RED FLAGS:
1. Wording of the contract is ambiguous or conflicts with other parts of the contract
2. Salary, bonus formula are vague. Benefits are not defined. Total time off for
vacations/conferences are not defined. Payment interval not defined.
3. Hours of availability and call (if any) are not defined. Administrative time (non-fee generating
time) is not defined.
4. A disparity exists in the notice required by the employer and the employee in the amount of
notice required to terminate the contract
5. A non-compete clause is excessively restrictive (eg. cannot practice within 50 miles of any of
the practice locations for 5 years when there are practice locations blanketing the entire
state-also 5 years is excessive...usually 1-2 years is more common)
A medical contract review checklist is located here, however this is admittedly a very detailed and
employee-biased view of employment contracting which contains elements that may not be
possible for employers to include such as the time the employee will spend in utilization review.
An excellent AMA document on contracting (albeit somewhat dated) is located here. The most
important aspects of the contract are a. the termination clauses, b. the presence of a
non-compete or non-solicitation clause, c. partnership elements, d. salary and benefits
Termination Clauses: Physicians and employers must have a way to dissolve the employment
relationship in a fair manner. Termination clauses are usually of two types: With cause and
without cause. Termination with cause is usually due to egregious acts of the employee, loss of
medical license, loss of DEA license, loss of medical staff privileges, acts of moral turpitude
which negatively affect the practice, failure to provide services or live up to the obligations of the
contract, etc. Generally the termination for cause is either immediate or 30 days, but can be both
if each condition is spelled out. It is important when examining contracts to avoid any dangling
open ended conditions such as "etc" or "any other acts which may compromise the practice".
The loose interpretation of the latter two conditions may result in firing of the physician if the
doctor has the wrong hair color. The "with cause" specifically spells out all possible causes for
termination. "Without cause" is a bit more nebulous, but is more of a bilateral arrangement which
permits either party to withdraw from the contract regardless of the reasons. Typically the time
frame specified should be equivalent for both parties, and is usually set at 60-120 days,
depending on the difficulty the employer would have in recruiting another physician to fill the spot
or to absorb the patient load. Inequities in the time periods for employer and employee should
not be accepted.
Non-compete and non-solicitation clauses: In order to protect the market of the employer,
these clauses are inserted into the employment contract to detract the employee from setting up
shop next door to the employer. The referral patterns, physician and insurance connections, and
practice secrets built up by the employer after sometimes years of work are all worth protecting
from the potentially serious damage which would result to the employer's practice if an employee
were permitted to maintain geographic proximity or solicit current patients to enter the new
practice of the ex-employee. Accordingly, a non-compete clause is often used that has both a
geographical and temporal limitation. When structured narrowly enough, the non-compete
clauses may be judicially enforceable whereas a too broad clause would not stand up to scrutiny
in most jurisdictions. For instance, a clause which prohibits an employee from practicing within
25 miles of the practice office for a period of one year would probably be enforceable. But a
clause stating after severing of the employment contract, a physician may not practice anywhere
in the state for a period of 5 years would most likely be ruled excessive and an unreasonable
restraint of trade. What is unclear is how an employee with many practice locations could
potentially restrain a physician from practicing in a radius of 25-50 miles from any of the
employer's practice locations, especially if the physician does not routinely see patients in all the
locations. The litigation of these issues are expensive for both parties and may be decided in
favor of one or the other largely based on local jurisdiction. There are not broad sweeping
decisions from the upper courts giving direction to lower judges, so often the cases are decided
on mitigating circumstances. For instance, if the employer breached elements of the physician
contract first (may be unrelated elements such as bonus, call, etc), deference may be given to the
physician since he in good faith had executed his part of the contract up to that point. As a
method of avoiding litigation, occasionally there may be a contract element containing a buyout
clause that would permit the physician to continue working locally for a usually rather steep price.
These are often enforceable. In such circumstances, the physician is not being prohibited from
working in the area by a non-compete if the economic damages for such competition are paid to
the employer as noted in the contract clause. At times, even without a formal clause written in
the contract, an arrangement may be reached for economic payment from the physician to the
former employer in order to void the non-compete clause. Of course, the physician should have
their attorney prepare a formal document signed by both parties for such an arrangement.
Usually employers will incorporate into the contract either non-compete or non-solicitation
clauses, but not both.
Non-solicitation clauses are generally held to be more enforceable than broad non-compete
clause limitations. These clauses specifically state the physician, after separation from the
employer, may not solicit any patients of the practice of the employer. Because this type of
restrictive covenant does not prohibit the physician from practicing medicine, or competing for
patients in the same geographical vicinity, they are viewed favorably by the courts and are
usually enforced as a straight breach of contract. Solicitation usually means attempting to
coerce patients in the current practice through direct conversation or contact (telephone calls,
postcards, fliers mailed only to the former patients and not to a diverse population, etc) for the
purpose of luring those patients away from the former practice into the new practice of the
former employee. It is generally not viewed to be solicitation to advertise in the newspaper, on
radio or TV, or on a website as long as these advertisements do not mention "former patients
welcome" or other such statements targeted at the former patients. Only two courts in the nation
(one in Illinois and one in Missouri) have found non-solicitation clauses violate the restraint of
trade laws, but otherwise the clauses have been universally enforced. To be successful in
litigating such cases, employers must not only prove a breach existed, but also that there were
damages due to the breach of contract.
Partnership Clauses: The terms to partnership or equal shareholder status are not always
spelled out by employers in employment contracts. In pain management with small groups this is
not deemed by the employer to be as important since there is a certain amount of trust and
goodwill that is expected. However, that trust may dissolve over time if there are certain
elements of a physician's performance that the employer deems substandard, even if the
physician is obeying all the contractual obligations. "Partnership" is a term which is relative only
in an associative sense, but not a legal sense. Legal partnerships are a business form that is
only rarely used in pain medicine. More common is a corporation or a LLC. In these situations,
partnership may be deemed to be an equal shareholder or equal voting member in the company.
Large groups may have junior and senior "partners" with unequal bonus and voting shares. There
are several different models for contractual "partnerships":
a. 2-5 years as an employee, then with a buy-in to cover the accounts receivable and the
equipment of the practice, an employee may buy in to full shareholder status
b. Guarantee for the first year as a loan, which must ultimately be paid back, then a few years
until partnership
c. Low salary for the first year, bonus is calculated on collections generated minus expenses
which include malpractice and a proportional share of office expenses. In this model, the
employee remains an employee indefinitely but has the potential for significant bonuses due to
the "eat what you kill" philosophy.
d. There are many other valid models.
If a person is to become a partner, sharing in the office expenses and buying into the equipment,
accounts receivable, and income stream of the practice, it is most advantageous for the
employee to do this within the first 2 years when possible.
Salary and Benefits Plans: An employee should not be greedy the first year of a contract. If
the employee has to apply for new billing numbers, contracts with HMOs, and Medicare, it is
possible all patients seen by the new physician will cause patient's to be billed out of pocket
(except Medicare). This may cause non-payment or reduced payment of claims since many
patients assume if they are seen by a practice that accepts these insurance plans or participates
in insurance plans, all physicians in the group will do so. Therefore, it is prudent to only have the
new physician see patients for those plans he is contracted with if the group also has contracts
with many other carriers. At times, the physician may only be able to see Medicare patients since
there is retroactive billing for Medicare. The delay in collections for new physicians may be 4
months for health insurance companies and PPOs. Therefore, the practice is nearly entirely
supporting a new physician for the first 4 months when the physician does not have billing
numbers or contracts prior to beginning work with the group or pain medicine corporation. The
collections typically begin to dribble in after 4 months and after 6 months, the collection rate
reaches approximately 50-75% of the final rate. However, the physician should not work for
slave labor either. In small practices, the starting salaries may be only $120,000 for the first year
but with the potential to make $300,000 the first year based on bonuses. Alternatively, if the
employer is to assume all the risk of your production and salary then the employer may offer a
fixed rate that is somewhat higher the first two years ($250,000) but with no bonuses.
Benefits include health, dental, life, retirement, vacation, etc. Usually in small companies,
provisions of the Family/Medical Leave Act is not in force (only applies for more than 50
employees). As time is money, each week of vacation cost the company a significant amount of
money and therefore should be rationed. Many physicians take 4 weeks the first year and more
thereafter for vacation/CME. In small companies, a high deductible HSA may be the best way to
control costs of health insurance and yet provide the employee with funds that can be transferred
to an IRA at the end of the year. Cafeteria plans may be useful also, but in many of these plans,
unused benefits are absorbed by the company at the end of each year and do not become the
property or roll-over to employee accounts.
Contracting for the Physician as Employer
For physicians hiring other physicians or nurse practitioners, contracts are just as important,
however the focus is on protecting the assets, goodwill, patient flow, and integrity of the
corporation. The above cited principles still apply but need to be tailored to the specific situation
of the employer.
Examples of medical employment contracts may be found here .