Conditions Precedent Clauses in Medical Contracts

What is a Condition Precedent?

In contract law, conditions precedent clauses (sometimes also called “contingency clauses”) describe a situation where one party has a duty or obligation only after another party performs some act. In Solar Applications Eng’g v. T.A. Oper. Corp., 327 S.W.3d 104 (2010), the Texas Supreme Court stated that a “condition precedent” to a contract is “an event not certain to occur which must occur before performance under a contract becomes due.” In other words, unless one or more listed events listed as “conditions precedent” in a contract occur, the contract is not binding on the other party. In Ross v. Harding, 391 P.2d 526 (1964), the Washington State Supreme Court held that “Where a party fails to fulfill a material condition precedent, the defendant is relieved of all liability under the contract.” For example, if a real estate contract states that the seller must provide a home inspection to the buyer before the contract is enforceable, the terms of the contract are not binding on the buyer until the seller produces a copy of the home inspection. 

A condition precedent clause does not necessarily mean that the other party will refuse to honor the agreement. It simply makes it clear that the contractual duty for one party to perform is conditional on some other event occurring.

How Could a Conditions Precedent Clause Apply to a Medical Contract?

Conditions precedent clauses can also apply in a health care context. Here is sample language from a contractual agreement I recently reviewed:

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As conditions precedent to HOSPITAL’S obligations under this Agreement and throughout the Term of this Agreement, Health Care Provider agrees to:

1. Hold a currently valid and unlimited license to practice medicine in the State of XXXXXX;
2. Obtain and maintain certification from the American Board of Physician’s specialty or be in active pursuit of such certification;
3. Obtain and maintain, in good standing, membership on the Medical Staff of HOSPITAL, with appropriate and unrestricted privileges for the Services to be provided pursuant to this Agreement;
4. Obtain and maintain registration with the Drug Enforcement Administration without any limitation on Physician’s authority to prescribe drugs under such registration; and
5. Obtain and maintain Medicare and Medicaid certification and become a participating provider in the Medicare and Medicaid programs and all other health care service plans with which HOSPITAL has contracted to provide Physician’s Services.
6. Have and maintain a favorable outcome from HOSPITAL’S background checks and credentialing processes.

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In this example, once a health care provider signs the agreement, the terms are binding on the health care provider but are NOT binding upon the hospital unless the provider fulfills all of these additional requirements. For example, if there is an “unfavorable” outcome on a background check or if the health care provider does not obtain unrestricted hospital privileges, the hospital could terminate the agreement without being liable for breach of contract. 

What Are Potential Downsides to Condition Precedent Clauses in Medical Contracts?

If a physician signs a contract containing a “condition precedent” clause, the physician must remain diligent in assuring that the conditions are met. Although the physician may assume that the contract is finalized once signed, a hospital could choose to rescind the contract if any of the conditions remain unfulfilled. Note that vague requirements such as “completing credentialing processes” may contain multiple additional steps.

Consider the unpublished opinion of Bruni v. University of Washington School of Medicine (No. 82427-9-I, WA Court of Appeals 2022). In this case, a physician was offered a faculty position at the University of Washington School of Medicine and an appointment as the medical director of the NICU at St. Joseph Medical Center in Seattle. The physician was provided a list of multiple documents to complete and submit, including in-person employment eligibility verification, DEA license for the hospital, three letters of recommendation from current or past institutions, her CV, a staff application, and a “provider enrollment package.” Despite receiving multiple reminders, the physician did not submit many of the requested documents. Two months after the initial contract offer was made, the University rescinded its offer. 

Three years later, the physician sued the University for breach of contract. 

The trial court concluded that timely completion of the application forms was a condition precedent for health care professionals to provide medical care at the University. The Court of Appeals affirmed, holding that while the term “condition precedent” may not have been included in the agreement, a condition precedent may also be created by employment contract provisions such as ‘on condition,’ ‘provided that,’ ‘so that,’ ‘when,’ ‘while,’ ‘after,’ or ‘as soon as.’” The Court also noted that this list was not exhaustive. Citing the Washington Supreme Court opinion of Ross v. Harding, it noted that “Any words which express, when properly interpreted, the idea that the performance of a promise is dependent on some other event will create a condition.”  

How Should Doctors Address Condition Precedent Clauses in a Medical Contract?

If a contract contains any language implying that finalization of a contract is dependent upon some other event, the contract isn’t binding on the other party until that event has occurred. Here are some suggestions to consider if an employment agreement contains a condition precedent clause. 

Be diligent in meeting required conditions

If a contract contains a condition precedent clause, be diligent in fulfilling the required conditions. For example, as with the Bruni case, if a contract requires submission of staff applications and letters of reference by a certain date, make every effort to meet those deadlines. 

Avoid vague terms

Complying with vague conditions can be problematic since a health care provider may assume that a condition precedent has been fulfilled but a hospital asserts that the condition has still not been met. For example, “satisfactory completion of pre-employment screening” may mean that a doctor has valid licenses and DEA numbers to some people, but to others, that same condition may mean that a doctor has submitted the names, dates, and medical directors of every hospital the doctor has ever worked at since graduating from medical school and also has a satisfactory credit score (yes, some hospitals actually demand to check credit scores). Similarly, “prompt” completion of staff applications may mean 30 days to a busy physician, but may mean one week to the credentialing department. If there is a question about meeting a vague condition, clarify that question in writing. Clear language avoids ambiguity and provides more certainty about what is expected. 

Get a written confirmation that the required conditions have been fulfilled

Understand that a contract is not binding on the other party until all conditions precedent have been met. If some event must occur before the contract is binding, written confirmation from the other party that the event has been fulfilled will make the contract binding on both parties – at least with respect to the conditions precedent clause. Using the “satisfactory completion of pre-employment screening” example, ask for written confirmation that the pre-employment screening has been satisfactorily completed. If not, ask what steps still must be taken to satisfactorily complete the screening.

Get written waiver of conditions that have not been fulfilled

If a condition cannot be fulfilled, request a written waiver of the condition or request an extension of time to fulfill the condition. A waiver is one means to change or negate the effects of a conditions precedent clause. For example, if a contract requires that all staff applications be submitted by a certain date and that deadline cannot be met, requesting a written extension can modify the requirements for a conditions precedent clause.

Add your own conditions precedent

If a contract contains vague or excessive condition precedent clauses, consider adding conditions that require action from the hospital. For example, if a contract requires “satisfactory completion of pre-employment screening” before a contract is binding, add a condition that the hospital must “diligently work to complete such screening in a timely manner and must immediately notify physician of any events that would make the screening unsatisfactory.” The contract then would not be binding on the physician unless the other party fulfilled those conditions.

Takeaways

• Condition precedent clauses are becoming more frequent in medical contracts and may leave health care professionals in limbo after they have signed an agreement.
• Contracts containing condition precedent clauses are not binding upon the other party until the conditions have been fulfilled.
• If you have fulfilled all of the conditions precedent requirements to make a contract valid, consider getting confirmation from the other party in writing.

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Need legal advice from an experienced attorney about your contract? Contact me and I can try to help. 

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