Common Physician Employment Contract Pitfalls

Hospitals are increasingly employing physicians nationwide.

The days of the independent practitioner are not over, but are becoming more difficult as more and more hospitals and physicians enter into contracts for employment. Below are some common issues to be aware of when entering into an employment relationship with a hospital.  

First, make sure it is an actual employment agreement as opposed to an independent contractor agreement. This distinction can have significant tax implications and would affect your benefit package.  

It is also important to understand the terms surrounding any sign-on bonus. It is very common for  hospitals to offer a sign-on bonus as an inducement for signing the agreement. Make sure you understand when the payment will be made. Is it upon the execution of the agreement or on the commencement of employment? Generally agreements state the sign-on bonus must be paid back if the employment is not for a specific term, like 2 years. Since most agreements also include a provision of termination without cause, we recommend that no repayment be made if the hospital terminates without cause during the initial term.  

Additionally, most physicians’ agreements include some type of productivity and/or quality bonus. It is important to understand how and when that bonus is calculated. Is it paid quarterly, is it tied to Medicare rates, what if there is a payor audit? Can the hospital recoup payments from the physician? In addition, physicians need to understand how the hospital will be billing and collecting for their services. Does the hospital employ professional coders or are the physicians expected to code for their own services? Physicians should also be aware of the expectation for the physician’s documentation submission. We have seen it vary from 24 hours to 30 days.    

On top of a sign-on bonus, physicians can also negotiate for moving expenses, reimbursement for CME and travel, reasonable equipment expenses for uniforms, stethoscopes, and computer equipment. Furthermore, the hospital should provide payment for DEA licensure, state licensure, medical staff fees and board fees. It is important to know if your state has special funds that physicians must contribute to. For example, Florida has the Florida Birth-Related Neurological Injury Compensation fund. Participation protects the provider from claims but can cost up to $5,000 per year for an OBGYN. These types of fees can all be negotiated in your contract.   

Of course malpractice insurance is always an important issue. The physician needs to understand what type of malpractice insurance they will be provided. Is the policy “claims made”or “occurrence” based? Ideally the provider will want occurrence based, but if the hospital is offering claims made, will they provide tail insurance? How long will they provide tail insurance? In some instances a physician can get “nose” insurance to protect against their prior acts.   

The contract should provide that the physician has input into their schedule and practice location. The schedule should be mutually agreed upon. If a multi-location system, can the hospital require the physician to go to any of the locations or is it limited to a specific location? The call schedule and call pay should also be clear. Is there a “beeper” rate with additional compensation when they have to come in or is it a shift rate? The call schedule should also be mutually agreed upon. What happens if a member of that specialty goes to senior staff or retires?   

As important as the formation of the relationship with the hospital is, it is just as important to understand what happens upon the termination of the agreement. Is there a non-compete that would effectively force you to move out of the area? Does the agreement require you to resign from the medical staff? Upon termination, what happens to any outstanding bonuses? If you are paid a percentage of collections, how long will they continue to pay you? We have generally seen a minimum of 3 months to ensure the physician is appropriately compensated.  

In addition to reviewing the compliance and legal aspects of your agreement, Lengea Law can assist in making sure you get the most out of your agreement both operationally and with respect to reimbursement. 

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