by simply educating them about what their contract really means. If the physician is comparing several offers, then I can help them decide which offer is likely to be best in the long run based on the contracts. In other cases, I can help physicians obtain changes to the contract that are meaningful, so that the physician is able to accept employment on better terms, with more confidence. In other cases, the physician accepts employment despite knowing that the contract is seriously flawed, but at least the physician is entering into the employment with their eyes wide open, and they might be able to re-negotiate a better contract next year after they get established.

I do not usually get personally involved in negotiating on behalf of physicians. Instead, I usually educate the physicians and may provide them with some alternative draft language, so that the physician can do his own negotiating. I think this works best in most cases. It’s a little more cumbersome for the physician and the employer, but it’s usually better to keep the lawyers out of it and let the parties work it out themselves, with advice from counsel. Sometimes the physician and the employer wish to turn the matter over to their lawyers, and when that happens I am happy to oblige. But there is a problem: the employer’s lawyer is often absolutely wedded to the language in their first draft contract, and we may quickly reach a stalemate, just as you and your employer might reach a stalemate when sitting face to face, so there is no magic in having lawyers deal with each other directly.

Small medical groups are often run just like any other small business: an entrepreneurial spirit prevails, with the boss perhaps being a hard-charging independent sort of person, who just might have a very high opinion of himself, and be somewhat inflexible and too smart for his breeches. He doesn’t like lawyers (except his own) and he might not appreciate your efforts to protect yourself by trying to work with him to address your contract needs. He might not care that the legal climate has changed in the last few years and that young physicians must be on their guard to make sure that their contracts comply with the law. So he might not be open to much negotiation regarding your contract. If you are faced with such a personality as your potential employer, I would suggest you not get overly-enthused about working for him until such time as he agrees to your contract requirements. I must warn you that sometimes these entrepreneurs are very difficult to deal with, and that they may take offense easily if you are less than satisfied with the first draft of the employment agreement they offer to you.

The more bargaining power you have, the more likely it is that you will get the contract terms you desire. If you are a new physician, highly desirous of employment with a particular partnership, without alternative offers, then you may lack meaningful bargaining power. Nonetheless, if your employer is a thoughtful person, you might be able to convince him that your contract concerns are valid and that he should try hard to accommodate you. If he likes you, then he may take your concerns seriously and accommodate your wishes. Generally, it doesn’t hurt to ask as long as you are respectful and courteous and non-confrontational, even if you lack real bargaining power.

If you have been offered a contract and desire a lawyer to review it, please do not give the employer any feedback about the contract until a lawyer has reviewed it with you. For example, try not to say “the money’s right but I want my lawyer to look things over.” You have given up some bargaining power. He might have been willing to pay you more money in exchange for a provision that you objected to. But if he knows that the money is right, then he is in a more powerful negotiating posture. See a lawyer first, and then give the employer feedback about the contract.

Links to more information that may be of interest

I’ve just started this links list, and so it’ll be awhile until it’s fleshed out, as other sites come to my attention. Bear with me please.

• Physician’s Assistant World (PAworld.net) – PAworld is a site that reminds me of my own site, in how it tries to serve its audience with a large amount of practical info. Check it out.

Article written by | Tim Willoughby