Physician Employment Contracts

The Rise of Physician Employment


Many physicians are employed, whether by a traditional medical group practice or another entity.  With the ongoing economic reorganization of health care, more newly graduated and established physicians are becoming employees in established medical groups, managed care organizations, health care institutions, or group practices that they themselves form with other physicians.  As a result, physicians are increasingly covered by employment contracts.

 

 

Legal Representation During Evaluation and Negotiation of Physicians' Employment Contract


It is strongly recommended that the employer and potential employee each retain an attorney specializing in physicians’ business transactions in order to assist in evaluating and negotiating the employment contract.  The issues in such contracts involve not only complex legal relationships based on contract, employment and tax law, but also go to the pragmatic heart of working relationships affecting the day-today practice of medicine.  The employment contract not only establishes the expectations in the relationship, but governs the tone of the relationship as well.  A lawyer’s experience in working with physicians on these practical issues can be very important to the success of the overall arrangement.  This website does not constitute legal advice and cannot substitute for individualized analysis by an attorney consistent with the applicable State law.

 

Establishing Goals


Physicians should review this website and consult their counsel well before engaging in any interviews or starting negotiations for any particular employment opportunity.  As in all relationships, both parties should identify those financial and professional goals that are important to them.  Consider whether eventual ownership in the practice is an option and what value an ownership interest will have in the long term.  Evaluate the growth potential for the practice, the payor mix, post termination restrictions and other opportunities for professional growth.  Because of the myriad of individualized questions for the medical group and the potential employee, it is recommended that both the employer and employee evaluate their short and long term priorities.  Many physicians and medical groups fail to explore their goals, aspirations and objectives.  The time to think about your future and do something about it is before the contract is signed, and preferably before negotiations begin.  Know what you want and why you want it, and then ask for it.  You will have a more positive and open employment arrangement if both sides are candid with each other from the outset.


Intangibles


There are many considerations which factor into the decision to enter into an employment contract.  The employer must consider whether the employee’s credentials, personality and manner of practice are right for the position.  The employee-physician must consider the geographical location of the practice, the personalities of the other physicians, the type of work he/she will be doing, the short and long term economic prospects for the overall practice, and the amount of time the position will leave for other professional and non-professional activities.  The best drafted contract cannot create and sustain the “chemistry” necessary to establish and maintain a long-term relationship.  A good working relationship can only be built on a basis of trust, mutual respect and integrity.  These and other intangibles should be carefully considered and evaluated when considering a long term arrangement.

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Employer Due Diligence


References: Employer-physicians should contact as many references as possible/practical before hiring a physician.  Subject to advance approval by the candidate, and being sensitive to confidentiality considerations, check with residency chiefs, colleagues, and physicians where the employee currently practices, even if the physician has letters of recommendation.  If a potential employee has not been recommended by someone whose judgment you trust, check and check again.  Always verify the physician graduated from medical school, successfully completed training and presently has a valid, unrestricted license.


Interviews: All jobs are composed of several identifiable performance requirements.  Physician performance issues may include diagnostic ability, several types of technical clinical skills, interpersonal skills and teamwork.  A good interviewing approach is to hypothetically put physician employee candidates into different realistic situations where they can demonstrate their skills.  For example, the employer can present applicants with several case descriptions containing symptoms, vital signs and other diagnostic and personal information typical of cases encountered at your practice.  The potential employees may be asked to discuss or write down how they would proceed with the case, what questions they would ask, and tests they would order.


Joint Patient Care: The employer may also wish to do several joint consultations with the candidate while he retains ultimate responsibility.  During the process the employer can observe the quality of the clinical decisions, and the nature of the patient and colleague interaction.  Sometimes, the employer may ask to observe the candidate in his/her current work setting.

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Employee Due Diligence


Use Advisors: Many physicians lack formal business training.  Pre-med courses and medical school curricula unfortunately do not always prepare physicians well for business issues they will confront in practice.  Consequently, all physicians are urged to learn “the physician business,” even if they are becoming employees in large groups and may not initially be involved in management.  To that end, physicians and medical groups should engage knowledgeable advisors and consultants early and learn from them.  Ask your advisors why they are giving you particular advice, and study how your advisors analyze and address practice-related problems.  


Market Research: Physicians should understand market conditions and market trends that affect them.  Employee-physicians as much as employers need to know whether the group has a strong position in the marketplace as it exists and as it will evolve.  Who are the employer-group’s current payors?  What are the demographics and payor mix of the patient population?  What is the strategic direction of the group?  And what are the intentions of the payors in the market?  Will the employer be one of the major players in the future?  The employer should be able to clearly share its plans for where it wants to be in one year, three years and five years.  The employee should be confident the group’s goals are realistic, achievable and in harmony with the employee’s own objectives for that time frame.


Finance and Business: A potential physician-employee should look into the long-term obligations of the group.  Are any of the doctors in the group planning on retiring?  Will the rest of the physicians be obligated with a large buy-out?  Will capital be needed for other reasons, e.g., to upgrade facilities, reorganize, convert to managed care or pay for the demands of other market changes?  Physicians considering executing an employment contract would be prudent to request background information about the employer, such as corporate documents and financial statements.  The Physician should also investigate the employer’s history of hiring other physicians and talk to as many current and former physician employees as possible in order to determine the employer’s financial viability.


Management: Finally, look into how the group is managed.  Does the group have a competent, full-time, professional administrator?  Does that administrator have the support and cooperation of the doctors?  Is the manager someone you find easy to work with?  Good management is often a good indicator of how profitable the group will be and whether the employee will be content with his/her new position.  It is recommended that one inquire about the level of professional liability insurance, and any pending legal matters including governmental agency investigations of the practice.

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Written v. Verbal Physicians' Employment Contract


A written contract is very important to both parties.  It requires the parties to think clearly about their expectations and obligations in the employment relationship.  Reviewing contractual language will prompt physicians to think seriously about what they want out of the employment arrangement and will prompt discussion of important practical issues.  Real or potential misunderstandings, of which the parties were not even aware, may surface during discussion of the contract language and become clarified once the parties are required to put their understandings and expectations in writing.


Recruiting a physician is expensive and time consuming task for the employer.  Having a written contract that engages the employed physician for a set period enhances the likelihood that the recruiting investment will be amortized over time.  The employee also is investing his/her time in the practice and may have relocated and taken other important life steps to work with employer.  A written contract can enhance the employee’s protections, for example by assuring that the arrangement is not terminable at will.  In a professional setting, it is generally not in the best interests of the patients or the smooth running of the medical practice to have abrupt changes.  A written contract permits the employer to spell out the degree of control it plans to exercise over the relationship and allows the employee to react before actual situations arise.  Both sides always benefit from a written contract.


Moreover, as the employment relationship progresses, memories tend to fade.  The parties may forget precisely what was promised.  A written contract serves as a clear reminder of precisely what the parties decided upon.  Finally, even the best of relationships may alter.  In such cases, parties may change their minds as to the type of contract terms to which they wish to be bound.  A written contract ensures that even during periods of disharmony, the parties will be required to abide by the agreed upon contract terms.  In short, no matter how perfect the deal seems, and how much you trust the other party, do not rely on a handshake.  It is prudent for the employee not to start work until the employment agreement is fully signed, and any and all exhibits or addenda are attached and initialed.

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Negotiating Physicians' Employment Contract


It is almost always appropriate to negotiate a contract.  In fact, many contracts include provisions that are intended to be negotiable.  There may be circumstances where a medical group or other type of employer uses standardized contracts that are never negotiated and employee-physicians will have to decide whether that contract, as is, is right for them. The refusal to entertain or consider changes to a contract may be an indication of future working relationships or personal style of the employer. The bottom line is that a physician should never hesitate to ask questions about and seek to negotiate terms of an agreement. No employer or employee should ever execute an employment contract that does not fully address (as terms and conditions) all the expectations and representations relating to the proposed employment. All too often physicians sign incomplete employment agreements thinking that omitted issues can be addressed later when they come up. This is risky. If agreement cannot be reached later on the unaddressed issue, then both parties could be in a position of risking the employment relationship over a detail that could and should have been resolved with foresight. Listen to your intuition and your common sense, and work out all of the possible issues you can think of before you sign.

 

 

Drafting Physicians' Employment Contract


There is always a distinct advantage in having your attorney draft the employment contract.  There are pro-employer and pro-employee positions on many issues.  By beginning with a draft that favors your interests, you are most likely to retain overall language that benefits your position.  It is, however, more common for the employer to control the contract format.  If a contract is presented to you, you should always consider it as merely a rough draft.  Read every word contained in the contract carefully, and go through it with a red pen and mark everything that you do not understand or feel should be changed or added.  Then discuss these points with your attorney, who in turn can raise them with the other side.  Physicians should not be afraid to bring up any and all points which they consider unclear or confusing, despite the usually mistaken belief that they will be perceived as naive.  Written contracts are supposed to embody a “meeting of the minds,” so if you are unclear about anything in the contract, there may be no meeting of the minds. 

 

Often, a lack of clarity in contract language reflects a lack of clarity about an issue. It is better to clarify all issues before the contract is signed.

 

 

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