Hospital Employment Contract Issues for Physicians to Consider
There has been a surge in hospital employment of physicians nationwide, as over 50% of U.S. physicians are employed by hospitals, health systems and corporate entities. Independent physicians are increasingly receptive to becoming employees, and health systems and hospitals have a growing need to hire them. The acquisition of private physician practices throughout the U.S. accelerated during the COVID-19 pandemic.
Below, we have explored some common issues which physicians should be aware of when becoming a physician-employees of, and entering into a physician employment agreement, with a hospital or a health system.
Confirm that the agreement is actually an employment agreement instead of an independent contractor agreement
Worker classification is important because it determines if an employer must withhold income taxes and pay Social Security, Medicare, and unemployment taxes on wages paid to an employee. Employers do not generally have to withhold or pay any taxes on payments to independent contractors. The earnings of a person working as an independent contractor are subject to self-employment tax. Source: Internal Revenue Service (IRS) website.
Confirm the terms surrounding any sign-on bonus
Hospitals commonly offer a sign-on bonus as an incentive to the physician for signing a physician-employment agreement. As a physician, you should confirm when the payment will be made. Will the sign-on bonus payment be made upon execution (or the signing) of the agreement, or upon the first day that you start working? These dates could differ based on the terms of the employment agreement. For example, some employment agreements are dated January 1, and the first day of employment may be April 1.
Physicians should also confirm whether the sign-on bonus must be repaid to the employer if the physician does not remain continuously employed with the hospital for the duration of the term. For example, if the term of the employment agreement is 2 years, and the physician leaves or is terminated prior to the end of that 2-year period, the bonus may need to be repaid. Additionally, most employment agreements include a ‘termination without cause’ provision which means that the hospital may terminate the physician at any time and for any reason. We thus recommend that a physician negotiate that no portion of the sign-on bonus should be repaid if the physician is ‘terminated without cause’ prior to the end of the initial term.
Additionally, most physician-employment agreements include a productivity and/or quality bonus. You should understand how such a bonus is calculated and determined, and when such a bonus is paid (e.g., monthly, quarterly, etc.). Some bonuses are tied to Medicare reimbursement rates, and the physician-employee should confirm any such linkage. Other factors for the physician to consider are whether the hospital may recoup the bonus from the physician in the event of a payor audit, or other unforeseen circumstances. As we always advise our clients, the devil is in the details.
Determine how the hospital bills and collects for its services
Billing, coding and collecting are time-intensive tasks, and any physician entering into an employment relationship with a hospital should confirm whether the hospital employs professional coders or are the physician-employees expected to code for their own services by themselves? The physician-employee should also confirm the hospital’s expectations of billing document submissions, and electronic medical record (EMR) documentation, as we have seen a range from 24 hours to 30 days. This time range could significantly impact a physician’s quality of life.
Will the hospital or health system provide professional liability malpractice insurance?
Since the practice of medicine has potential for professional liability, a physician-employee should always confirm whether and to what extent the hospital or health system employer is providing malpractice insurance. If the hospital or health system provides malpractice insurance, then the physician should confirm whether such insurance is “claims made” or “occurrence based”. “Claims made” refers to an insurance policy that provides coverage when a claim is made against it, regardless of the timing of the claim event. A claims-made policy is a commonly used option for when there is a delay between when events occur and when claimants file claims. “Occurrence based” policy covers losses that happen during the time you have the policy, regardless of when you file a claim. It is designed to protect you against long-tail events and incidents that could cause injury or damages years after they occur.
If the hospital/health system only offers “claims made” insurance, then you should inquire as to whether the hospital will at least provide tail coverage (which is an extension coverage for incidents that happened during the time the physician has the policy but the claim was not filed until after the physician expires or is canceled). Tail coverage is another name for extended reporting period. Physicians may also inquire as to whether the employer offers nose coverage provides coverage for claims that arise from medical procedures performed while covered under a previous terminated policy but first reported under your current policy.
Inquire about benefits, such as moving expenses, and other reimbursements
Physician employees should also negotiate for the following expenses to be reimbursed and covered, including moving expenses, Continuing Medical Education (CME) expenses, travel expenses, as well as reasonable equipment expenses for uniforms, stethoscopes, and computer equipment. Furthermore, the hospital/health system employer should provide payment for Drug Enforcement Agency (DEA) licensure, state licensure, medical staff fees, and board fees. Physicians may also inquire as to whether their respective state allocates special funds into which physicians may contribute to cover some of these expenses. For example, the State of Florida has the Florida Birth-Related Neurological Injury Compensation Fund which allows providers to participate by paying the required $5,000 per year for an OBGYN (Obstetrician and Gynecologist); such fees may also be negotiated with your hospital/health system employer.
Confirm the level of input and control physician has over schedule and staffing locations
Physicians should take note of how much input they have in their scheduling and locations in the employment contract. The work schedules should be mutually agreed upon by employer and employee. If the health system or hospital is a multi-location system, the physician should confirm whether the employer may require the physician to go to any of the locations, or just limit the travel to a few locations. The on-call schedule and compensation for being on-call and working after-hours should also be clear. Physicians should inquire as to whether there is higher pay, commonly referred to as “beeper pay” for on-call or after hours work, among other compensation options for additional work.
Confirm what happens when an employment agreement expires or terminates
The physician should be mindful of the possibility of the employment agreement expiring, or terminating involuntarily. If the physician-employee plans on staying on with the employer for the long-term, and the employer wishes to continue the relationship with the physician-employee, the physician-employee should explore whether there is a mandatory retirement age, and whether there is the possibility of deferred compensation after the physician-employee retires.
Alternatively, if the employment agreement terminates earlier than anticipated, either through an involuntary termination by the employer (firing of the physician-employee), or the physician employee’s resigning, the physician employee should confirm whether there are any restrictive covenants that continue after the termination of the employment agreement or employment relationship. If there is a non-compete, what is the geographic scope of such non-compete, meaning would the physician-employee and his/her family be forced to move out of the area upon termination of employment? This could be disruptive to the physician-employee’s family. Additionally, physician-employees may confirm whether he/she is entitled to any accrued and unpaid bonuses upon termination of employment. If for example, the physician has generated revenue for the practice that has not yet been collected, some employers provide for a post-employment grace period during which such accounts receivable may be collected and paid to the physician-employee for his or her efforts on behalf of the hospital/health system.
Lengea has highlighted some issues that physicians should consider when they join a hospital or health system as a physician-employee. Lengea would be happy to discuss the above issues in more depth, and review your employment agreement to spot other areas which may be negotiated to further benefit you as a physician-employee.