A growing part of my practice is counseling and representing doctors, both joining and leaving practice groups. At the front end, doctors joining a practice present a lengthy and detailed employment and profit sharing contract that sets specifies a probationary period, annual or triennial contract renewal period, base salary and productivity bonus compensation, information about whether the doctor or practice pays for malpractice liability insurance, and post-employment restrictions on competition and solicitation of former patients and staff. Typically these doctors are fresh out of medical school and eager to pay down loans and capitalize on their substantial investment in tuition and residencies. Often these doctors don’t believe they have leverage to negotiate the terms and conditions of these employment agreements, and sometimes accept disadvantageous terms without consulting a lawyer. This can be a costly mistake if and when they separate from the practice, voluntarily or involuntarily.
Increasingly, doctors separate from their practice groups not for incompetency or licensing issues, but due to not meeting productivity standards set by the practice group, or in some cases third-party practice management consultant/partners. For example, contracts often base doctor’s bonus compensation on their gross reimbursements for services rendered, net of collection costs, net of direct costs (the doctor’s health insurance and malpractice insurance premiums), and net of a pro rate share of indirect costs, that is, the total costs of operating the practice equally assessed against each doctor. While this might seem fair for a doctor several years into his or her practice, when a doctor is building his practice the pro rata assessment of indirect costs can place a doctor into a negative cash flow position for one or more years, effectively wiping out their productivity bonus. Had such formulas been negotiated in the employment agreement by an experienced attorney in collaboration with the doctor this adverse impact could have been delayed or mitigated.
Practice group managers often terminate a doctor’s employment suddenly and unilaterally, sometimes short of the period for ‘termination for convenience’ (no fault required) or without establishing ‘cause’ and providing a genuine ‘notice to cure’ the default as the employment agreement may require. In other words, a doctor may not be meeting expectations, but even after the 30-day cure period the practice group won’t reconsider whether the doctor has redeemed himself or herself. The decision has been made, the doctor is irrevocably dismissed and must seek to affiliate with another practice group, subject to geographic restrictions on competition that may be disruptive to the doctor’s residential arrangement. Contrary to skeptics’ opinions, these post-employment restrictions are generally enforceable, and may be enforced to chill a doctor’s ability to join a subsequent practice. In such circumstances, an experienced attorney can challenge the termination and if reinstatement is infeasible, negotiate waiver of the non-competition covenant.
In a small practice, the retirement of the principal doctor may leave the employee uncertain whether the retiring doctor or the employee will pay for post-employment ‘tail’ malpractice insurance coverage for claims arising from services provided during his employment, which coverage is complementary to ‘claims made’ coverage purchased by the practice group. Since the retiring doctor will usually be afforded tail coverage at no cost, the retiring doctor has no incentive to pay the employee’s coverage. If the employment agreement is silent regarding post-employment coverage the employee may face an immediate liability ranging from $50,000 to $100,000 based on practice specialty, even before securing new employment. For obvious reasons these disputes are often the subject of litigation, which might have been avoided had the contingency been addressed in the original employment agreement.
Doctors are well educated, principled professionals who are trained to rely on their own judgment, in both clinical and surgical situations. Some doctors also hold MBAs with an inclination to develop a remunerative practice based on adoption of excellent patient treatment and records, collections and risk management practices. Yet it is surprising that doctors sometimes neglect to timely consult experienced lawyers for advice about negotiating and extricating themselves from contracts which protect their investment in their careers. There is risk in proceeding without the benefit of legal advice, which is not costly by comparison with a doctor’s potential income and the risks of interruption of that income. Let me be your partner in starting your practice group arrangements on an advantageous footing.