7 Key Provisions for Successful Physician Employment Contracts

As hospital employment of physicians continue to increase due to uncertainties surrounding reimbursement and healthcare reform puts increasing emphasis on quality over quantity of care, it is becoming increasingly important for hospitals to create effective contracts for employed physicians that will not only result in maintained profitability but also quality care. Here are seven critical provisions for successful physician employment contracts.

1. Obligations of the employed physician. Contracts should include detailed descriptions of what exactly is expected of the employed physician. This includes detailing what type of medicine the physician will be practicing, hours the physician must be present at a location and any required on-call hours or administrative duties required.

"[Physicians] know they're practicing medicine, but duties can involve certain hours of availability or when they're at the hospital," says Wayne J. Miller, JD, a healthcare transaction and regulatory attorney at Compliance Law Group in Thousand Oaks, Calif. "Sometimes, the physician may have to be on-call; some may have to provide outpatient care; and some may have administrative responsibilities or may be called on to practice in different locations."

2. Compensation agreement. Hospitals typically no longer pay employed physicians just a flat annual salary. Instead, a physician's base compensation will include extra bonuses tied to performance.

"Nowadays, a hospital will tie compensation to particular performance baselines or benchmarks. In other words, they look at how efficient the physician is with patients, how many patients they see in the course of a day or whether they meet certain quality and satisfaction measures based on patient surveys," Mr. Miller says. "Compensation can also be tied to how well the physician helps the hospital reduce cost by using equipment and staff most efficiently."

3. Required training and/or peer review standards. Not only should hospitals require physicians to be licensed and certified in their respective specialties, but they should also require them to demonstrate ongoing education and competency.

"A hospital may require a physician to go to conferences, seminars, review online materials periodically or might even want him or her to become active in an association," Mr. Miller says.

In addition to demonstrating that an employed physician is credentialed and licensed, hospitals may require a minimum number of the physician's cases to undergo peer review,  which will be audited to ensure his or her professional competency.

"Surgery is a good example of how a hospital might require a minimum number of cases to demonstrate the surgeon is confident and competent," Mr. Miller adds. "So not only does a physician have to meet basic credentialing requirements and maintain those, but the provision would also include being subject to peer review processes to evaluate their quality of care and if they are efficiently utilizing hospital staff and equipment."

4. Provider-payor agreement. Employed physicians could be required to be participating providers with Medicare, Medicaid and other payors, Mr. Miller says. In those cases, hospitals could additionally require the physicians to qualify in certain payment programs, such as PPO or HMO plans. Another critical provision related to qualifying physicians is assigning rights, where an employed physician assigns his or her right to payment to the hospital for any professional services rendered. This clarifies the hospital is receiving payments from payors, even though the physician is performing the medical services.

"With any payor that a hospital is contracted with, employed physicians must be a participating provider in, such as Medicaid, state Medicare program and any commercial payors," Mr. Miller says. "Hospitals also want to make sure if it is participating in an HMO or PPO plan, they want that physician to qualify in the same status and arrangement with those payors as well."

5. Confidentiality and nonsolicitation agreements. The confidentiality provision guarantees an employed physician will never disclose any confidential information — such as the hospital's business procedures, patient lists and medical records — during and after his or her employment term. The nonsolicitation agreement ensures a physician will not solicit other employees of the hospital to work for them after he or she is terminated.

"If a physician has developed a relationship with other staff members, like a nurse, there's typically a period of time after termination in which that physician cannot solicit to hire any of those staff members to work for him or her," Mr. Miller says. "The key is that they cannot actively solicit and contact them to hire them."

6. Non-competition agreement. In this clause, the employed physician cannot work for another competing hospital or healthcare facility in a capacity that will harm the business of the hospital. In most instances, these provisions are restricted by distance or a period of time, such as a 20-mile radius and up to one year following termination.

"Basically, a physician can't go across the street and do the same kind of work that is competitive to the original employer because they don't want their investment in the physician going to a competitor," Mr. Miller says. "However, many states don't allow for post-termination non-competition provisions because they say it's a strain on the practice of someone's profession. Most states would say a non-compete is permissible during the term of full-time employment."

7. Termination clause. This clause specifies how long the contract is in place for. It is important hospitals outline probable causes or grounds of termination for terminating any one physician, such as poor performance, moral turpitude, substandard quality of care or lack of cooperation. This agreement could include a provision which allows the employed physician to self-terminate.

"To level the playing field, physicians can essentially create a mirror image of a laundry list of reasons that would allow them to self-terminate," says Adam Kaufman, a business attorney practicing in negotiations of employment and independent contractor agreements. "That would include things like being assigned duties that are beyond the scope of normal expectations."

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