5 Key Provisions in a Successful Physician Employment Contract

The increasing employment of physicians by hospitals and health systems has heightened the importance of understanding physician employment contracts for providers. Below are a few areas of importance in every physician employment agreement.

1. Work/Call schedule
Every physician contract should include the expectations and requirements surrounding the physician's work and call schedule. This includes specifying the days to be worked and the hours required to be present at each location. Many contracts will specify a minimum number of required of hours per week but fail to include a maximum. Also, if the physician needs, or is required, to have protected administrative or research time, this should be included in the contract.

As lifestyle becomes increasingly important for the next generation of physicians, call requirements are one of the most often negotiated terms in physician contracts. It is important that the call pool is defined, as well as how call is allocated between those in the pool. The contract section regarding call coverage should be clearly defined so it is easy to understand what the physician is responsible for covering, including evenings, weekends and holidays.

2. Equipment/Space/Personnel
If the hospital or health system has not employed the physician’s specialty in the past, this section of the agreement will need to be reviewed carefully. Generic language, stating that the employer will provide all necessary space, equipment and personnel may not be sufficient.

Healthcare administrators are already aware that equipment can be very expensive; the physicians' leverage in acquiring the equipment will be most effective prior to signing the employment contract. The hospital should also appreciate understanding early on what capital outlays will be necessary if the physician hire is made.

Staffing personnel is also important to clarify in the agreement. If having a physician assistant or scribe is a requirement, this should be detailed in the contract.   

3. Malpractice insurance
Most, if not all, physician employment agreements discuss malpractice insurance coverage. The type of coverage and amounts should be defined. If the type of coverage provided is a "claims-made" policy, there should be further language that discusses who is responsible for providing tail coverage upon termination or expiration of the agreement.

The cost of tail coverage can be paid entirely by the employer, entirely by the physician or split between the two. Often, a vesting schedule is used to slowly shift the burden from the physician to the employer over a number of years. Another common feature is to have the cost paid by the party who terminates the agreement.

4. Non-compete/Termination
A wise attorney once told me that it is important to draw up the divorce papers with the marriage documents. I believe this same principle applies to a well written physician employment contract. Many of these contracts will include a restriction on the practice of medicine upon the termination or expiration of the contract. In most cases, there is a restriction placed for a certain number of years and a certain distance from the hospital (e.g., two years and 30 miles).

Two areas of concern, beyond the obvious time and distance restrictions above, are when the restriction applies, and also, to what locations it applies. If the health system has multiple locations, you will need to limit the language to provide that only the locations serviced by the physician are included in the non-compete. Also, in the event the employer terminates the physician without cause, or if the employer is in breach of contract, the non-compete should be non-applicable.  

Here is an example of how a poorly worded non-compete can make life difficult.

Imagine a physician joined a practice out of residency and started work on Aug. 1, 2013. On Aug. 4, 2013, the CEO of the practice came to the group and said, "we have just been sold to another health system, and you will all be receiving a new contract." The new contracts paid the physicians less, and they took call more. The physician refused to sign the new contract and was terminated without cause on Aug. 6, 2013. However, because the non-compete in her initial contract applied regardless of how the contract was terminated, she was prevented from practicing in the area after she had just moved her family to the city — all after five days on the job.

5. Compensation
The most common compensation structure for employed physicians will include a base salary with productivity and quality bonuses attached to physician performance. Productivity bonuses can be structured based upon billings, collections or wRVUs. All three structures have positives and negatives attached and should be fully understood by the physician.

Fairness and accurate comparisons are the concepts to consider when discussing compensation. When comparing opportunities, the position with the highest base salary may not be the most beneficial compensation package. A detailed analysis of the productivity and quality bonuses should be done to ensure that bonus thresholds are set appropriately and that the numbers are fair when compared with third party compensation surveys such as MGMA.

Sidney Christiansen, MD,  has spent the last 30 years as a practicing otolaryngologist in both private and academic sectors, and after retiring, founded Resolve Physician Agency to educate and prepare other physicians on the business side of medicine. Connect with Dr. Christiansen on Google+.


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