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.
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.
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 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.