How to Draft Physician Employment Agreements to Prevent Later Disputes

            No one wants to find themselves in the midst of a lawsuit, least of all hospitals or their physicians. This week on the blog, we want to provide you – whether you are a healthcare employer or employee – with tips on how your Physician Employment Agreement can be drafted to help prevent later conflict. This post is by no means exhaustive, but is meant to alert you to some of the biggest “problem areas” in these agreements: term provisions, termination procedures, and physicians’ duties. If you would like to learn more, please contact Susan Larsen of Larsen Law Offices, LLC at (303) 520-6030.

            One of the most important pieces of a Physician Employment Agreement (“Agreement”) is the term provision; when drafting an Agreement term, one may wish to specify up to four dates: 1) the execution date; 2) the effective date; 3) the date on which the physician will begin providing services; and 4) the date on which employment will end. Bloomberg Law, Health Care Operations & Compliance, Drafting Guide – Sample Provisions for Physician Employment Agreements (2017). The date on which employment will terminate is usually clearer, but the first three dates can often be confused when, in reality, they are distinct. Id. This causes problems if, for example, either party is bound to perform “pre-work” obligations; for the employer these may include paying the physician’s relocation expenses, while for the physician these may include obtaining specific hospital privileges or additional licenses. Id. To ensure that the parties are indeed bound to perform these pre-work duties, the drafter should specify that the duties are obliged to be performed as of the effective date. Id. Drafters of Agreements should carefully consider how long a term to include in the Agreement in light of the fact that most physicians are hired for long-term engagements; however, the specifics of each client must be taken into consideration. Id. If the physician is likely to become an equity partner in the near future, for example, a new agreement will need to be drafted when that happens and it may be most prudent to specify a limited term, after which the present agreement will terminate. Id.

            An Agreement should clearly specify the events giving rise to termination of employment and what obligations each party has upon termination. An Agreement may specify that the employer can terminate the physician “with cause” or “without cause.” Id. The termination section of an Agreement should lay out any and all events that could result in termination with cause. Id. On the physician’s side, these might be upon his or her death, physical or mental inability to practice medicine, loss of a medical license, or exclusion from the Medicare and Medicaid programs. Id. On the employer’s side, these might be incapacity to continue operations because of bankruptcy, insolvency or discontinuation of the business. Id. Terminations without cause are subject to more scrutiny in that they generally require 90 days’ notice by the terminating party before they are considered final, and the employer’s power to terminate a physician without cause is subject to federal, state and local employment discrimination laws. Id. Therefore, a drafter may wish to specify that any termination without cause is not effective absent the parties’ mutual assent, or that termination without cause is only available in the first six months (or other limited, initial period) of employment. Id. Finally, an employer may wish to include a provision governing the physician’s post-termination conduct, which often may include a covenant not to compete once the Agreement expires. See Physician’s Weekly, Avoiding Pitfalls in Physician Employment Contracts (17 Sep 2013), available at https://www.physiciansweekly.com/physician-employment-contracts/.

            Finally, both employers and physicians have an interest in carefully delineating the physician’s professional and administrative duties in the Agreement. Defining these duties narrowly ensures that both parties know what is required of the physician and what can and cannot be asked of the physician; it also helps in the event that a third party is injured and needs to know whom to hold liable in tort. Generally, the Agreement should clearly state that the physician is to devote his or her full time to the practice of medicine exclusively for the employer. Bloomberg Law, Health Care Operations & Compliance, Drafting Guide – Sample Provisions for Physician Employment Agreements (2017). It should further specify what the employer expects and requires of the physician, and any (reasonable) limitations it places on the physician’s activities. Many Agreements incorporate the employer’s policies by reference – if this is the case, physicians should ensure they carefully read these policies prior to signing the Agreement. Id. This section should also state, however, that the employer may not unreasonably limit the physician’s inherent authority to exercise professional judgment. Id.

            Whether you are an institutional provider of healthcare services or a physician, you can benefit from consulting a transactional attorney experienced in drafting and negotiating healthcare contracts. Ideally, Physician Employment Agreements are unambiguous and give both parties peace of mind. However, problems can arise, particularly regarding term, termination, and physician duties, if these Agreements are not treated with due care. Consulting a healthcare attorney is a smart, preventative first step for any party to a Physician Employment Agreement.

Should you like to discuss how an experienced attorney can assist you with your Physician Employment Agreement or other healthcare contract, please contact Larsen Law Offices, LLC at (303) 520-6030.