7 Dangerous Physician Employment Contract Terms

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Avoid these potentially significant litigious clauses that could cost millions.

A physician employment contract is legally binding regardless if the physician understands the terms. Unfortunately, some physician contract terms create significant dangers. Below are seven contract terms that should raise both red flags and a physician’s eyebrows.


Indemnification Clauses

Indemnification is a legal term meaning that one party agrees to pay the expenses and costs of another party for something the first party either has or has not done. By agreeing to indemnify a group or hospital, the physician is agreeing to pay for all losses or damages that they could possibly sustain because of the actions being indemnified.

Such damages could include lost profits, lost goodwill, loss of contracts, increased malpractice costs and for anything related to the actions being indemnified.


If a physician agrees to indemnify a group or hospital for damages related to the provision of medical care and the group or hospital is later named in a malpractice lawsuit as a codefendant, the physician is agreeing to personally pay all the other party’s costs relating to the claim — including attorney’s fees, court costs, expert witness fees, costs of copying medical records and any other costs – including legal judgments against the group or hospital (which could total millions of dollars). Indemnification can apply to government investigations, fines, allegations of lost profits, and loss of revenue.

Indemnification may also invalidate medical malpractice insurance coverage since it turns malpractice liabilities (negligent treatment of a patient) into a contractual liability (agreeing to reimburse a hospital or group). Contractual liabilities are not covered by professional liability insurance. Some malpractice insurers are now asking if a physician has agreed to indemnification as part of their insurance applications.

If a medical malpractice insurer wants to know whether you have ever “signed a contractual agreement where you agreed to indemnify others,” you can be relatively sure that signing such agreements will adversely affect your insurance premiums.

Even worse, checking “No” if you have signed an indemnification agreement may give the insurer cause to deny coverage if a malpractice case is filed against you. Indemnification clauses create an “uninsurable risk” for physicians that could result in millions of dollars of out-of-pocket expenses. Never agree to indemnification.


Supervision of Advanced Practice Providers
Agreeing to supervise advanced practice providers may represent a significant legal risk. Physicians who supervise APPs may be held liable under the “captain of the ship doctrine” if the APPs commit malpractice and can be held liable for negligently supervising APPs – both by juries and by state medical boards.

Agreeing to supervise other practitioners may also be considered an “administrative duty” that is not covered under a medical malpractice insurance policy. Physicians who choose to supervise APPs and to be responsible for their actions may consider adding language to the contract that provides the physician with necessary insurance coverage for supervision of APPs that requires the supervised APPs be properly trained and insured for the care they provide. That gives physicians the option to decline to sign necessary documents and immediately cease supervising any APP that, in the physician’s sole opinion, does not provide appropriate medical care.

Due Process Waivers
Hospital bylaws almost universally require that hospitals provide physicians with due process before removing a physician from the medical staff. Procedural due process generally requires proper notice of specific charges, a hearing on the merits of the proposed action before an impartial tribunal, an opportunity for discovery, an opportunity to present a defense and to call witnesses, a right to dispute opposing evidence and cross-examine adverse witnesses, and the right to be represented by an attorney.

A due process waiver makes it easy to remove a physician from the medical staff at the hospital’s request by forcing the physician to immediately resign hospital privileges without a hearing. Most professional medical organizations have policies against including due process waivers in any medical employment agreement.

Although the contract period in physician employment agreements averages one- to two-years, contract termination clauses usually allow either party to end the agreement with a specified amount of advance written notice (called the “out clause”). The “out clause” is typically 60- to 90-days.

Acceleration means that once the physician provides written notice of intent to terminate the agreement, the group or hospital can “accelerate” the date of termination and fire the physician immediately. For example, a physician could give notice of intent to terminate on March 1 with an anticipated departure date of June 1.

With acceleration, the group or hospital could instead terminate the contract on March 1 – the date on which notice was given. In that case, even though the physician planned on receiving three months of additional income in the current job before leaving, instead the physician will suddenly receive no income for those three months.

The biggest problem with an acceleration clause is that the ability to invoke the clause is optional. That gives the physician little ability to plan ahead when leaving a job and may cause the physician to go without several months’ pay. There is no legitimate business purpose for an acceleration clause other than to impose a financial burden on a physician that chooses to terminate a contract.

Exclusivity is a contract term that prevents physicians from providing medical services for other entities without prior approval of the entity with whom the physician is contracting. Being on staff at only one facility constitutes another significant threat to the physician’s income if the physician is suddenly terminated from that facility.

Before being able to re-establish an income stream, the physician would have to find another hospital, interview, complete an application, wait for references, wait for application approval, receive a job offer, possibly wait for state licensure, go through the credentialing process, receive staff privileges, get on the department schedule and then work for a month before receiving a paycheck.

These processes take many months to complete, meaning that the physician would have no income during that time. There isn’t a very compelling reason to require exclusivity in a physician contract. If a hospital doesn’t want physicians working for direct competitors, a restrictive covenant preventing a physician from working at specific facilities would protect the hospital’s interests without potentially wreaking havoc on a physician’s financial health.

Exclusivity agreements typically only forbid the practice of medicine, not the practice of other professions or the performance of other outside activities. Any arguments that hospitals don’t want outside activities to interfere with a physician’s job duties are insincere at best. The only realistic reason for exclusivity agreements is to allow a hospital or group to use the threat of protracted joblessness to exercise control over a physician’s behavior.

IP Ownership
Assignment of rights language requires that physicians give rights to any intellectual property the physician creates or conceives of during the term of the Agreement to the hiring entity. Even if a concept is created during a physician’s free time, assignment of rights clauses require that the physician grant a group or hospital exclusive rights to develop, market, and sell that concept regardless of how much free time the physician spends designing and developing it.

Examples of intellectual property could include books, articles, paintings, inventions, devices, methods of practice, and any business concepts. In some cases, the assignment of rights may be limited to intellectual property developed using any of hospital or group’s resources. Those resources could include computers, phones, email systems, patient records, etc. If any of those resources are used in any manner (such as sending an e-mail on a company e-mail account) related to an idea, the entire idea may become the group or hospital’s property. Unless you are being hired specifically to create or develop an idea, don’t agree to assignment of rights.

Withholding Pay
Some physician employment contracts require that physicians allow a group or hospital to withhold the physician’s compensation under certain circumstances. The group/hospital could withhold compensation if documentation is allegedly incomplete or if any debts are allegedly owed to the group.

Groups or hospitals could allege incomplete documentation from months or years prior as an excuse to withhold an entire paycheck. On many occasions I’ve seen doctors have their compensation withheld for weeks or months while groups or hospitals repeatedly allege “incomplete charts.” When the physicians complete the requested charts, suddenly new delinquencies appear.

In one recent case, I represented a physician who was removed from a hospital’s schedule (without due process). The contracting group out of Dallas, TX withheld nearly $60,000 in compensation that it allegedly used to pay exorbitant rates to cover shifts that the group itself canceled. If a group or hospital demands the ability to withhold compensation, the contract should require that the physician be notified of any debt within 30 days of when the debt occurs.

Groups/hospitals should only be able to withhold additional compensation if documentation is not completed within a certain timeframe (for example, seven days) after the physician is given *written notice* of specific documentation deficiencies and should be immediately released once the requested documentation has been completed.

While physician employment contracts contain many legal landmines, addressing these seven dangerous physician employment contract terms will help make your contract safer to sign.Want to see if a group or hospital has been involved in prior contract litigation with physicians? Search https://www.judyrecords.com/. This site lists more than 620 million lawsuits and is expanding regularly.


SENIOR EDITOR DR. SULLIVAN, an emergency physician and clinical assistant professor at Midwestern University in Illinois, is EPM’s resident legal expert. As a health law attorney, Dr. Sullivan represents medical providers and has published many articles on legal issues in medicine. He is a past president of the Illinois College of Emergency Physicians and a past chair and current member of the American College of Emergency Physicians’ Medical Legal Committee. He can be reached at his legal web site http://sullivanlegal.us.

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