NEGOTIATING PHYSICIAN CONTRACTS

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1 NEGOTIATING PHYSICIAN CONTRACTS Critical Issues for Consideration Karen M. Fontana

2 Overview Insurance issues/pcf coverage Termination Provisions Non Competes Non Solicitation Signing bonus repayment provisions Physician Recruitment Agreements Contract Basics

3 Starting the Discussions What to Expect in a Contract Provisions that must be included: Start date, term, renewal period automatic or not? Insurance coverage Provisions for termination Rights upon termination How compensation is calculated Provisions that may be included: Expectation of hours, duties, call coverage, locations Performance Review criteria (if compensation is based on this criteria) Billing responsibility Ownership of professional fees, Medical Director fees, legal testimony fees etc. Benefits (paid time off, CME allowance, medical staff dues, health and disability insurance, professional dues and subscriptions, license fees, marketing allowance) Signing bonus provisions Relocation Expenses

4 Non Compete Agreements A Covenant Not To Compete refers to an agreement whereby the physician agrees that upon termination of the contract, the physician will not compete with the former employer in the practice of medicine by engaging in physician s own business or as a contracted employee with an independent medical practice or facility for a set period of time in a set geographic area. In other words you are agreeing not to work as a gastroenterologist in the same area as your former employer for a set period of time.

5 Non Compete Agreements Are Enforceable! Non competes are enforceable if certain criteria are met. Different states have different criteria for enforceability. It is critical that you consult an attorney knowledgeable about your state s requirements. In Louisiana, the agreement must set forth the specific parishes impacted, and the agreement cannot include parishes where the employer is not currently practicing. Time period must be reasonable. In Louisiana, generally that is a two year period. Other states require the employer to offer a buy out provision, but it is often cost prohibitive to avail yourself of that option.

6 Non Compete Agreements are Expensive! Non Competes generally apply even if you are terminated without cause. At a minimum try negotiating an exception to the Non Compete if you are terminated without cause. Be sure you review the damages provision. Usually the clinic specifies a right to injunctive relief, financial damages. Recent case awarded a clinic $520, against a departing physician.

7 Non Solicitation Agreements Sample: In consideration for, Physician hereby agrees not to actively solicit patients of Employer in the Parishes of Jefferson, Orleans or St. Tammany, Louisiana for a period of two years commencing on the date this Agreement is terminated. No notices to clients of new address What effect on general advertising? Same issues re damages.

8 Termination Provisions Termination Provisions are a Critical Component of Any Contract Termination with or without cause How is cause defined? How much notice required? Are the terms for immediate termination clearly set forth? Is there any provision for termination due to breach by the clinic? Effects of termination ownership of patient lists, non solicitations, non competes

9 Insurance Issues Who pays for Medical Malpractice Insurance? Any limitations on scope or coverage? What level of coverage is being provided? What is the State s Medical Malpractice Law capped or not? Excess Coverage needed? If you are in Louisiana, who handles PCF Coverage? Nose and Tail Coverage Issues

10 Signing Bonuses You may be offered a signing bonus, relocation expense payment or other financial consideration. Usually there is a pay back provision if you do not complete the initial term of contract. Repayment may be with interest and may be required in full in a very short time period after termination. Negotiate forgiveness of repayment in the event of: Death or disability Termination without cause by clinic provision Termination due to breach by the clinic provision Talk to your CPA about tax issues before you spend the money!

11 Hospital Funded Recruitment Agreements A Hospital in an under served area may contract with a physician to provide a Net Income Guaranty to induce the physician into setting up a practice in that area. The Net Income Guarantee may last 1 2 years. Essentially the hospital agrees to guarantee a set net income for the physician. To calculate the monthly payments by the hospital, the parties need to define what is included in gross collections, what is considered reasonable operating expenses which can be deducted from that sum to determine the physician s monthly net income. The hospital then advances the difference between the earned income and the Net Income Guaranty amount on a monthly basis. The hospital may also provide start up loan and relocation costs the requirements for which must be specifically laid out. However all payments are a loan and are subject to repayment terms. Typically, after the end of the distribution period during which the net income was guaranteed, the physician must execute a promissory note for the full balance of all sums paid to date with interest. The loan amount is then forgiven if the physician stays in the area for the agreed upon period of time. For example, a hospital may agree to a three year period for loan forgiveness, and if the physician remains in the area for the next three years, nothing will be owed in repayment.

12 Hospital Funded Recruitment Agreements Hospitals cannot require that you admit patients to their facility, but they can prohibit you from entering into Competing Financial Relationships. Very complicated rules on what can and cannot be required. Can be a great way to set up a new practice if you are certain about your commitment to the location and confident that you can build a successful practice there. However, consider carefully the risks that you may not be able to stay in the area and must make full repayment with interest.

13 Have that Contract Reviewed! Contracts are written by the Clinic/Hospital and will be written to favor that entity. You need to fully understand your rights and obligations under the contract. (If other policies or handbooks are referenced, get copies!) You need to know what is enforceable and know the risks of associated with each provision. Contracts should be reviewed by an attorney who: (1) has experience in healthcare, and (2) is licensed to practice in the state in which you will be practicing.

14 About the Speaker: Karen is Special Counsel to the New Orleans office of Kean Miller L.L.P. and practices in the medical malpractice, healthcare, and commercial litigation groups. Karen s practice involves the sophisticated representation of physicians and healthcare providers including medical malpractice, peer review litigation, and complex contract negotiations. Karen has had the privilege of representing Tulane University and its physicians for over 18 years. Karen is listed in Louisiana Superlawyers and has been consistently named to New Orleans Magazine s Top Lawyers. She has been selected for inclusion in Martindale Hubbell Bar Register of Preeminent Woman Lawyers and was recognized as a Charter Fellow of the Litigation Counsel of America. Education: Karen graduated magna cum laude from the Catholic University of America in 1990, finishing in three years while participating in the University Honors Program. She earned her J.D. magna cum laude from Tulane University School of Law in 1995, graduating 5 th in her class. She was awarded Order of the Coif and served on the Tulane Law Review Senior Editorial Board. Following law school, Karen served as law clerk to the Honorable Justice Walter F. Marcus Jr. of the Louisiana Supreme Court.

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