7 Dangerous Physician Employment Contract Terms

A physician employment agreement is legally binding regardless of whether the physician understands the terms. Unfortunately, some physician contract terms are more dangerous than others. Below are 7 dangerous physician employment contract terms that should raise both red flags and a physician’s eyebrows.

Indemnification Clauses

Indemnification is a legal term meaning that one party agrees to pay the expenses and costs of another party for something the first party either has or has not done. By agreeing to indemnify a group or hospital, the physician is agreeing to pay for ALL losses or damages that they could possibly sustain as a result of the actions being indemnified. Such damages could include lost profits, lost goodwill, loss of contracts, increased malpractice costs, and for anything related to the actions being indemnified. For example, if a physician agrees to indemnify a group or hospital for damages related to the provision of medical care and the group or hospital is later named in a malpractice lawsuit as a codefendant, the physician is agreeing to personally pay all the other party’s costs relating to the claim — including attorney’s fees, court costs, expert witness fees, costs of copying medical records, and any other costs – including legal judgments against the group or hospital (which could total millions of dollars). Indemnification isn’t just related to lawsuits, either. It can apply to state or federal government investigations, fines, allegations of lost profits, and loss of revenue. Indemnification may also invalidate medical malpractice insurance coverage since it turns malpractice liabilities (negligent treatment of a patient) into a contractual liability (agreeing to reimburse a hospital or group). Contractual liabilities are not covered by professional liability insurance. In other words, indemnification clauses create an “uninsurable risk” for physicians which could result in millions of dollars of out of pocket expenses. NEVER agree to indemnification. If you want to read more about indemnification, see the indemnification section of this blog.
If you think that indemnification isn’t a particularly dangerous physician employment contract term, see some of the questions from a medical malpractice insurance application below. If a medical malpractice insurer wants to know whether you have ever “signed a contractual agreement where you agreed to indemnify others,” you can be relatively sure that signing such agreements will have an adverse affect on your insurance premiums – or that doing so may even cause the insurer to refuse to issue a policy. Alternatively, checking “No” if you have signed an indemnification agreement may give the insurer cause to deny coverage if a malpractice case is filed against you.

Supervision of Advanced Practice Providers

Agreeing to supervise advanced practice providers may represent a significant legal risk. Physicians who supervise APPs will likely be held liable under the “captain of the ship doctrine” if the APPs commit malpractice. Agreeing to supervise other practitioners may be considered an “administrative duty” that is not covered under a medical malpractice insurance policy. For example, see the third question in the insurance application above noting that with this insurer “no coverage is provided for administrative duties.” Physicians can be held liable for negligently supervising APPs – both by juries and by state medical boards. Physicians who supervise APPs could be responsible for APP billing issues if allegedly improper insurance paperwork or documentation does not permit hospitals to fully bill for APP supervision. Physicians who choose to supervise APPs and to be responsible for their actions may consider adding language to the contract that provides the physician with necessary insurance coverage for supervision of APPs, that requires the supervised APPs are properly trained and insured for the care they provide, and that gives physicians the option to decline to sign necessary documents and immediately cease supervising any APP that, in the physician’s sole opinion, does not provide appropriate medical care.

Due Process Waivers

Due process is guaranteed by the Fifth and Fourteenth Amendments, both of which prohibit governments from depriving any person of “life, liberty, or property, without due process of law.” While hospitals aren’t necessarily government actors (some are), hospital bylaws usually require due process before taking action against a physician’s staff privileges. Procedural due process generally requires proper notice of specific charges against a defendant, a hearing on the merits of the proposed action before an impartial tribunal, an opportunity for discovery, an opportunity to present a defense and to call witnesses, a right to dispute opposing evidence and cross-examine adverse witnesses, and the right to be represented by an attorney. During a due process hearing, the hospital must show that there is a reasonable basis permitted by the hospital bylaws for removing a physician from the medical staff. A due process waiver makes it easy to remove a physician from the medical staff by forcing the physician to resign hospital privileges immediately and without a hearing at the hospital’s request. Most professional medical organizations have policies against including due process waivers in any medical employment agreement. For more information on due process in medical contracts, see this post about how due process waivers make it easier for hospitals to terminate physicians.

Acceleration

Although the contract period in physician employment agreements averages 1-2 years, contract termination clauses usually allow either party to end the agreement with a specified amount of written notice (called the “out clause”). The period of time required to terminate a contract is usually 60-90 days. Acceleration means that once the physician provides written notice of intent to terminate the agreement, the group or hospital can “accelerate” the date of termination and fire the physician immediately. For example, a physician could give notice of intent to terminate on March 1 with a departure date of June 1. The group or hospital could instead terminate the contract on March 1 – the date on which notice was given. In that case, even though the physician planned on receiving 3 months of additional income in the current job before leaving, instead the physician will suddenly receive no income for those 3 months. The biggest problem with an acceleration clause is that the ability to invoke the clause is optional. That gives the physician little ability to plan ahead when leaving a job.
If the physician assumes that the acceleration clause won’t be enforced and the current employer decides to accelerate the termination date, then the physician is terminated immediately, can’t begin working at his new job for several months, and goes without three months pay. On the other hand, if the physician assumes that the acceleration clause will be enforced and plans to begin working with the new employer immediately after giving notice to the current employer, then schedule conflicts with both employers would inevitably occur and the physician could be at risk of breaching both contracts.
There is no legitimate business purpose for an acceleration clause other than to impose a financial burden on a physician that chooses to terminate a contract. You won’t find any contracts allowing physicians to accelerate contract termination provisions. Don’t agree to contract acceleration clauses. To learn more about acceleration clauses, see this post explaining why acceleration clauses in medical contracts are so important to avoid.

Exclusivity

Exclusivity is a contract term that prevents physicians from providing medical services for other entities without prior approval of the entity with whom the physician is contracting. Being on staff at only one facility constitutes a significant threat to the physician’s income if the physician is suddenly terminated from that facility. Before being able to re-establish an income stream, the physician would have to find another hospital, interview, complete an application, wait for references, wait for application approval, receive a job offer, possibly wait for state licensure, go through the credentialing process, receive staff privileges, get on the department schedule, and then work for a month before receiving a paycheck. These processes take many months to complete, meaning that the physician would have no income during that time. There isn’t a very compelling reason to require exclusivity in a physician contract. If a hospital doesn’t want physicians working for direct competitors, a restrictive covenant preventing a physician from working at specific facilities would protect the hospital’s interests without potentially wreaking havoc on a physician’s financial health. In addition, exclusivity agreements only forbid the practice of medicine, not the practice of other professions or the performance of other outside activities, so any arguments that hospitals don’t want outside activities to interfere with a physician’s job duties are insincere at best. The only realistic reason for exclusivity agreements is to allow an hospital or group to use the threat of protracted joblessness to exercise control over a physician’s behavior. Exclusivity agreements should be considered contractual “deal breakers” – if they aren’t removed, physicians shouldn’t sign the contract.

IP Ownership

Assignment of rights language requires that physicians give a contracting entity rights to any intellectual property the physician creates or conceives of during the term of the Agreement. Even if a concept is created during a physician’s free time, assignment of rights clauses require the physician to grant a group or hospital exclusive rights to develop, market, and sell that concept regardless of how much free time the physician spends designing and developing it. Examples of intellectual property could include books, articles, paintings, inventions, devices, methods of practice, and any business concepts. In some cases, the assignment of rights may be limited to intellectual property developed using any of hospital or group’s resources. Those resources could include computers, phones, email systems, patient records, etc. If any of those resources are used in any manner (such as sending an e-mail on a company e-mail account) to even partially develop an idea, the entire idea may become the group or hospital’s property making an assignment of rights an agreement to work for free. Unless you are being hired specifically to create or develop an idea, don’t agree to assignment of rights.

Withholding Pay

Some physician employment contracts require that physicians allow a group or hospital to withhold the physician’s salary. For example, the group or hospital could withhold compensation if they allege that documentation is not properly completed or if any debts are allegedly owed to the group. The problem with this scenario is that groups or hospitals could allege incomplete documentation from months or years prior as an excuse to withhold an entire paycheck. On many occasions I’ve seen doctors have their compensation withheld for weeks or months while groups or hospitals repeatedly allege “incomplete charts.” When the physicians complete the requested charts, suddenly new delinquencies appear. In one case I represented a physician who was removed from a hospital’s schedule. The contracting group ESS withheld nearly $60,000 in compensation that it allegedly used to pay exorbitant rates to cover shifts that ESS canceled. If a group or hospital refuses to remove language allowing them to withhold physician pay, they should be required to notify the physician of any debt within 30 days of when the debt occurs. Groups or hospitals should only be able to withhold additional compensation if documentation is not completed within a certain period of time (perhaps seven days) after the physician is given *written notice* of any documentation deficiencies and should be immediately released once the requested documentation has been completed pursuant to the requirements in the written notice.

While physician employment contracts contain many legal landmines, addressing these 7 dangerous physician employment contract terms will help make contracts safer to sign.

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