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Seven land mines of hospital employment contracts

More physicians are signing on the dotted line, but paying attention to the wording may make it less likely that such arrangements will blow up.

By Victoria Stagg Elliott — Posted Dec. 19, 2011

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For some physicians, a job with a hospital is a dream come true. A physician can practice medicine and have a steady paycheck, regular hours and none of the hassles that may come with a solo or small practice.

But to make it less likely that this dream will turn into a nightmare, physicians need not only read the contract but also be wary of potential land mines hidden within.

"The doctor really has to understand what they are getting into," said Wayne J. Miller, president and shareholder of the Compliance Law Group in Los Angeles.

The existence of the most common contentious issues doesn't mean a physician should not sign a contract, analysts said. But those issues could be evidence that more negotiation is needed, particularly the first time a contract is signed with a particular institution. Physicians tend to have more negotiating power when a hospital is trying to attract them rather than after several years of service, analysts said.

"The best leverage you have now is now. Hospitals will give this song and dance saying that this is the contract signed by everybody," said Joan Roediger, a partner with Obermayer Rebmann Maxwell & Hippel in Philadelphia. "Doctors are not widgets and are not all the same. I don't care if a million people signed a horrible contract. I wouldn't sign it."

The seven most common hidden dangers in contracts:

1. Job description

A vaguely worded job description means that physicians could be contractually obligated to perform jobs they never planned to do, working hours they never intended. This means an endocrinologist hoping to practice endocrinology during usual office hours may be providing internal medicine in the middle of the night or every Saturday and Sunday.

"Contracts will say a physician is being recruited to practice medicine. That's not good enough," said Christopher L. Nuland, a health care attorney in Jacksonville, Fla. "Or it will say duties as may be assigned by the board of directors. That is too open."

The contract wording about hours also should avoid stating a minimum. Rather, this document should state that the physician will work toward a goal of a certain number of hours. This should take into account administrative or other expected duties.

This avoids situations in which a physician breaches the contract inadvertently because he or she did not provide a minimum number of patient care hours. For example, instead of providing care, new physicians were building a practice, participating in hospital committees or helping to run the office.

"If the contract says the physician will be expected to work full time, what does full time mean to the organization?" asked Jennifer Snider, network executive with Halley Consulting Group.

2. Restrictive covenants

Physicians might have experience with restrictive covenants, which may have been in practice contracts as well. But a covenant that is too restrictive could mean that the only way a physician can change jobs is to move away from the region. If a physician needs to stay in the region but wants to work elsewhere, he or she must stop practicing for months or years.

"A physician may say that they don't really care. They may move and want to just get the deal done," said Sidney Welch, a partner in the health care practice at Arnall Golden Gregory in Atlanta and a co-author of the Annotated Model Physician-Hospital Employment Agreement published by the American Medical Association Organized Medical Staff Section. "But I think it's important. You may not anticipate that your spouse may not want to move. You may decide you don't want to move."

Not all states allow restrictive covenants preventing physicians from working within a certain mile radius of a hospital for a set amount of time, but many do. Most hospital employment contracts have some form of one. It may not be possible to eliminate it from the contract, but it is usually feasible to negotiate the terms.

Questions to consider: How big does the exclusion area need to be? Will it apply only if a physician wants to work for a competing health system? What if a physician wants to go back into private practice?

Analysts say physicians should try to get the restrictive covenant to cover the smallest area for the shortest time possible.

The contract also should state situations under which the noncompete clause will not apply. Physicians do not want to end up in a situation in which a hospital breaches the contract in some way that leads to a job ending but doctors are still bound by a restrictive covenant that does not let them work elsewhere without being uprooted.

"If the hospital terminates the physician without cause or for some reason the hospital breaches the contract, the restrictive covenants should not be enforced," said Randy Schultz, a partner and health care attorney with Polsinelli Shughart in Kansas City, Mo.

3. Outside activities

A poorly written contract clause governing outside activities may mean that physicians must give royalties from creative or scientific endeavors, even those carried out on personal time, to the hospital employing them. Volunteer clinical work may be off limits. Indeed, physicians may discover that doing anything outside of their main job means jumping through impossible hoops.

"If you know what you are going to do, put that in at the outset," Welch said. "And the contract should say that approval should not be unreasonably withheld."

Most contracts have a clause governing employment and other activities outside the institution. These will vary depending on a physician's specialty and the setting. They should spell out under what circumstances a physician may or may not work for an outside entity.

Questions to consider: Is volunteer clinical work allowed? Can physicians take a locum tenens assignment outside of the hospital's main catchment area during their off time? Who gets the payment for a speaking gig during work hours? What if the physician writes a book or invents a new medical device? Who will receive the royalties? Under what circumstances must physicians ask permission for outside activities, and whom do they ask?

4. Payment recoupment

Physicians may have had the unfortunate experience of health insurers claiming that too much money was paid to the doctors, and so they need to send some money back. That can happen with a hospital, too.

"I always tell physicians not to sign a contract in which money can be taken from you," Nuland said.

Such contract clauses allow a hospital to retrieve money paid in the form of salary, or a signing or retention bonus, if a contract is terminated early or certain productivity benchmarks are not met.

Experts advocate trying to get those clauses changed. If that is not possible, this financial loss should be taken into account when planning finances or changing jobs. In addition, taking back money should be allowed only in specific situations that are spelled out in the contract.

"If a physician leaves for cause because the organization did something, the organization should not require the pay back," Snider said.

5. Tail coverage

Having to write a large check for medical liability tail coverage is another potential land mine.

Some contracts say a physician is responsible for tail coverage, but experts say this should be true only under certain conditions. For instance, physicians may be required to pay for tail coverage if they quit before the end of the contract, but not for being terminated without cause.

Other situations may mean that the cost of tail coverage is split between the physician and the institution, but this needs to be stated explicitly in the contract.

"It used to be standard for the employer to handle the tail coverage obligations," Nuland said. "Now the departing physician sometimes has the obligation to pay for the tail coverage. I recommend that the hospital pay the tail coverage if the physician is forced to terminate the contract for cause."

If the physician is aware of the need to pay for tail coverage, this also may be an issue to negotiate with the next employer.

6. Call coverage

For some physicians, the appeal of having a hospital employer is minimizing the amount of call coverage they are required to provide.

However, those who negotiate employment contracts on behalf of physicians advise against generic language stating that a doctor will provide call coverage based on the requirements of the hospital board. This is too open and could lead to more call coverage than physicians expect.

Rather, analysts recommend that the contract state that call coverage will be divided equally among the physicians in some way.

"I understand and appreciate that every physician has to have their fair share of call, but no more than that," Nuland said.

According to a Medical Group Management Assn. report issued April 20, the proportion of physicians receiving payment for covering call increased from 59% in 2009 to 65% in 2010. Analysts said payment terms for call coverage also should be as specific as possible.

7. Contract termination

If the hospital brings you on in a limo, will you have to hitchhike home if things sour? Most contracts are for one or two years and renew automatically. But sometimes the renewal might not be so automatic.

In addition to knowing what a particular job entails and how to begin, experts say, physicians also need to know how a contract might end.

Questions to consider: Under what circumstances can the physician or hospital end the arrangement early? How is terminating with cause, on the part of the hospital or the physician, different from terminating without cause? What falls under the definition of "cause"?

This language should be written out in the contract and should include how much notice either party has to give. This can range from 30 to 120 days but should not be much more than that.

"I don't believe a physician should ever sign a contract that requires more than 120 days notice for a without-cause termination. Anything longer prevents future employers from hiring you," Nuland said.

Physicians also should be aware of circumstances such as the loss of a license or criminal activity that can end a contract immediately. If a contract states that a physician needs to follow medical staff bylaws or other rules, these should be attached to the contract or available to a physician in some form.

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External links

Annotated Physician-Hospital Employment Agreement, American Medical Association's Organized Medical Staff Section. Free for AMA members. Nonmembers may purchase it from the online bookstore. (link)

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