Physician contracts with hospitals

Saturday, March 01, 2014 11:26 AM
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Be aware or beware

Kevin P. Perez, JD, Kennedy Childs, P.C.

Contract signing

Beginning in July 1995, Colorado law allowed hospitals to directly employ physicians. Since that date, the law has been amended to allow hospices, community mental health centers, long-term care facilities, PACE organizations, school-based health centers and other health care centers to do the same. While these changes in the law have resulted in a limited repeal of the long-standing prohibition of the corporate practice of medicine, the Colorado legislature has made it clear that no corporate employer can exert control over a physician’s independent medical judgment so as to compromise the quality of patient care. Indeed, the legislature admonished corporate-employed physicians to be wary of external pressures that could erode their ethical practice of medicine, and to be vigilant to ensure that patient welfare takes priority over the physician’s–or his or her employer’s–financial interests. Aside from taking pains to keep one’s medical judgment separate from any corporate pressure, any physician who is considering becoming employed by a health care facility needs to be cognizant of how his or her contract, employee handbooks, medical staff bylaws and the like will ultimately shape and impact his or her practice, as all these documents must be read and taken together.

The number one issue for a physician who is, or is thinking of becoming, employed by a health care facility is to fully understand the rights and obligations set forth in the employment contract. The term that gets the most attention early on – physician compensation – is obviously very important, and the way in which pay and bonuses are calculated needs to be both clearly spelled out and fair to both parties. Given the legislature’s admonishment, employed physicians need to be especially wary of compensation programs that would reward over- or under-treatment, as such provisions could create conflicts of interest. To that end, it may be in a physician’s best interests to at least attempt to negotiate a substantial, guaranteed base salary so that performance bonuses are not so significant.

Aside from compensation, physicians need to understand what they can and cannot do while they are employed by the facility. Physicians should determine the rules for sharing call; how call income and income from other sources will be treated in the compensation formula; their work/office hours; whether office space, staffing, equipment and access to facilities is adequate for their specialty; how supervision of non-physician staff will take place; what performance evaluations will take place; and what say they have as to the facility’s future decisions to hire physicians in their same specialty (which may negatively affect compensation, reduce referrals, and compete for available facilities and staff). Additionally, physicians should be aware of what the facility provides in terms of available time off, expense reimbursements, insurance programs and any other benefits. Lastly, physicians need to ensure that their referral decisions are not impacted or restricted by contractual requirements, and that they are free to refer patients in a manner that puts patient welfare first.

Looking down the road, it is important that physicians fully understand how they and their employer can end the employment relationship, what dispute resolution mechanisms are in place, and what rights and obligations survive the employment contract. Physicians should be aware that in many contracts their rights and obligations often turn on whether the employment relationship was severed for cause or for convenience.

Perhaps the biggest post-termination obligation for a physician relates to what are generally called non-compete clauses. Though these clauses legally cannot forbid a physician from practicing medicine in competition with his or her former employer, the law allows health care facilities to essentially charge a fee (liquidated damages) to former employees who practice medicine within a certain geographic area, during some set period of time. The legally permissible geographic and temporal scope of physician non-compete clauses varies depending on the circumstances, as does the liquidated damages amount, and these clauses are often subject to negotiation prior to the physician entering into the contract. Regardless of what was decided when they were hired, physicians can challenge onerous non-compete provisions after they are terminated. However, the cost of addressing an onerous provision at the end of the relationship is typically much greater than the cost of negotiating reasonable terms prior to hire (when the physician ostensibly has greater leverage).

There are many more issues to be aware of when a physician enters into, or is even considering entering into, an employment relationship with a corporate health care facility. Because of this, and as a membership benefit, CMS members have access to a contracting handbook and checklist at to allow them to better evaluate the terms of their current or proposed employment contracts. These resources will help familiarize member physicians with key provisions of typical employment contracts to allow them to engage in informed discussions.

For those who wish to move beyond self-help, CMS has negotiated for discounted and flat fee contract review/negotiation services from Kevin Perez at Kennedy Childs, P.C. Go to (members only) for more information.

Posted in: Colorado Medicine | Practice Management | Legal and Ethics


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