Med Law Blog

The United States District Court of the Southern  District of Indiana awarded summary judgment to a hospital claiming damages based upon a physician's breach of the employment contract. A the doctoranesthesiologist, signed an employment contract with Knox County Hospital d/b/a Good Samaritan Hospital ("Hospital"), which included a $15,000 advance. The contract required that the doctor obtain medical staff membership and clinical privileges at the hospital, but Dr. R was unable to do so. The hospital requested repayment of the advance, but the doctor refused.

The outcome of the case is based upon their credentialing decision. The medical staff voted to reject Dr. R's application based upon the omission of information from his application regarding residency program that he had not completed. The hospital's independent inquiries revealed that Dr. Richardson had received unsatisfactory grades from the program; Dr. Ron attempted to explain that the omission was inadvertent. The hospital advised Dr. R that it would reject his application, but that he had the option of withdrawing the application so that there would be no report to the National Practitioner's Data Bank. Dr. R on withdrew his application. 

The hospital's breach of contract claim is based upon Dr. R's  failure to fulfill a condition of the employment contract, i.e. medical staff membership. Dr. R's defense was that the hospital acted in bad faith by refusing to grant medical staff privileges and that he cannot be held responsible for the performance of a condition when the responsibility for that condition lies with the hospital and the hospital had a duty of acting in good faith. 

The court rejected the defense and held that the hospital was responsible for the performance of the condition, but that it acted in good faith in denying medical staff membership. The court granted summary judgment against Dr. R on the breach of contract claim. A copy of the opinion is attached below.

http://op.bna.com/hl.nsf/r?Open=psts-7edpwd

| Posted By Michael Cassidy In Credentialing , Physicians' Contracts | 0 Comments | Permalink

PHYSICIANS LEARN THAT CHARITY ENDS AT THE OFFICE

Although charity may begin at home, two different physician groups, one on the east coast and one on the west, have learned that charity stops at the office.

Tax Deductions For Contributing Good Will

In Derby v. Commissioner, TC No. 10930-02, the United States Tax Court rejected the attempts by 12 physicians to deduct “contributed good will” arising out of the sale of their medical practices to Sutter Health in 1994. The physicians tried to argue that the value of their practices, as established by a third-party appraisal, exceeded the actual acquisition price paid by Sutter Health and the shortfall was a charitable donation to Sutter Health.

The Court rejected the arguments on the basis that the physicians were wholly compensated under the terms of the employment agreements, that the transaction lacked any donative intent because it was a tightly negotiated deal entered into for significant consideration, and the long-term employment contracts entered into by the physicians could not be ignored in establishing the actual value of the acquisition price. 

Charitable Immunity Statutes Does Not Protect Practice Group From Malpractice Liability

A faculty practice group affiliated with the University of Virginia attempted to claim charitable immunity from malpractice suits under the states charitable immunity laws. In University of Virginia Health Services Foundation v. Morris, the Virginia state high court held that Virginia law confers such immunity only on organizations organized and operated for charitable purposes, and that University of Health Services Foundation, although organized as a charitable organization, did not operate in accordance with those principles. Instead, the Court concluded the Foundation operated like a for-profit business with extensive assets and revenues paid to the member physicians, despite the charitable care provided by the group.

| Posted By Michael Cassidy In Malpractice - Asset Protection , Physicians' Contracts | 0 Comments | Permalink

ORLANDO SENTINEL REPORTS

HOSPITALS HIRING MORE PHYSICIANS

The Orlando Sentinel  published a recent article indicating that hospitals are increasing their direct employment of physicians, citing statistics from national physician recruiters about the increase in recruiting arrangements, and opining that one of the biggest reasons for this national trend is that “physicians are sick of the business of medicine.” The entire article is available at the link below:

http://www.orlandosentinel.com/business/orl-cfbcover15101507oct15,0,781815.story?coll=orl_tab01_layout

| Posted By Michael Cassidy In Physicians' Contracts | 0 Comments | Permalink

PHYSICIAN DISABILITY CLAIMS

Physicians are facing increasing opposition from disability insurance carriers regarding claims for “own occupation” disability policies. This scrutiny and opposition is a predictable reaction to the expensive claims, which typically have long payouts including COLA and life-time riders, and the fact that the degree of disability or physical impairment necessary to substantially impede a physician from practicing is fairly limited in some circumstances.

These are multi-million dollar claims from the insurance carriers’ perspective and life-changing events from the physician’s perspective. You should not simply submit your claim and see what happens. 

Physicians are frequently reluctant to pursue these disability claims. Many physicians, just like lawyers and other professionals, define themselves and their identity by their profession. They struggle to return to practice because that is who they are. Unfortunately, some physicians struggle through just long enough to prove that they are not disabled. When they can no longer take the pain or accept the medical malpractice risk produced by their impairment, whether physical or behavioral, they may no longer qualify for the disability payments they and their family will now need to support them for the rest of their lives.

I have represented many physicians in these situations. When any event impairs your ability of practice occurs, you should do the following:

1.         Get a complete copy of your policy and all the riders from your insurance agent or advisor;

2.         Consult an experienced lawyer; and

3.         Get independent medical opinions regarding your disability prior to submitting your claim and submit that claim with all the opinions and medical records prepared in the same manner that your lawyer would prepare your brief and malpractice defense in the professional liability case.

| Posted By Michael Cassidy In Physicians' Contracts | 1 Comments | Permalink

As published in the September 2007 edition of Bulletin, a publication created by the AlleghenyCounty Medical Society.

While medical practice acquisitions continue, some physicians and practices are returning to private practice. These returns are sometimes driven by regional strategies, specialty strategies, or just individual decisions made on a physician-to-physician basis, some voluntary and some involuntary. Although returning to private practice presents many of the same issues as starting a new practice, we will focus on those issues as they are presented in a return to private practice environment. The return to private practice is actually more similar to a separation from an existing practice because, rather than starting a new practice, you are actually transitioning a practice from a third party.

| Posted By Michael Cassidy In Physicians' Contracts | 0 Comments | Permalink

RESTRICTIVE COVENANT UNENFORCEABLE

BY SURVIVING SPOUSE 

The Virginia Supreme Court ruled that a medical practice corporation, ownership of which had transferred from the deceased sole physician shareholder to his spouse and which was converted to a business corporation by state law, could not enforce a restrictive covenant because it could not practice medicine and had no enforceable interest. This same result could apply in Pennsylvania because it has the same combination of corporate practice of medicine and professional corporation laws. The Virginia case is Parikh v. Family Care Center and the case is available at: http://op.bna.com/hl.nsf/id/psts-6z2sn8/$File/parkikh.pdf. Although liquidated damages would prejudice your injunction rights, liquidated damages would be an effective resolution for this problem.

RADIOLOGIST DENIED ANTI-TRUST RELIEF

DESPITE PROVING CONSPIRACY

Dr. Saskia V. W. Hilton failed to demonstrate that “competition in the market for pediatric radiology services” was injured despite producing evidence that would have supported finding of an anti-competitive conduct by this hospital and its existing pediatric radiologist. The classic position is that the law protects competition not competitors.

See: http://op.bna.com/hl.nsf/id/psts-6z8qrp/$File/hilton.pdf 

CALIFORNIA PHYSICIAN NOT DAMAGED

BY BOARD CERTIFICATION REQUIREMENT

A California physician lost his medical staff privileges when he failed to meet the hospital’s new board certification requirements was found not to be entitled to pursue an action in court for damages relating to the termination of his clinical privileges because the court rule that the decision of the hospital, under California law, was a quasi legislative act of general application, in the form of the adoption of minimum qualification standards for clinical privileges, which did not create an individual cause of action. See: Tran vs. MissionHospitalRegionalMedicalCenter at:

http://op.bna.com/hl.nsf/id/thyd-9prg/$File/Tran%20v%20Mission%20Hospital.pdf

| Posted By Michael Cassidy In Credentialing , Restrictive Covenants , Physicians' Contracts | 0 Comments | Permalink

BASIC CONTRACT ISSUES FOR NEW PHYSICIAN CONTRACTS

INTRODUCTION

When physicians have finally completed the medical education journey, many are confronted with a “physician employment contract,” usually from a hospital or medical practice, which could define the essential terms of their professional relationship for many years to come. If the parties live happily ever after, neither may ever read the contract again. However, if a problem arises, the scramble to find and read the contract begins.

 New physicians are always at a significant disadvantage in this process. The “Employer,” whether hospital or medical practice, has invested significant resources into designing a contract which gives emphatic attention to the key terms upon which the physician was focused at signing (money, time, vacation, employee benefits) but is otherwise a fairly one-sided agreement, perhaps it was even presented as the “form contract we give to all the doctors.” Residents and fellows may be lulled a little deeper into that dilemma if they remain with the teaching institution at which they completed their studies because the new contract may not appear to be that much different from the prior “student” contract.

Since this contract will basically control your professional life, by both defining how you must work and for how much, but also by controlling where you might practice when the contract ends though “restrictive covenants,” you are well advised to read it carefully and consult an experienced healthcare lawyer before signing any contract.

The following outline is a fundamental review of the basis issues which should appear in most contracts.

I.          COMPENSATION: The most important item of the contract will be the compensation. Compensation is typically divided into three categories, i.e., base compensation, productivity or incentive compensation, and other bonuses.

A.        Base compensation is guaranteed annual salary, usually payable in accordance with the employer’s payroll practices. Base compensation in multi-year contracts should escalate in future years to reflect added value or inflation, unless there is a productivity component in addition to the base compensation. Experienced advisors should have comparative compensation information by specialty.

B.        Productivity compensation is typically based upon some formula, usually either net collections or some other productivity measure such as RVUs. Productivity based upon collections typically requires some collection level in excess of expenses or in excess of a collection target. Be careful to clearly define the productivity formula, particularly the amount and methodology for allocating expenses. Productivity based upon work units requires a clear understanding of how those units will be generated, i.e., by the physicians or by other ancillary providers, and whether it will include ancillary revenue, such as imaging, drugs and biologicals, etc.

C.       Other types of bonuses include signing bonuses, retention bonuses that are paid following completion of annual benchmarks, and severance bonuses for premature termination.

II.         TERM: The contract term is the number of years that the contract will be in force. The term of physician employment contracts usually reflects some initial probationary period or qualifying period during which the physician will be an employee of the practice prior to an opportunity to become a shareholder. Employment contracts with hospitals do not have shareholder options in the future. This probationary period varies by geographic region of the country, but is typically 2 to 3 years. You should assure that the initial contract continues to exist until replaced by a shareholder employment contract. Many contracts contain “evergreen” renewal provisions, which automatically renew contract term from year to year without requiring any action by either the employer or the employee. Be careful with evergreen contracts which contain no provisions for salary escalation.

III.        BENEFITS: Most contracts simply state that you participate in the benefit plans in accordance with the terms and conditions of the plans; get the details.    

A.        Retirement Plan: Check participation, vesting and contribution rates. Get a copy of the Summary Plan Description (SPD) mandated by ERISA.   

B.        Health Insurances: Most practices and all hospitals will have an employee benefit description.

IV.       BUSINESS EXPENSES: Get the business expense policy. If you have additional specific needs, discuss these before the contract is signed. 

A.        Professional Dues: Hospitals, specialty societies

B.        Pager/Communications/Cell Phone

C.       CME

D.       Travel and Parking

E.        Moving and Relocation

V.        MALPRACTICE INSURANCE: Malpractice premiums are typically covered as one of the business expenses in the contract. There are two types of malpractice insurance, i.e., occurrence and claims made. Occurrence malpractice insurance covers the physician for any event that occurred during the term of the malpractice policy regardless of when the claim is made. Claims made malpractice insurance, which is the less valuable coverage, covers incidents only if they both occur and are the subject of a claim made during the term of the policy, hence the name “claims made.” When employment at an entity with claims made insurance ends, the malpractice insurance typically ends also, meaning that any future claims will not be covered unless a reporting endorsement, sometimes known as a “tail,” is purchased. The tail should be covered as a business expense. Sometimes, the responsibility for the tail is divided based upon the cause for termination. If the practice terminates the physician or fails to make the physician a shareholder, then the practice pays the tail. If the physician resigns without cause to pursue some other opportunity, the physician is responsible for the tail. The amount of malpractice insurance varies from state to state. Some states require a minimum level of malpractice insurance. Some states also have state funds, such as catastrophic loss funds, into which premiums or surcharges are paid by the physician. The physician should make sure that these additional elements are included in the malpractice coverage.

VI.       CLINICAL DUTIES: The description of clinical duties is usually a fairly generic provision of the employment contract, but the physician should pay careful attention to the scope of those duties to make sure that the office facilities and hospitals at which the physician is required to practice are identified, that the parties understand how additional offices or hospitals can or cannot be added, how many patient office hours are expected, and how call coverage responsibilities will be divided among the physicians in the practice. Typical language is “equitable allocation,” which does not quite mean equal. It is common for senior physicians to take less call than junior physicians, but language stating that the call is simply assigned by the employer is too vague. The contract should also state whether moonlighting is or is not allowed.

VII.      TERMINATION: Contracts will typically have a termination clause which defines several different methods for termination.

A.        Expiration: The contract can simply expire at the end of the term. 

B.        Termination for Cause: The contract can be terminated by either party for cause, which is usually defined as some breach of the contract by the other party, or the occurrence of certain events such as loss of medical license, loss of DEA number, Medicare exclusion, conviction of a crime, etc.

C.       Other Material Breaches: The contract can also be terminable for more ambiguous breaches, such as the failure to perform duties in accordance with employer standards, and attention to patients, etc. Ambiguous events such as these should be subject to a “notice and cure provision,” which requires the employer to first give notice of the alleged breach sufficient to describe the problem and give the physician the opportunity to cure that breach over some period of time; the purpose of this type of provision is to prevent surprise terminations.

D.       Unilateral Termination Without Cause: Contracts typically give both the employer and the employee the opportunity to terminate the contract without cause upon sufficient advance notice. Termination of this type raises several questions. 

a.        How much notice will the practice require? Practices typically want time to recruit a replacement physician, but that time is usually too long to permit an employed physician to accept another position, so the parties must negotiate a satisfactory compromise.

b.        How much notice will the physician require? Will that notice be different for non-renewal of the contract or failure to make shareholder after two or three years of employment compared to “premature” termination during the first year of employment. It is certainly unfair to expect that employment could be terminated just 90 days after the start of the contract because the employer/practice changes its collective mind. In such circumstances, early terminations are usually combined with greater notice or severance payments. 

c.        Defining the cause for termination is very important with respect to the enforcement or applicability of the restrictive covenant.

VIII.     RESTRICTIVE COVENANTS: The enforceability of restrictive covenants depends upon the state, i.e., the jurisdiction, in which the practice is located. Some states prohibit restrictive covenants. State that do permit the enforcement of restrictive covenants usually require that they be reasonable, so that they are no broader than reasonably necessary to protect the employer. Just as an example, restrictive covenants that would prohibit the physician from practicing medicine within 200 miles of the office location will not be enforceable simply because it is improbable that a competing practice 150 miles away would do any harm to a practice. Note that the geographic scope will definitely depend upon the nature of the practice and the population density. While a 25 mile radius in a rural area might be appropriate, a 25 mile radius in New York City would not be. Restrictive covenants will have the following components:

1.        Geographic Scope

2.        Time Period

3.        Prohibition of Practice/Resignation of Medical Privileges at Certain Hospitals

4.        Prohibited Activities

A crucial point is whether the restrictive covenant will be enforceable upon unilateral termination or non-renewal of the contract by practice/employer, particularly if that is coupled with the practice’s decision not to make a physician a shareholder or owner of the practice. Enforcing the restrictive covenant in those situations makes it painless for the practice to withhold shareholder status and simply recruit a new physician. If the restrictive covenant is designed not to apply in those situations, the practice must balance whether the right step is to proceed with shareholder status.

IX.        CONFIDENTIALITY AND INTELLECTUAL PROPERTY: Most contracts provide that the intellectual property you create during employment (inventions, devices, publications, etc.) is the property of the employer. These clauses state that patient lists and demographic information are property of the practice. Provide exceptions if necessary.  

X.         ­­­­­­­­­­­­­­­­PRACTICE BUY-IN: (A Topic for Another Day)

WARNING

Although the foregoing discussion may appear to present a thorough analysis of the issues, you should always consult an experienced lawyer, explain to them your expectations about your new position, and let them review your contract in light of those expectations. It is always preferable to have experienced counsel in this process. Since the contract will define how much money you will make, what you will be required to do to make it, and how your dream opportunity can be “terminated” while you are to be contractually banished from practicing medicine in that market (which could be your hometown), you are not doing yourself any favors by asking your college roommate who has become a lawyer “to take a quick look” at your contract.

I’ve been practicing in this area for almost 30 years and have helped hundreds of doctors with these contracts. I would be happy to help you with yours.      

| Posted By Michael Cassidy In Physicians' Contracts | 2 Comments | Permalink

"These are my patients - how can you stop me from seeing them?" This is a familiar refrain heard when medical practices break up or physicians leave an ongoing practice. Almost everyone knows that nobody "owns" patients and that patients have absolute freedom of choice as to what doctors they choose to see (excluding health plan participation issues). However, the fact that patients may be free to see the physician of their choice does not necessarily mean that physician will be just as free to see them. This issue is not about patient ownership; it is an issue about restrictive covenants, ownership of medical records, privacy and confidentiality, and ownership of confidential intellectual property or trade secrets.

| Posted By Michael Cassidy In Physicians' Contracts | 3 Comments | Permalink