Crack the Contract Code

When considering a new job, don’t gloss over the fine print. Here are a few clauses to look out for.

We’re gearing up for another graduating class of residents, which means that physician employment contracts are being discussed, scrutinized, and zipped back and forth for review over e-mail. Whether you are perusing new contract offers in your inbox, or you’re considering renewing your existing contract, below are explanations of a few contractual issues you should consider.

Due Process
Due process gives you the right to notice and a hearing, the right to be notified of the charges against you, the right to attend the hearing and to present evidence to rebut the charges, and the right to a neutral arbiter. Due process is guaranteed to every person by the Fourteenth Amendment in the Constitution, which states in part that no state shall “deprive any person of life, liberty, or property, without due process of law.” A medical license is considered a property right in most circumstances. While there is no Supreme Court case directly on point, in Board of Regents v Roth, 408 US 564 (1972), the US Supreme Court held that “where ‘important interests’ of the citizen are implicated they are not to be denied or taken away without due process.” The Roth case dealt with nonrenewal of a teacher’s employment contract at a state university, and noted that nonrenewal of a teacher’s contract “can be a blemish that turns into a permanent scar and effectively limits any chance the teacher has of being rehired…” The same line of reasoning can easily be applied to physician contracts as well. However, the Due Process Clause only applies to actions taken by the sate, not to actions taken by private entities. Due process is applied to hospital actions through Joint Commission requirements, state laws and hospital bylaws. For example, Section 10.4(b) (2) of the Illinois Hospital Licensing Act requires that hospitals establish written procedures within their bylaws “with respect to medical staff and clinical privilege determinations concerning current members of the medical staff….”

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Hospital bylaws are those rules and regulations that govern the operation of the hospital and its interaction with the medical staff. Due process afforded to medical providers within hospital bylaws are often labeled as “fair hearing rights.” Normally, if a physician is going to be terminated from a hospital’s medical staff, the hospital has to follow its administrative fair hearing process. If it does not, the hospital could be sued. However, the hospital has an interest in avoiding such hearings. The hearings can be expensive and can drag on for weeks, often involving multiple attorneys and expert witnesses. In addition, if the hospital’s decision to remove a physician from the medical staff is overturned, the unwanted physician will still be on the medical staff and will still have privileges to practice medicine within the hospital. By forcing physicians to agree to waive their due process rights, the hospitals can remove physicians from the medical staff with little difficulty.

Despite the fact that ACEP, AAEM, and the AMA Code of Ethics, all oppose contractual provisions limiting a physician’s due process rights, most emergency physician employment contracts still contain them – even contracts from national contract management groups. The presence of a due process waiver in a group’s contract doesn’t necessarily mean that the group is evil. Unfortunately, hospital service provider agreement often contain language requiring that contract management groups force their physicians to agree to waive due process. Typical language I pulled from one such agreement states that:

Upon termination of any employee or agent by [group]or at request of [hospital], or upon termination of this Agreement, the Medical Staff privileges of the involved physician(s), shall immediately be terminated without right to a fair hearing or any other rights set forth in the Hospital Medical Staff Bylaws. [Group] shall require any physician providing services pursuant to this Agreement to acknowledge and agree to these terms …

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So what can be done about due process waivers? Probably not much. Hospitals have a strong incentive to impose the waivers on their medical staff and the only disincentive to including them in the contracts would be if most physicians refused to sign contracts containing due process waivers to the point that the hospitals were unable to properly staff their departments. Realistically, most physicians don’t care enough about their due process rights to pass up an otherwise appealing job opportunity. The only other practical ways to invalidate due process waivers would be to create state laws or court decisions holding due process waivers invalid.

As strange as it may seem, there may be a benefit to waiving due process hearing rights: avoiding National Practitioner Databank reporting. If a physician is removed from a hospital’s medical staff due to concerns about quality of care or professional demeanor, that removal must be reported to the National Practitioner Databank. A full hearing on the issues would likely trigger these reporting requirements and would force physicians to fight removal from a hospital staff – even if the physician didn’t want to remain at the hospital – in order to avoid an NPDB report. However, if a physician is removed from a hospital’s medical staff due to a contractual provision without a “professional review action” by the hospital, that removal is not reportable to the NPDB.

Most contracts containing due process waivers should be considered “at will” contracts, meaning that the physician can be terminated at the will of the hiring entity – and that the physician has little, if any, job security.

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Exclusivity Agreements
As if it isn’t bad enough that doctors can be immediately terminated from a hospital’s medical staff for almost any reason, many hospital contracts attempt to prevent a physician from providing medical services at other locations. Such language is called an “exclusivity agreement.” A typical exclusivity agreement might state that the physician

Shall devote his full time, skill, and best efforts as a physician in the practice of emergency medicine for [HOSPITAL] and shall not, during the term of this Agreement, otherwise engage in the practice of medicine either independently or as an agent of any other person or entity.

While it might seem nice that hospitals want their physicians to work exclusively at their facilities, consider the practical aspects of hospital exclusivity for a physician. Being on staff at only one hospital and then being terminated presents an immediate and significant threat to the physician’s income. In order to begin working at another facility and to re-establish an income stream, the physician would have to find another hospital seeking emergency physician coverage, interview, receive a job offer, apply for staff privileges, possibly apply 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. At a minimum, these processes would take four months to complete, meaning that the physician would have no income for at least 4 months – and probably longer.

If a physician is on staff at several hospitals and works in several emergency departments the financial risks inherent in being terminated at one emergency department can be mitigated by picking up extra shifts at other emergency departments where the physician is already credentialed. While the physician may suffer a temporary drop in income, there will still be an income stream present during transition to another hospital.

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Even though some hospitals demand exclusivity, I’ve never heard 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 income. In addition, exclusivity agreements only forbid the practice of medicine, not the practice of other professions or the performance of other outside activities, so 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 to use the threat of protracted joblessness to exercise control over a physician’s behavior.

The combination of a “termination at will” contract and an exclusivity agreement can be a devastating one-two punch to a physician’s livelihood. While due process waivers are difficult to have removed from a contract, exclusivity agreements should be contractual “deal breakers” – if they aren’t removed, physicians shouldn’t sign the contract. Given the prolonged credentialing process required to obtain hospital privileges, emergency physicians should ALWAYS have staff privileges at more than one facility and should ALWAYS have contracts with more than one employer.

Integration Clauses
An integration clause means that any agreements and promises made prior to signing the contract have been “integrated” into the contract. Typical language might state that

This document contains the entire agreement between the parties and supersedes any prior agreements, oral or written, between the parties. Any modifications to this agreement are only effective if in writing and signed by both parties.

In other words, an integration clause means that the contract sets forth EVERYTHING that the parties have agreed to and that any promises made either verbally (such as during interviews) or in writing (such as in e-mails or in a “memorandum of understanding”) prior to signing the contract are unenforceable. Promises about scheduling, compensation, bonuses, insurance, and working arrangements may all sound nice during an interview, but if the contract has an integration clause and those promises aren’t contained within the four corners of the contract when it is signed, the promises are not enforceable. If representations were made during contract negotiations that are not included in a contract, physicians have two options when faced with an integration clause. First, the physician can ask the hiring entity to revise the contract to include the promises. Alternatively, the physician can write any additional terms in the margin of the contract and then initial them. A representative from the hiring entity would also have to initial the changes for them to be enforceable. If the hiring entity balks at including verbal promises in a contract, remind them that it is their contract and their wording that make the changes necessary.

Indemnification Clauses
An article about contract terms wouldn’t be complete without a warning about indemnification clauses. Indemnification is a legal concept meaning that one party agrees to pay for all the costs and damages another party sustains. For example, a medical malpractice insurance policy is a form of indemnification where the insurance company agrees to pay for all the defense costs and for any judgment rendered against a physician during a medical malpractice case. Below is some particularly egregious indemnification language I paraphrased from a contract that I reviewed:

Physician agrees to defend, indemnify and hold harmless [Hospital] and its affiliates from any and all damages, liability, and expense (including legal costs, other expenses, and attorney’s fees) in any way related to physician’s provision of medical care, even if caused in whole or part by the negligence, gross negligence, or other fault of [Hospital] or its affiliates.

Think about the immense risk the physician is accepting with this indemnification clause. Suppose that the physician is sued for medical malpractice and the hospital is named as a co-defendant in the case. Under this indemnification or “hold harmless” agreement, the physician could be forced to pay for the hospital’s legal representation, depositions, expert witness fees, and any judgment rendered against the hospital at trial. Consider what could happen if a hospital employee accessed patient information in violation of HIPAA laws during a physician’s shift. Since the physician agreed to indemnify the hospital for all damages and expenses related to the physician’s care, the hospital could allege that the physician wasn’t supervising staff properly and could demand that the physician personally reimburse the hospital for any government fines, lost hospital revenue, costs to develop new HIPAA policies, and any other expenses related to the case. Suppose that a RAC audit of the hospital alleges that the hospital overbilled Medicare on several of the physician’s patients. Since the inappropriate billing is related to the physician’s medical care, the physician could be forced to pay for all costs of responding to the audit and any government penalties that might be imposed.

Indemnification agreements create an uninsurable risk. Malpractice insurers won’t cover liabilities from an indemnification agreement. Medical malpractice insurance covers a physician for professional negligence involving the physician’s medical care. Indemnification agreements are a contractual agreement and are therefore not considered “medical care” covered under a typical medical malpractice insurance policy. By agreeing to indemnify a hospital or a group, a physician may give a malpractice insurer the means to withhold policy coverage even for professional negligence. If the physician contractually agrees to indemnify the hospital for damages related to the physician’s medical care, medical negligence could become yet another uninsured contractual liability.

The AAEM has taken the lead among professional emergency medicine organizations by condemning indemnification clauses in emergency physician contracts. Its position statement holds that emergency physician contracts should not include indemnification agreements and notes that the liabilities incurred with indemnification agreements are generally not covered by insurance.

Indemnification clauses should absolutely be considered a “deal breaker” in any medical employment contract. If you see the words “indemnification,” “hold harmless,” or any similar phrases in a prospective employment contract, stop reading, hit the delete button, and look elsewhere for a position. Indemnification clauses are just that dangerous.

Signing a contract is easy, but understanding the implications of what you read may save you from much larger problems in the future.

Tips on Negotiating Contracts
Suppose that you get a contract for a desirable position but that you are not happy with the contract terms. In some cases, employers will use a “take it or leave it” approach, stating that their contracts are “non-negotiable.” I once wrote the director of a group with a few requested contract modifications and received a reply stating “Your client has two options: 1. Sign the contract, 2. Don’t sign the contract.” I wrote him back stating that I would recommend the latter. At a time when both parties are attempting to make a good impression, unreasonable rigidity during contract negotiations might be a red flag that things will only get worse after signing the agreement. Despite what some enployers will tell you, every contract is negotiable.

Contract negotiation can be somewhat of an art form but has two main goals, clarification and modification.

1. Clarification seeks to explain unclear terms within the agreement. For example, a contract might state that a physician must work 35 hours per week. A request for clarification might note that the contract be modified to reflect that the 35 hours per week minimum will not apply during physician vacations. In most cases, a clarification reduces agreed-upon terms to writing and defines vague terms rather than substantially modifying the contract.
2. Modification seeks to either change the terms of the contract or add additional terms to a contract in order to change the contract’s intent. I recommend that clients organize their desired contract modifications into three categories: “deal breakers,” terms that they would like to have but would still sign the contract if they do not get them, and terms that they don’t care about. Determining which terms are less important helps to speed the negotiation and focus on important points. Keep in mind that just as unreasonable rigidity in refusing modifications can be a red flag to physicians, a physician who nit picks over every single contract term may cause concern with the hiring entity. Do they really want to hire someone who appears to be obsessive-compulsive and argumentative? Pick your battles. Being able to describe the intent behind requested modifications and proposing alternative language for requested modifications is always helpful in moving a contract negotiation forward.

In the end, if negotiations are winding down and you’re still uncomfortable with contractual terms, don’t sign the contract. There are many opportunities all over the US for qualified emergency physicians and you shouldn’t feel pressured to enter into a bad contract. That reminds me – EP Monthly has lots of jobs for you to consider. Just click here to see.