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Blurry Physician

The 5 Most Important Decisions in a Physician Employment Agreement

Over the years, physician employment agreements have become very standardized. However, there are several provisions in such agreements that the to-be-employed physician must review carefully with his/her attorney.  The following is a brief summary of what I consider to be the 5 most important provisions for a physician to understand and negotiate with the employer.

1. Compensation

First and foremost, the compensation needs to be clearly written and understood.  Many compensation models are based on “Work Relative Value Units (WRVUs),” which are calculated by independent third parties and can be a trap for the unwary.  For example, the calculation of WRVUs can change from year to year and the employment contract usually provides for the current WRVU value to be the compensation model.  What happens if the WRVU value decreases substantially in a given year?  Answer:  The physician’s pay could decrease substantially as well.  Careful negotiation of the compensation provision could ameliorate that occurrence.

Additionally, compensation usually includes employee benefits, e.g., vacation, health insurance, and those can sometimes be negotiated as well.  Attention should also be paid to the reimbursement of expenses such as CME, credentialing fees and professional society fees.

2. Non-Compete

Texas has a statute specifically addressing physician non-competes, i.e., restrictions on where and when a physician can practice his/her specialty after termination of the employment agreement.  However, the statute does not mandate the time period, extent of the restricted area, or the exact type of physician actions that would constitute a violation of the non-compete.  Furthermore,
certain termination circumstances could be negotiated that would render the non-compete unenforceable or inapplicable.  Thus, the non-compete should be negotiated in that it provides ample opportunities to advocate for favorable terms on the physician’s behalf.

3. Outside Activities

Most physician employment agreements require the employed physician to work full-time and often provide that any outside fees earned, e.g., expert witness fees, belong to the practice.  However, many physicians have pre-existing consulting arrangements, charitable activities or other professional endeavors that should be excepted from the restrictions on outside activities and ownership of fees.  Again, this is a provision that can and should be negotiated.

4. Working Facilities and Staff

An employed physician needs adequate facilities, equipment, supplies and staff to fulfill his/her responsibilities.  Yet, most employment agreements do not contain a provision that requires the employer to provide those items.

The adequacy of staff could also affect compensation.  Consider a scenario in which the employed physician is on a bonus system that relies on collections of his bills by the practice.  The contract should contain a provision that the employer will have adequate billing and collection services.

5. Liability Insurance

The employment agreement will generally contain a provision for the employee/doctor to purchase “tail” insurance in case the agreement is terminated.  Tail coverage can be a substantial cost and, thus, the contract should be written to ensure the employee is not responsible for that coverage in all circumstances, e.g., in case of termination for cause by the physician. This provision is also one that can and should be negotiated.

Physician employment contracts are one of the most important financial undertakings in a doctor’s life.  While tedious, provisions should be reviewed, understood, and negotiated to the fullest.  The entire contract should be carefully reviewed but the above items should receive the most attention.


Scott Chase | Health Law

Scott Chase has practiced health law, corporate law, and intellectual property law for over 35 years.  Mr. Chase is Board Certified in Health Law by the Texas Board of Legal Specialization.

Scott’s primary practice focus is business transactions for physicians and healthcare facilities, as well as healthcare regulatory issues such as the Affordable Care Act, HIPAA and peer review.  Mr. Chase handles general corporate matters and trademark/copyright issues for physicians and also for a variety of non-healthcare clients.

Farrow-Gillespie Heath Witter LLP - Health Care Law

Corporate practice of medicine

Texas law generally prohibits the practice of medicine by any corporation, entity, or non-physician individual.  The “corporate practice of medicine” doctrine forbids a physician from entering into an agreement with a non-physician under which the non-physician would in any way control the physician’s medical practice.  Based on this doctrine, non-physician individuals and entities generally cannot employ physicians.

There are, of course, exceptions to this general rule.  For example, a nonprofit certified by the Texas Medical Board under Section 162.001(b) of the Texas Occupations Code — often called a “5.01(a) corporation” after the section of the Texas Medical Practice Act under which they were originally formed—may employ a physician if certain requirements are met.  The directors of such a corporation must all be licensed by the Texas State Board of Medical Examiners and must retain the sole authority to direct all medical, professional, and ethical aspects of the practice of medicine within the corporation.  Additional requirements must be met in case of any non-physician members of the corporation.  Further, a 5.01(a) corporation, like any Texas non-profit corporation, may not pay dividends to its members, so any profits must be paid through management agreements or as compensation.

In 2011, the Texas Legislature enacted laws designed to allow specific types of hospitals and hospital districts to hire physicians and to allow physicians to form certain ownership-sharing agreements with physician assistants.  Critical access hospitals, sole community hospitals, and hospitals in counties of 50,000 or fewer people may now employ physicians if certain protections are in place.  Physicians may also form corporations, partnerships, professional associations, and professional limited liability companies together with physician assistants, provided that statutory ownership and control requirements are met.