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Healthcare Practice Strategies – Fall 2012 - Employment Agreements: Begin with the End in Mind

As the healthcare system continues to realign along new economic lines, physicians are increasingly becoming employees — making the move from private practice to established medical groups, managed care organizations and healthcare institutions.

For many physicians, this means negotiating an employment contract — often for the very first time.

COVER THE “WHAT-IFS”
The focus of an employment agreement is usually on the front end: compensation, on-call schedules, etc. Yet, physicians negotiating an employment contract also need to carefully consider what happens at the back end of the agreement — and all the “what-ifs” that can occur.

For example, what if the employment doesn’t work out? Here, it may be wise to negotiate some back-end protections:

Tail coverage – Most employment agreements call for the employer to cover the cost of malpractice insurance during employment. In the case of “occurrence-based” coverage, the back end is pretty seamless: The physician leaves, and any professional liability is covered by the insurance carrier.

Coverage may not be seamless, however, if the coverage is “claims-made.” Here, so-called “tail coverage” may be required after termination of the employment contract to cover any prior acts. Due to the significant expense, determining who pays for tail coverage can be a key negotiation point.

Negotiating tip: Make sure the employment contract clearly defines what type of malpractice insurance is being offered — and who is responsible for purchasing tail coverage.

Non-compete clauses – Another key back-end issue arises in the area of non-compete clauses. These provisions attempt to prohibit the departing employee from practicing in the same geographic area for a certain period of time. While these clauses are illegal and unenforceable in some states (California, for example), employers often include them in contracts anyway.

Even where legally permitted, the non-compete clause must be “reasonable” in order to be enforceable. For example, you cannot be restricted from practicing in an entire state. Likewise, while a geographic restriction of 30 miles might be reasonable in a far-flung rural setting, it could be considered overly restrictive and unenforceable in a dense metropolitan setting.

Negotiating tip: Always negotiate the smallest geographic area and shortest time period you can for this clause. Also consider adding a liquidated damages clause to the agreement. This gives you the option of setting a price to forego enforcing the non-compete clause.

Non-solicitation clauses – Similar to non-compete clauses, non-solicitation provisions attempt to prohibit the departing physician from recruiting existing patients or employees to a new practice. In general, such clauses are perfectly legal. However, overly restrictive clauses may actually seek to prohibit the physician from even contacting patients regarding his or her departure.

Negotiating tip: Typically, a non-solicitation clause contains some time element (e.g., it may be enforceable for 24 months). Always negotiate the shortest time possible.

No-cause termination provision – Physician employment contracts routinely contain a provision permitting either side to terminate the agreement with 60 or 90 days notice for any reason, or for no reason at all.

Negotiating tip: Consider tweaking the termination provision to require written notice of any breach of the agreement — and an opportunity for the physician to address or correct
the situation.

LAST WORDS
Don’t fall into the trap of signing an employment agreement without reading it thoroughly — and negotiating terms that protect you. Have a qualified healthcare attorney review any potential employment agreement and provide the guidance you need before you sign.

A comprehensive discussion of standard contract terms and information about pro-physician and pro-employer positions on standard employment agreements can be found in the AMA’s Annotated Model Physician Employment Agreement (http://ama-assn.org).

Healthcare Practice Strategies – Fall 2012 Issue

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