What does this mean for its contracted physicians?
American Physician Partners was founded in 2015. Its website boasts more than 2,500 physicians and APCs at 153 practice sites. Less than two years ago, APP was reportedly “gloating” to investors at how an impending glut of emergency physicians would flood the market, drive down wages, and help APP cut nearly $20 million from its payroll costs.
Despite those anticipated cost savings, APP had persistent underlying credit issues. According to a Becker’s Hospital Review article, in 2021 APP’s parent company APP Holdco had its credit rating downgraded to CCC-, which is considered “junk” status and a “substantial credit risk” with a “real possibility” of default.
With difficulty finding financing for its large debt, APP was recently investigating a partnership with SCP Health. When that deal failed to materialize, APP announced that it planned to wind down operations and transition out of its hospital contracts effective July 31.
Unfortunately, medical staffing company bankruptcies are not uncommon. Envision filed for Chapter 11 bankruptcy protection earlier this year. In the early 2000s, PhyAmerica staffed more than 200 emergency departments before declaring bankruptcy when a healthcare financing organization could no longer finance PhyAmerica’s debts.
According to an EM News article, after the bankruptcy, PhyAmerica reportedly owed money to physicians for services previously provided but refused to pay the physicians. Additionally, PhyAmerica was self-insured but grossly underfunded its medical malpractice insurance reserves, leaving some physicians with no malpractice coverage and putting those physicians’ assets at risk. Hospitals reportedly even threatened physicians with lawsuits if hospitals had to pay money related to PhyAmerica malpractice cases.
APP’s sudden transition out of professional staffing could be another business failure that leaves many emergency physicians at significant financial risk. The terms of APP’s contractor agreement may provide some insight into the rights and duties of both APP and APP physicians.
Potentially pertinent terms of APP’s contract
I have reviewed several versions of APP’s contractor agreement. The latest version of this agreement has a section titled “Assignment; Binding Effect,” which, in part, states the following:
“Provider may not assign or subcontract to any person or entity any or all of Provider’s rights and obligations under this Agreement. [APP] may assign, transfer or convey its rights, benefits, and/or obligations hereunder to a parent, subsidiary, or affiliate thereof or to an entity into which [APP] is merged or with which [APP] is consolidated or to a purchaser of all or substantially all of its assets or as part of a corporate reorganization.”
Broadly speaking, this language prevents a provider from assigning his or her duties under the agreement (i.e. providing patient care) to another individual or entity. In other words, a physician couldn’t decide to leave for vacation and hire a friend to complete his work schedule for the week.
However, again broadly speaking, this language allows APP to assign its rights and obligations to another entity (such as the hospital or another staffing company) that is better able to fulfill those contractual responsibilities and provide the necessary resources. The term “may assign” means that APP is not required to assign those rights. If APP’s rights are not assigned to the new entity, then the contract would terminate according to its terms, and the duties of both parties would end.
If APP’s rights and responsibilities are assigned to another entity, then the new entity would function as the new contractor/employer and would be required to enforce and abide by all of the terms of the original agreement between the provider and APP. Accepting assignment of contract rights and duties doesn’t mean that the new entity has to *continue* the terms of the APP contract in perpetuity.
The new entity could receive assignment of rights under the old APP agreement and immediately give all providers notice that the new entity is terminating the APP agreement as quickly as the agreement allows. The new entity could then demand that providers sign a new agreement – which may contain terms entirely different from those in the APP agreement. After the APP agreement terminates, the provider would need to determine whether to sign the new agreement or to find another position at another facility.
APP’s contract also contains “Restrictive Covenants.” In the latest version of APP’s contract, there is no non-compete clause. In other words, the contract does not contain a specific distance from a provider’s primary facility where a provider is prohibited from practicing medicine. Instead, the restrictive covenants contain noninterference and non-solicitation agreements preventing providers from attempting to interfere with APP’s business relationships and preventing physicians from attempting to go outside the contract and provide services to any of APP’s contracted facilities.
Since APP is going to be exiting the staffing market, it may not have a legitimate business interest in attempting to enforce those covenants and courts could consider those covenants unenforceable. However, if APP assigns its rights to another entity, that other entity could potentially have a business interest in enforcing those restrictive covenants.
Potential Career Decisions for APP Physicians
Because APP’s sudden market exit may leave many physicians with difficult employment decisions, below are some considerations that physicians may want to make.
It is always a good idea to maintain staff privileges at more than one hospital and with more than one group. Being on staff at only one facility creates a significant threat to a physician’s income if the physician is terminated. To begin working at another facility and to re-establish an income stream, the physician would have to find another hospital, interview, wait for application approval, receive a job offer, wait for references, 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 timeframe.
With respect to APP’s transition out of hospital staffing, if the entity taking over any of APP’s staffing contracts chooses to terminate the APP agreement and demands that physicians immediately sign a new contract, once the APP contract is terminated, former APP physicians are under no obligation to accept a new agreement or to continue providing services for the new entity.
In such a case, an entire emergency department staff could simply refuse to sign the new contract – which could leave the new entity and the hospital without emergency department coverage. Such a move could have a serious adverse effect on the hospital’s ability to continue providing services.
If instead, the entity taking over an APP staffing contract agrees to accept assignment of all the rights and duties in APP’s provider agreement, then former APP physicians would be contractually required to continue providing services for the new entity under the terms of the old APP agreement. Physicians would also continue receiving the same pay and medical malpractice protection provided in the APP agreement. Once the new entity chooses to transition physicians to a different agreement, physicians could then choose whether to terminate the contract and leave the position or to sign the new agreement.
Given the history of PhyAmerica allegedly going out of business without paying physicians, APP physicians may consider confirming how they will receive payment for previously performed services after APP ceases staffing a particular facility. Also, given the PhyAmerica medical malpractice insurance debacle, APP physicians may also consider inquiring how APP has funded providers’ malpractice liability policies so that physicians are covered for any potential lawsuits resulting from services provided for APP and the hospitals.
Finally, physicians may consider having their attorneys investigate the legal concept of anticipatory repudiation as it relates to APP’s announcement. If APP’s announcement and actions amount to a repudiation of its agreement with its providers, then the providers might be within their legal rights to immediately terminate their agreement with APP to mitigate potential damages related to performing services that may go unpaid and incurring potential medical malpractice liability that may not be covered.
Emergency physicians and legislators need to more closely examine the effects that large staffing companies and venture capital firms have upon essential medical services in this country. Unfortunately, it appears that the financial motives of these organizations are often detrimental to the interests of our patients, our physicians, and our profession.
This article is for INFORMATIONAL PURPOSES ONLY. It does not constitute legal advice. Each legal situation is unique. DO NOT take action on any statements made in this article without first consulting a personal attorney.
