Contract Negotiations

1. Contract Negotiations Practice pointers for negotiating physician employment contracts Susan A. Cannata LaSota & Peters, PLC v (602) 248-2900 722 East Osborn Road Ste. 100, Phoenix, Arizona 85014

2. Overview • Parties • Term • Physician’s Duties • Employer’s Duties • Compensation • Benefits • Restrictive Covenants • Termination • Other Provisions

3. Parties: First Things First • Get to Know Your Potential Employer • What is the employer’s reputation? • Is employer legally able to “practice medicine”? • Who are the other physicians in the practice? • Employee v. Independent Contractor • Important legal ramifications • Courts and governmental agencies are not bound by the label given by the parties and will instead look to the substance of the relationship. • Key: the degree of the employer’s control over the physician’s practice

4. IRS Employment Relationship Factors • The IRS has identified twenty general factors it will use to consider whether a worker is an independent contractor or employee. These include: • Instructions; • Services Personally Rendered; • Hiring, Supervising, and Paying Assistants; • Continuing Relationship; • Set Hours of Work; • Full Time Required; • Doing Work on Employer’s Premises; • Payment by Hour, Week, Month; • Furnishing of Tools and Material; • Right to Discharge; • Right to Terminate. IRS Revenue Ruling 87-141. 1987-1 C.B. 296.

5. Contract Term • At Will If not otherwise specified, employment terminable at any time and usually for any reason • Specified Term • Provides stability • May include provisions regarding extension of the term • May want to mark your calendar to re-negotiate contract well in advance of its end date • Effective Date v. Start Date

6. Physician’s Duties • Scope of Work • Basic expectations • Estimated number of patients expected to see • Practice or Work Hours • How allocated between practitioners • Coverage by other practitioners • On Call Policy & Procedures • Requirements • How allocated between practitioners

7. Physician’s Duties Cont. • Referral Practices • Travel Requirements • Additional Non-Medical Duties • What might they be? • Clearly outline scope of duties • At a minimum, likely will include oversight of assistants, nurses, and other personnel • How much time would they require? • Is the time required in addition to work hours? • Is there additional compensation?

8. Physician’s Duties Cont. • Billing and Compliance • Physicians are responsible for the accuracy of their own billings • Due to increased fraud and abuse enforcement, the AMA recommends physicians and medical practices carefully ensure billings are accurate. • Policies & Procedures • Employment agreement should specify rules and regulations physician is required to follow • What types of policies? Utilization review, quality assurance, peer review, etc. • Important to understand who determines violations and to whom those violations are appealable

9. Physician’s Duties Cont. • Professional Standards • Physician should be held to standard no higher than that required by law: physician must provide the quality of care provided by a reasonable physician in his/her specialty under similar circumstances. • Do not sign a contract that imposes standard higher than that of malpractice; could create additional liability for physician. Examples include: “provide services according to the highest standards of competence” or “of optimum quality” • An acceptable standard: “Physician shall perform his/her duties under this Agreement in accordance with the rules of the ethics of the medical profession. Physician shall also perform his/her duties under this Agreement in accordance with the appropriate standard of care for his/her medical profession and specialty.”

10. Employer’s Duties Agreement should specify who is providing the equipment, facilities and personnel and whether the physician has any input on hiring, firing, and disciplining non-physician personnel.

11. Compensation: Fee Structure • Is it clear and understandable? • What control does the Employer have to adjust or change compensation structure? • Types: • Guaranteed Annual Salary • amount and frequency of payments should be specified • deductions should be made clear in advance • base salary should not be subject to deductions other than ordinary payroll deductions (such as professional liability insurance, employer payroll taxes, benefits, etc.) • market surveys are available that list salaries by specialty and geographic market • if a salary cannot be agreed upon, alternative may be to write in a provision requiring a review in 6 months or alter the Agreement so the physician only works part-time or give higher level of benefits

12. Compensation: Fee Structure • Fee Structure Types (cont.): • Variable Based on Production • Usually, Physician is paid a set amount of prior month’s charges minus adjustments. • Purpose: incentivize physician to work diligently and effectively. • Employer assumes risk of collection, but compensation may be adjusted downward to reflect practice’s bad debt (depending on the contract) • Agreement should specify when and how payments are made. • Variable Based on Collections • Under this model, physician is paid based on percentage of collections • Purpose: employer and physician incentives to generate revenue aligned • Disadvantage: average collection wait is 60—90 days so payment on collections delayed by that amount. • Percentage of Profit • Net income is the amount remaining after deduction or payment or all practice expenses • Not recommended by the AMA; akin to partnership because it blurs the line between the physician and the employer

13. Compensation: Bonuses • Is it clear and understandable? • Is the bonus achievable? • May be based on: • Percentage of salary • if certain revenue milestones met; • agreement should specify whether based on production or gross collection and where post-terminations collections credited • agreement should contain example of how calculated • Percentage of Collections • Most common • over targeted quarterly or annual goal • sometimes bonus or percentage increases on escalating basis the more physician exceeds production goal • Percentage of productivity • pay a percentage of prior month’s production of bonus if exceeds threshold amount • should define “production” • Managed care bonus • not recommended by the AMA • compares physician’s production, RVUs or patient encounters with others in the group

14. Compensation: Other Considerations • Advances • Purpose: even out physician compensation from month-to-month with an accounting at the end of a certain period • If amount due is more, employer obligated to pay physician • If amount due is less, physician obligated to pay back employer • Review of Compensation and Adjustment • Patient Fees • Who sets? • Do they impact physician compensation?

15. Employer-Paid Benefits • Professional Liability Insurance • Will physician be listed as an additional insured on employer’s policy? • Is there additional insurance for additional activities outside of medical practice (such as participation in peer review, committees)? • What type of policy? (i.e., “occurrence” or “claims-made”) • Will the employer pay for tail coverage? • Dues and License Fees • Vacation, CME, Sick Leave, Holidays, etc. • Moving expenses • Insurance: health, life, disability • Any repayment of bonus requirements upon termination? • What are they? (i.e., repayment of signing bonus, loans, etc.) • Under what circumstances? • What control does Employer have over reduction or elimination of benefits?

16. Termination or Cancellation • How can termination occur? • Automatic • Without Cause Advance notice required? Should be long enough to secure other employment • For Cause • What type of cause? Should be “material cause” • Any time to cure breach? Should be reasonable time • Who determines breach? Is there an appeal process? • Avoid catchall provisions such as clause providing for termination if continued employment is detrimental to the practice as unilaterally determined by employer. • What happens after termination? • Agreement should explain arrangement for payment of physician in light of termination for services rendered to patients while employer makes medically appropriate referrals • What happens to physician access to patient records after termination? • Can physician initiate? If so, how does it interact with non-compete provisions?

17. Covenants Not to Compete • Are there any restrictive covenants? • Is it reasonable? Enforceable? • The more specialized the practice, the larger/greater the restriction(s) could be. • What is the prevailing practice for similar practices in your area? • Is physician be willing to be bound by it? • Even if not reasonable, is physician willing to litigate its enforceability?

18. Other Points to Consider • Arbitration or Mediation Arbitration can generally be faster and possibly less expensive than litigation, although costs are usually split between parties • Intellectual Property • Indemnification • No indemnification by physician on employer or other party • No shifting responsibility from employer to physician • Confidentiality • Partnership • Amendments • Incorporation or Integration clause Does the contract incorporate all inducements made to the physician?

19. Some Helpful Resources • American Medical Association, Annotated Model Physician Employment Agreement (2000). • Bonnie Darves, Physician Employment Contracts: Recent Developments Spell Good News, Problem Areas, N.E. J. Med. (Aug. 2008). • Bonnie Darves, Physician Compensation Models: The Basics, the Pros, and the Cons, N.E. J. Med. (Sept. 2004).

20. Disclaimer The information in this presentation is intended to provide a general overview of issues that you may encounter while you are negotiating an employment contract. The information provided here does not constitute legal advice. In negotiating your own contract, please consult an attorney.