Physician Contracts Part Two 2


This is the second part in the series, Physician Contracts. The first post is here.

I’m going to try to keep this part short and sweet discussing the most common clauses found in physician contracts:

Termination without Cause

Termination with Cause

Non-Compete (Restrictive Covenant)

Evergreen


The first two are pretty ubiquitous to physician contracts (outside of academic contracts). The 3rd one is pretty common, and usually the most controversial. The 4th one is just to be aware of its existence, to prepare you for future negotiations.

Termination without Cause

This can be from the viewpoint of the employer or the employee. In some cases, only the employer will have this ability (unilateral). In most cases you will want to negotiate in your own employee version (reciprocal). If your employer is unwilling to provide you your own termination without case, or at least some provision of it, that’s a red flag in my book.

  • Employer version:

Basically, in the most general sense, this is being “fired for no reason”. Firing someone for no reason usually requires you give them severance and a certain amount of notice. For physician contracts, I’ve seen as little as 30 days and as many as 180 days. So basically, from 1 month to 6 months notice.

Usually, there will be some provision in the contract for immediate termination once the “termination without cause” notice has been served. In that regard, the employer would then need to compensation and/or benefits for the length of the notice outlined above.

Think about it this way, does a practice/hospital really want a physician to work for them after they’ve already been fired? Keeping an employee working after they’ve already been terminated, and are simply awaiting their “leave date” can lead to retaliation. Retaliation need not be direct, but you can imagine the physician telling his patients that they will need to schedule their next appointment with Dr. X because they were fired. Such an exchange would lead to questions/confusion on the part of the patient, and could even hurt the employer. I’ll talk about this more in the non-compete (restrictive covenant) part of this post.

  • Employee version (you):

On the other side of the coin, you, as the employee can also have this clause which would be “quitting for no reason”. You can think of this as the physician version of “2 weeks notice”. Like the employer version this allows the employee to leave for any reason. This can also be between 30 days and 180 days.

However, it is important to note that the Termination without cause lengths for employee and employer may be different from one another. For example:

  • Employer can terminate without cause, providing a 30 day notice.
  • Employee can terminate without cause, providing a 180 day notice.

In this particular example, the employer is basically saying they can fire you with only a 30 day notice… however, you can only leave after providing them with a 6 month notice. Now there are pros and cons to lengths of time of course, but in this example, to me it seems like the employer is really protecting themselves from physicians leaving. Does this company have a history people leaving recently? This is a red flag that needs to be explored as well. Tread lightly.


Termination with Cause

This is actually much easier to explain than termination without cause, and is basically being “fired for a reason (or reasons)”. Usually in this section the contract will specify a laundry list of reasons for termination with cause, such as:

Substance abuse (Drugs and Alcohol)
Loss of license
Loss of DEA registration
Inability to obtain malpractice insurance
Termination or suspension of medical staff privileges
*** Violation of a “policy” — this deserves special mention, because this is specific to your organization

Usually, there will be some stipulation here that in certain cases of the above, that the employee has a chance to “fix” the problem in a certain amount of time (Cure Date). Usually, this will be 30-60 days, or more depending on which breach occurred. For example:

I forget to renew my license and it expires September 1st. My employer sees that my license is due to expire and warns me it must be up-to-date by September (advanced written notice of complaint). For some reason or another, I have difficulty renewing my license and am unable to renew it by September 1st. This is on the list of “termination with cause”, however, I have 30 day “Cure Date” to fix the problem. So I am placed on temporary suspension (without pay probably) and am able to get my license renewed September 10th, at which point I am reinstated.

However, the same job may have no tolerance for “termination of suspension of medical staff privileges”, so if you lose those privileges then there is no “Cure Date” to fix it.

Note that this is only from the viewpoint of the employer. As far as I know, there is no “employee equivalent” in which you can specify your own causes.


Non-Compete (Restrictive Covenant)

Sigh. Non-competes, non-competition, and restrictive covenants. They are basically all the same thing, but they have multiple components.

First of all, you need to understand: These exist solely to protect the employer after you leave the job. 

This is easier to understand if I provide an example:

You are Dr. Smith, and you’ve been working with ABC Medicine for the last year or so. However, there is a new job over at XYZ Medicine two blocks away and they offered you a better job, with better benefits, that just fits your schedule better. So you tell ABC Medicine you are leaving to take this new job, and your termination without cause notice is 60 days. So you let them know in May that you will be leaving in July. No hard feelings right…?

Wrong. Employers want/need to protect themselves from patients leaving them and following “their doctor”. It just makes sense. If I see Dr. Smith every month and we have a good doctor-patient relationship, then I will go to him whether he works for ABC or XYZ as long as its within a reasonable distance and they both take my insurance.

Here is an illustrative example:

So Dr. Smith goes to tell his ABC Medicine about wanting to leave. However, the head of ABC Medicine takes out his contract and points to a line that talks about non-compete (restrictive covenant) which specifies a period of time (example: 2 years) for which he can not practice in specific geographic area (example: 1 mile from their main office). XYZ Medicine is only two blocks away and falls within the 1 mile radius, so his non-compete says he can not work there for 2 years.

Obviously, not being able to work for 2 years is going to make it impossible for Dr. Smith to change jobs now. However, XYZ Medicine does have a satellite office 2 miles away from the main ABC Medicine office. So the guys at XYZ Medicine offer to have Dr. Smith work at the satellite office for 2 years until the non-compete if finished, at which time he can go over to the main office, or stay the satellite. However… XYZ Medicine has its own restrictive covenant… and so the cycle continues.

Non-compete clauses have very wide ranges. Unfortunately, what is enforceable is very region-specific and from what I understand is based on what has previously been upheld by the judges in that state. I’ve heard of 1-10 years for the “period of time” and 1 mile to 5 miles to the entire state being off-limits for “specific geographic area”. The more restrictive a non-compete is, the more difficult it is to enforce. However, the last thing you want to do as a physician is get into a long drawn out legal battle with your former employer over a non-compete clause. It’s a messy business, and until it is settled, you can’t start the new job… and in those cases, this new job probably can’t afford to wait for you.

In general, a reasonable non-compete clause would be 1-2 years and 3-5 miles from your main location. I am specifying “main location” here because in the event you work at a large group practice, you may be at 5 different offices and 10 different hospitals. If the non-compete restricts you 5 miles from any “ABC location”, that could potentially exclude a 50-100 mile radius even though it only sounds like a 5 mile radius.

If you were to violate the non-compete, usually there is some form of payment (monetary damage). This range is also wide. I have heard of non-competes that require billing of the previous year or the average billing of the other physicians in the practice. Now, as you probably already know, what a physician bills for is significantly more than what he/she is paid. So we are probably talking anywhere from 3-10x a year’s salary for “monetary damage”. That’s a strong reason to not breach a non-compete. However, language like that makes me worry about whether this particular practice has had problems with non-competes in the past. Probably something to look into.


Companions to Non-Competes:

Non-solicitation of employees

Sometimes when a doctor leaves, some of his/her ancillary staff or other doctors will want to leave as well, especially if that doctor is well liked. This clause prevents the doctor from asking these individuals to come with him/her. However, the word we are looking for here is “active solicitation”.

Non-solicitation of patients

Similar to above, your patients will usually want to follow you. They may ask for your new group so they can just set up the follow-up appointment with you at your new job. However, once again, you can not “actively” solicit patients to leave your employer and come to your new group.


Evergreen Clause

This clause basically means the contract automatically renewed on a set basis (usually yearly). This may sound great because, hey one less thing to do right?  However, just be aware that the contract will renew exactly the same: This means your salary doesn’t change. Your paid time off doesn’t change. CME allowance doesn’t change, etc.

Now, if you really like your job as it is, an evergreen clause is fine to have, just to have a default option in this place. However, I would caution you that things change every year, and you really should try to negotiate your contract every year.

You will not be the same doctor you are as your first year out of residency/fellowship. Experience matters. Usually, you will be able to negotiate better terms after having been on the job for a year or a few years. That initial job offer was for a new kid fresh out of residency/fellowship, but that isn’t you anymore… so why should your contract be the same?


Now, I realize there are a ton of articles written about physician contracts, but I find most of them difficult to read.

I’ve tried to simplify the important points and highlight the things that I think are important with as little “legalese” as possible.


TL;DR

Termination without Cause (Employer) = Fired for no reason
Termination without Cause (Employee) = Two weeks notice
Termination with Cause (Employer only) = Don’t violate anything on this laundry list (see above)
Non-Compete = can’t work in “This Area” for “This Amount of Time”
“This Area” = Wide variation, 1 mile to the whole state
“This Amount of Time” = Wide variation, 1 to 10 years
Non-Competes are enforceable, but how enforceable is dependent on your state.
Non-Solicitation = can’t actively recruit staff or patients to your new job


Next week I’ll try to talk more about Private Practice contracts, Shares, Buy-In, and Partnership. However, this subject is extremely complex, and whatever I say will be very basic.

By the way…short and sweet = ~1900 words… sigh.

 

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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