Healthcare reform and the shift from fee-for-service to value-based reimbursement has brought a host of new complexities to the day-to-day practice of medicine.  As a result, more and more physicians are choosing to be employed by a hospital or health system, rather than owning and running their own practice.

While physician employment is not a new concept, the relationship between employed physicians and their employers is shifting as the model for healthcare reimbursement shifts.  Employers not only expect their physician employees to meet or exceed RVU (“Relative Value Unit”) production goals, but also to move the needle on certain quality metrics that reflect the overall health of the patient population. This new paradigm creates unique challenges and risks for employed physicians, and is all the more reason for physicians considering employment to pay close attention to what their employment contracts actually require of them.

Physician employment agreements define the roles and responsibilities of the doctor and her employer, rules regarding compensation, and restrictions on the physician both during and after employment. These contracts have major implications for physicians and are often long, complicated, opaque, and difficult to interpret. Below are six provisions common in many physician employment agreements that are important for doctors to understand and consider before signing on the dotted line.

Restrictive covenants. This is a legal term for provisions that restrict an employed physician’s ability to do certain things if and when he or she decides to leave the employment relationship. Restrictive covenants include:

Non-competition. A physician may not compete with his/her former employer’s business within a set geographic area.
Non-solicitation.  A physician may not ask patients or staff members to join him in a new practice after leaving the employed relationship.
Non-disparagement. A physician may not say anything negative about his former employer.

Restrictive covenants often impose significant constraints on where and how a physician can practice medicine after leaving an employment relationship, and should be evaluated carefully before deciding to proceed with the contract.

Term and Termination. Most employment contracts are written for a “term” of between 1 and 3 years. A longer term is meant to give that physician security in employment. However, a careful look at the termination provision reveals that most contracts can be easily terminated, prior to the term, based on the “without cause” provision. Without cause means that the employer can decide to terminate for any or no reason at all. Most contracts will state that the employer can terminate the agreement with a certain number of days’ prior written notice. The number of days’ notice, therefore, is the TRUE term of the contract. If that notice period is short, that can put the doctor at risk for having to scramble to secure another job or, if no jobs are readily available, to go without an income, if the employer chooses to terminate. Physicians should also be careful to read the “for cause” termination provisions. If any of those are beyond the control of the physician, the physician is exposed to risk that he can’t manage or prevent.

Return of Records. Some employment contracts will state that the employer owns all medical records for an employed physician’s patients. This is fairly common and may seem to make sense while the doctor is working for the employer. However, this often means that physicians have no access to their patients’ records if and when they leave employment, unless each patient goes through the formal process of a medical records request.

Indemnification. Indemnification is a legal term for a party’s responsibility to compensate the other party to the contract for any incurred losses or liabilities. Employers will often require physicians to indemnify the employer if a person or entity takes legal action against the employer as a result of an act or omission of the physician. This could end up being a costly provision for the physician, as indemnification can include jury verdicts and settlements, attorney’s fees, court costs, and more. Because most malpractice policies specifically exclude third party liability, agreeing to indemnification means that an employed physician could end up being personally liable for all of these costs.

Services and Supervision. An employment contract may set forth job expectations that go far beyond the provision of medical care that a physician is licensed to provide. Many contracts require, for example, that physicians (i) supervise mid-level clinicians, (ii) participate in marketing for the employer, (iii) complete administrative tasks, and (iv) participate in regular audits. Physicians should understand exactly what the nature of their employment includes, beyond the practice of medicine.

Compensation. Most physician employment agreements are still heavily production-based when it comes to compensation – meaning, the more RVUs, the higher the salary. A physician’s base salary may be guaranteed, or may depend upon whether certain RVU targets are met. Many contracts also provide incentive compensation that can be based on both production (high volume of RVUs) and achieving quality, safety, participation, or other milestones. Physicians should consider whether an employer is providing them with adequate tools to meet the latter, as this compensation is “at risk.”  An employment agreement may – or may not – also include perquisites like signing bonuses, continuing medical education benefits, relocation expenses, coverage for licensure and association dues, and malpractice insurance premiums.  Salary and incentive bonuses should be considered alongside the value of these other benefits when determining the richness of an offer.

Any physician employment contract should be carefully evaluated with transparency of expectations and fairness top of mind. In addition, physicians should consult a healthcare attorney if they are unsure of the meaning or potential impact of the provisions of an employment agreement.  If you need assistance, please reach out to Nixon Law Group.

Rebecca.Gwilt@nixonlawgroup.com
Carrie.Nixon@nixonlawgroup.com