A good contract by definition is one that is fair and reasonable and is a win-win situation for everyone involved. But how do physicians ensure they are getting a good contract before agreeing to work for a hospital or group practice?
Health care attorney Norman Jeddeloh shared seven essential pointers at the 2014 American Medical Association Annual Meeting:
- A solid contract is essential for physician employment relationships. Talking about all the negatives and "what-ifs" at the beginning of a new relationship may seem counter-productive, Mr. Jeddeloh said, but "there are a lot of very good reasons for the parties to sit down and force themselves to do a contract. It memorializes agreements. That's very important because everybody's memory fades."
- Contract language must be clear and unambiguous. "I can't tell you how many contracts I see that are impossible to understand," Mr. Jeddeloh said. "It leads to disputes. One of the most important things that a contract does is it serves as a reference point between the parties in the event of disputes." The standard rule of thumb is that a college sophomore should be able to read and understand the contract.
- All key issues need to be covered. "The contract needs to be detailed but not too detailed," Mr. Jeddeloh said. Contracts that are overly detailed "can impose a feeling of inflexibility in the relationship going forward. It's important to think about the really crucial issues and include those in the contract."
- Understand your compensation model. Some contracts offer fixed compensation, in which the physician receives a set salary regardless of performance. This model is more typical for new physicians, while more experienced physicians can expect some version of variable compensation, in which payment is determined based on the physician's performance. Every variable compensation model "takes into account the 'bucket of money' theory," Mr. Jeddeloh said. "It's really about how the bucket is split: the revenue, expenses, and built-in profit for the organization."
- Know the numbers of your compensation. "Every contract will have a formula for variable compensation, and formulas can get quite complicated," Mr. Jeddeloh said. "In addition to hiring a lawyer, you also ought to have an accountant look at it and run some numbers. It's good to attach a pro forma to the contract." Having an example with actual numbers can help you better understand what your compensation might be and will make it easier for a judge to understand what could be a very complex formula, in the event of a dispute.
- Make sure liability insurance is included. "Liability insurance is crucial," Mr. Jeddeloh said. Some things that will need to be addressed include whether the insurance is adequate and whether the hospital or group offers tail coverage when the physician leaves.
- Understand what will happen upon termination of the relationship. "People clearly don't want to talk about this at the beginning, but it's a very necessary provision of every contract," Mr. Jeddeloh said. Some things to look for include whether physicians will have a way to refute charges against them if their employer tries to terminate the relationship, whether a noncompete provision is included, and whether a restrictive covenant would keep the physician from practicing nearby once the relationship ends.
For additional insight into employment contracting, AMA offers two annotated model employment agreements: one for contracting with a hospital and one for contracting with a group practice.
Reprinted from AMA Wire with permission of the American Medical Association.
Action, July 15, 2014