Employment or Solo Practice

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Cover Story – February 2013

 Tex Med. 2013;109(2):14-20.

By Crystal Conde 
Associate Editor

For 11 years, Hassan Alissa, MD, a San Marcos rheumatologist, worked for a hospital nonprofit health corporation (NPHC). During that time, he built a robust patient base and learned the ins and outs of the business of medicine. He also discovered that working for an institution owned by a large corporation has its limits.

Last year, Dr. Alissa made a critical decision that would drastically affect his professional career. Armed with experience and a devoted flock of patients, he entered the realm of solo medical practice in early January.

"I'm very excited about having my own practice. I envision having more freedom. Also, I grew weary of having to jump through a series of bureaucratic hoops every time I needed something," he said.

Dr. Alissa worked for Central Texas Medical Center, owned by Adventist Health System, from 2009 to 2012, and cared for about 150 patients a week. He worked for two other hospital NPHCs before that. Dr. Alissa describes the staff and administration at Central Texas Medical Center as "supportive," adding that he exited the institution on good terms.

Dr. Alissa is part of a trend in practice setting preference that began in the early 1980s. While some physicians choose to start out practicing with established medical groups or hospital NPHCs, they may not remain there as employees. Preliminary results from the 2012 Texas Medical Association Physician Survey indicate a majority of physicians eventually become full or part owners of a medical practice.

The survey shows that 78 percent of Texas physicians are full or part owners of their main practices, although 29 percent started practice as an employee. Forty-eight percent of employed physicians subsequently bought into practice ownership. Of the employed physicians who later became practice owners, 80 percent are still full or part owners of their main practice. The survey shows the majority of employed physicians (60 percent) work for other physicians.  

During the 2011 legislative session, TMA supported bills that preserved a physician's independent medical judgment in an employed hospital setting and that provided protections for the thousands of physicians employed by hospital-run NPHCs. TMA supports proper and structured physician employment arrangements designed to protect the clinical autonomy of physicians – employed and independent – through medical staff oversight. The association has gone to great lengths to protect the patient-physician relationship as pressure mounts to allow hospitals to directly employ physicians and will continue to do so during this year's legislative session. The association also has products and tools to help physicians make informed career decisions. (See "Employment Resources.")

Dr. Alissa says working for a hospital NPHC has pros and cons, and he has advice for physicians who are weighing their career options.

"Physicians should read their employment contracts carefully and consider consulting an attorney to help with negotiations before signing," he said.

 Do Your Homework

When Dr. Alissa's contract expired last year, he consulted San Antonio attorney Mike Kreager, who represents physicians and health care entities, for help negotiating a new agreement. During the process, Dr. Alissa says he realized it would be best for him to open his own practice.

"For me, working for a hospital was a good way to get started in medical practice, but I reached a point where I felt I could no longer grow my practice," he said.

Dr. Alissa's employment contract had a noncompete clause that specified he couldn't practice within 25 miles of Central Texas Medical Center. He says he negotiated with the hospital, which agreed to waive the contract's geographic language. Dr. Alissa opened up shop next door to Central Texas Medical Center.

Before signing an employment contract with a hospital, Mr. Kreager encourages physicians to have an attorney review it. He warns that while hospital administrators can't make medical decisions, they can impose rigid requirements on how physicians make medical decisions. For example, he says, hospital employment agreements frequently dictate the number of hours a physician must be in clinic and how many hours he or she must spend doing administrative work.

He advises physicians to pay close attention to noncompete clauses, which prevent physicians from competing with former employers if they decide to leave and open a practice elsewhere. The Texas Covenants Not to Compete Act sets the criteria for the enforceability of the covenants.

The law says noncompete clauses are enforceable if they meet certain physician-specific requirements and contain reasonable limits on when, where, and how a physician can establish a new practice. For example, an overly restrictive noncompete clause could unreasonably limit the geographic area in which the physician can establish a new practice, prohibit him or her from opening a practice for more than two years, or require an unreasonably high buyout amount that prevents the physician from competing, says Mr. Kreager. (See "Warning: Know What You Sign," February 2011 Texas Medicine, pages 33–35.)

According to Mr. Kreager, hospitals may recruit Texas physicians in one of four ways:  

  1. To join an existing practice;
  2. To open their own practice;
  3. To work as solo practitioners who share offices and expenses with physicians already practicing in the community; or
  4. To work for an NPHC.   

Texas law prohibits the corporate practice of medicine. The Texas Medical Practice Act generally prevents physicians from entering into partnerships, employee relationships, fee splitting, or other situations in which a nonphysician controls the practice of medicine.

Mr. Kreager says working for a hospital's NPHC is fundamentally different from joining an existing practice or working as a solo practitioner in that the employment arrangement allows a nonphysician to make decisions regarding patient care, protocols, use of medical devices, and other matters.

Last year, TMA helped passed Senate Bill 894 by Sen. Robert Duncan (R-Lubbock). The bill contains provisions that require the appointment of a chief medical officer recommended by the medical staff of the hospital and approved by the hospital's governing board. The chief medical officer oversees each physician employed by the hospital and is the hospital's designated contact with the Texas Medical Board.

The legislation states: "The chief medical officer shall immediately report to the Texas Medical Board any action or event that the chief medical officer reasonably and in good faith believes constitutes a compromise of the independent medical judgment of a physician in caring for a patient."

In addition, hospitals control contracting with payers, which Mr. Kreager says can be a blessing or a curse.

"The hospital has great negotiating power and may be able to get better reimbursement negotiating on behalf of the physician. The risk is the hospital has no incentive to maximize the physician's compensation through reimbursements. The hospital may choose to trade off by discounting some of those physician reimbursements in exchange for better reimbursement for inpatient services rendered by the hospital," he said.

Finally, Mr. Kreager advises physicians who enter into any employment arrangement to "plan his or her exit before signing the employment agreement."

He suggests physicians get the answers to these questions to form an exit strategy:   

  • After I leave, may I take my charts with me?  
  • Will I have to buy tail coverage liability insurance?  
  • May I take my support staff?  
  • If I sold my equipment, may I buy my equipment back?  
  • If the hospital is furnishing the office space, may I continue the office lease in my name?   

Physicians need to make sure the employment agreement addresses each topic on the list, Mr. Kreager says. For example, the contract might state that if an employer terminates a physician's employment without cause, the physician may take custody of the charts for the patients he or she treated.  

Practice Setting Trends

Preliminary findings of TMA's 2012 Physician Survey allow the association to glean information about why physicians make certain career decisions. Physician respondents who started out as or subsequently became full or part owners of their main practice cite personal control of practice decisions (83 percent), personal control of practice clinical decisions (70 percent), and opportunities for practice growth and profitability (68 percent) as reasons they became practice owners. On the flip side, 46 percent of physicians list dealing with managed care companies or insurers and reimbursement issues as reasons they are no longer full or part owners of a medical practice.

Alexis Wiesenthal, MD, is a young internal medicine physician who started out working with her father, Martin Wiesenthal, MD, in 2008. She opened her solo internal medicine practice in San Antonio last year. She employs a receptionist, medical assistant, and lab technician. She says many of her young physician colleagues start out in employed settings because start-up costs associated with running a practice can be an impediment to independent practice.

"It is daunting when faced with the start-up costs, including changing from paper charts to electronic health records, negotiating contracts with insurance companies, finding employees, and budgeting for an office lease, liability insurance, medical equipment, and supplies. But I have found it is a satisfying and fulfilling challenge. I have truly enjoyed learning about all aspects of medical practice that I was not privy to before," said Dr. Wiesenthal, a member of the Texas Medicine Editorial Board.

TMA Practice Consulting offers practice setup services for a fee. To schedule a practice setup or other service, call (800) 523-8776, or e-mail practice.consulting[at]texmed[dot]org. Additional information is available on the TMA website.

Employment isn't in Dr. Wiesenthal's future plans.

"I hope to maintain a solo practice as long as I can. I feel I have more quality time with patients and enjoy a smaller, more efficient staff," she said.

Mr. Kreager says part of the reason many physicians choose to start their careers as employees has to do with the desire for work-life balance.

"Physicians receive little to no training on running a business, are uncertain about the future of Medicare and Medicaid reimbursement, and have massive medical school debt to pay off. Hospital recruiters come along and offer these physicians a guaranteed salary, and it's an appealing proposition," he said.

But, he warns, hospital recruiting agreements generally guarantee a physician's salary for the first year only. In addition to short-term income guarantees, these agreements typically provide physicians with marketing assistance and liability insurance, cover relocation expenses, and may include a signing bonus.

While the perks are enticing, Mr. Kreager stresses that recruiting agreements likely will require repaying the benefits provided and impose a variety of conditions on the hospital's ongoing obligations. These include requiring physicians to maintain a full-time practice in the hospital's community, maintain medical licensure and enrollment in Medicare or Medicaid programs, and retain active staff privileges with the hospital.

"It's a good idea for physicians to have an attorney look over not just the employment agreement but the recruiting agreement, as well. As with employment agreements, hospital recruiting agreements are negotiable. Keep in mind that the hospital system may comprise many institutions over a wide geographic area, so the contracting officer likely will resist changes that deviate from the hospital's contracting policy or uniform provisions," Mr. Kreager said. 

Employment Legislation

Physician employment was a hot topic in the 2011 legislative session. Lawmakers filed several bills related to the corporate practice of medicine. Senate bills 894 and 1661 by Sen. Robert Duncan (R-Lubbock) were passed. TMA supported both bills.

TMA worked with the Texas Hospital Association (THA), the Texas Organization of Rural & Community Hospitals (TORCH), Senator Duncan, and other legislative leaders in crafting SB 894. The legislation gives some rural hospitals greater latitude to employ doctors but imposes strong protections for physicians' clinical autonomy and independent medical decision making.

Under SB 894, sponsored in the House by Rep. Garnet Coleman (D-Houston), TMA agreed with TORCH and THA to allow employment by critical access and sole community hospitals, generally in counties of 50,000 or fewer residents. The bill contains strong protections for independent medical judgment and medical staff responsibility for all clinical policies from privileges to credentialing to utilization review.

La Grange family physician Thomas Borgstedte, DO, is chief medical officer of St. Mark's Medical Center, one of the community hospitals taking advantage of the newfound ability to employ physicians under SB 894. So far, St. Mark's has recruited a pediatrician and an obstetrician-gynecologist into employed positions.

"Moving forward, our ability to employ will help us compete for physicians," Dr. Borgstedte said.

TORCH Director of Government Relations Don McBeath says the rural hospitals pushed for the ability to employ physicians last session because younger physicians who are coming out of residency and recruited to small communities want to be employed.

"The larger hospitals can create NPHCs more easily than the smaller hospitals. TMA opposed the legislation as it was originally written and expressed concern regarding protections for the independent medical judgment of physicians," Mr. McBeath said.

The organizations worked on the language to come to an agreed-upon bill.

"We're comfortable with the outcome of SB 894. It allows for the employment of physicians in areas that need that ability. I think the Texas legislation could serve as a model for other states," Mr. McBeath said.

Clinical autonomy of physicians through medical staff oversight in an employed arrangement is a vitally important component of SB 894, Dr. Borgstedte says.

"As chief medical officer, I serve as a buffer between the hospital and the employed physicians. Without the clinical autonomy and medical staff oversight protections in the law, in some instances, physicians wouldn't be heard, and hospital administrators would call the shots," he said.

Douglas Curran, MD, an Athens family physician and member of the TMA Board of Trustees, testified on behalf of TMA for SB 894. He explained to Senate State Affairs Committee members that the bill would create a shared responsibility between the physicians on the medical staffs of small hospitals and the hospitals' administration and board of trustees.

"We hope that with a structured set of provisions that place the governance of the hospitals' clinical responsibilities in the hands of the medical staff, we have protected the patient-physician relationship and the ability of physicians – employed or independent – to exercise their medical judgment for the benefit of their patients," he testified.

Dr. Curran stressed in his testimony that TMA viewed SB 894 as a solution for rural communities, giving them an opportunity to level the playing field against their urban and suburban counterparts in recruiting physicians.

SB 894 also requires the hospital's chief medical officer to report to the Texas Medical Board (TMB) any instance of administrative interference in clinical or patient care decision making.

Thus far, Dr. Borgstedte has not received any complaints from physicians about hospital interference in clinical decision making.

TMB Executive Director Mari Robinson says the board hasn't received any reports of compromised independent medical judgment at hospitals that are employing physicians. Should the board receive such a report, Ms. Robinson says it would look into the circumstances involved to determine which agency should handle it.

"If the report involves medical practice without a license, the board could issue a cease-and-desist order. If the violation involves an NPHC that was established, organized, or operated in violation of the Medical Practice Act, the board could refuse to certify the entity, revoke the organization's certification, or levy a monetary penalty. If the violation falls outside the board's purview, we'd refer it to the appropriate agency," she said.

Mr. Kreager says passage of SB 894 is significant for rural Texas communities.

"I think it was a tremendous win for the rural areas. The law recognizes changing physician demographics. Doctors are leaving training and aren't willing to take on the risks of rural community practice, which consists of large populations of uninsured patients and those on Medicare and Medicaid. The legislation helps rural hospitals compete for physicians," Mr. Kreager said.

Senate Bill 1661 by Senator Duncan and Rep. Todd Hunter (R-Corpus Christi) provides protections for physicians employed by NPHCs certified by TMB. The bill makes the physician board of directors responsible for all clinical matters within these organizations.

The bill prohibits a health organization from disciplining a physician for reasonably advocating for patient care and prohibits the requirements of the bill from being voided or waived by contract. The bill authorizes a member of a health organization to establish ethical and religious directives and authorizes a physician to contractually agree to comply with those directives.  

Looking Forward

TMA will pay close attention to hospitals' and other entities' efforts to expand the corporate practice of medicine this session. Mr. McBeath says TORCH doesn't have any plans to introduce legislation on physician employment. He says two or three individual member hospitals likely will introduce their own legislation that would allow them to employ physicians.

"We have a situation where a couple of hospitals feel discriminated against by SB 894 because they ultimately didn't qualify under the legislation's provisions. After the 2010 Census figures came out, their populations were more than 50,000, and they were no longer eligible to employ under the bill." Mr. McBeath said.

According to TMB, five hospital chief medical officers registered with the board as required by SB 894, and their institutions currently employ physicians. Mr. McBeath says about 160 hospitals are eligible to take advantage of physician employment under the legislation.

Austin attorney Kevin Reed represents TORCH. He says some TORCH member institutions have indicated the cost to purchase tail insurance coverage for employed physicians is hindering them from hiring. Tail coverage continues insurance protection for future claims stemming from when a physician's insurance policy was in force. Texas Medical Liability Trust's (TMLT's) standard tail endorsement is valid indefinitely. SB 894 doesn't contain any provisions related to tail coverage.

Tejas Patel, TMLT senior underwriter, says the cost to purchase tail coverage varies based on number of years of liability exposure covered under the endorsement, practice location, practice specialty, and liability limits of the expiring policy.

Mr. Patel adds that TMLT liability insurance policies are portable anywhere in the state. He says TMLT insured physicians who leave an employed setting "would not have to bear the burden of the tail cost at that time."

"The same TMLT policy … could now follow the physician again wherever he or she chooses to practice next in Texas," Mr. Patel said. 

Mr. McBeath is not surprised by the slow uptick in employment under the new law.

"TORCH testified before the legislature that we didn't expect wholesale employment by rural and community hospitals. Personally, the numbers are about what I expected at this point. Some hospitals don't want to employ physicians because it's expensive," he said.

Dr. Borgstedte says La Grange, like other small towns and rural areas, depends heavily on Medicare and Medicaid. The high costs of setting up a private practice can deter some physicians from moving to a small community.

"The bill gives hospitals that can afford to employ a great opportunity. Giving hospitals the option to pay a physician a salary; provide office space, staff members, and equipment; and cover liability insurance and overhead costs will benefit our community," he said.

Mr. McBeath says the legislation helps fulfill a moral obligation to rural communities to enhance access to care by removing barriers.

"Over the next five years, I think we'll begin to see more hospitals employ because more physicians, especially young doctors, will want the opportunity," Mr. McBeath said.

Dr. Borgstedte worked as a hospitalist in New York before opening a family medicine practice in La Grange in 2003.

"I prefer the office setting, but I learned a lot working as a hospitalist. I think we'll continue to see more physicians starting out as employees before transitioning into independent practice. For rural communities, hospital employment helps take the risk out of hanging out your own shingle," he said.

 Crystal Conde can be reached by telephone at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email.


Employment Resources

TMA has many tools to help physicians examine their career options and to meet the needs of physicians just starting out.

A Comprehensive Guide for Physician Employment, written by San Antonio attorney Mike Kreager, is available for sale on the TMA website. The publication helps physicians analyze the risks and benefits of employment, features information about employment contracts, and discusses the sale of a medical practice to an institutional employer. A PDF version of the publication is $89 for members and $139 for nonmembers. The hardcopy book is $99 for members and $149 for nonmembers.

TMA also offers the Employed Physicians and Contracting Issues webinar for 1 AMA PRA Category 1 Credit™. The webinar outlines the benefits of being an independent contractor or employed physician and discusses contract language. The webinar is $59 for members and $99 for nonmembers.

The American Medical Association House of Delegates approved new AMA Principles for Physician Employment at its 2012 interim meeting in November. The principles cover such aspects of the employee-employer relationship as conflicts of interest, advocacy, contracting, hospital-medical staff relations, peer review and performance evaluations, and payment agreement.

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May 13, 2016

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