UNIQUE ASPECTS OF EMPLOYMENT AGREEMENTS FOR PHYSICIANS
By
Smeeta Rishi
I.
Introduction
The past few years have seen a dramatic rise in the
use of written contracts to document an employment relationship between an
employer and a physician employee. The increased use of written employments
can be directly attributed to a rise in litigation over employment
relationships, increased sensitivity to claims which can be brought against
the employee by other employees and agents of the employer and the desire
for security on the part of both the employer and employee with respect to
the terms of employment. More recently, the rise of written employment
agreement can also be attributed to the employer’s need for protection on
issues related to managed care, fraud and abuse enforcement, compliance and
consumer demands for a high quality of care.
II. Employer Due Diligence and
Documentation
The Office of the Inspector General (OIG)
recommends that employers conduct a reasonable and prudent background
investigation on physician employees. The OIG further recommends that new
physician employees be required to disclose criminal convictions and/or
exclusions from participation in the Medicare program. Employers should be
encouraged to adopt uniform due diligence policies in regard to new
physician employees. These policies should include a check for a criminal
record, a check with the National Practitioner Data Bank with respect to
malpractice and settlement history, and a check with the state Medical Board
in each state in which the potential employee practice for issues related to
licensing. Employers should be encouraged to retain all evidence relating
to their due diligence efforts and the results of the efforts.
An employment agreement should include a
representation by the employee that he or she has disclosed to the employer,
any and all claims for professional liability, regardless of outcome, made
or to the employee’s knowledge, threatened against the employee. The
following is an example of such a representation for inclusion in an
employment agreement:
Representations of Employee.
Employee hereby represents and warrants to Employer that (i) Employee is
duly licensed to practice medicine in the State of [__] and that Employee's
license is in good standing, (ii) Employee has fully and accurately
disclosed to Employer Employee's academic and professional credentials as
well as the history of Employee's practice of medicine, (iii) Employee has
fully and completely disclosed to Employer, any and all claims that have
been made and/or, to Employee's knowledge, been threatened against Employee
for professional liability by patients or otherwise, (iv) Employee has never
been excluded for participation in the Medicare program, (v) Employee has
never been convicted of any criminal act which constitutes a felony and (iv)
Employee has made no misrepresentations, whether express or by omission, of
any material fact regarding Employee's professional history or credentials.
Employee acknowledges that Employer has relied on the accuracy of the
foregoing representations in entering into this Agreement.
III. Compensation and Benefit
Issues
Medical groups are generally creative in
the manner compensation is determined. The major legal issues involved in
the determination of compensation include fraud and abuse as well as laws
prohibiting self-referral (the “Stark” laws on the federal level).
Generally, these laws and many of their state counterparts prohibit
compensating a physician for referrals. These laws do not preclude
productivity bonuses, provided that the productivity bonus is for the
purpose of compensating the employee for work actually performed by him or
her or for work incident to the physician’s services. In cases where the
Stark laws are applicable (specialties providing designated services as
defined in the Stark laws), compensation paid to a physician must be
consistent with fair market value and cannot be determined in a manner that
takes into account volume of referrals to the practice.
Compensation provisions must be
described clearly in an employment agreement to avoid disputes on both
calculation of the compensation as well as to document that the compensation
arrangement does not violate the state or federal anti-kickback laws or the
Stark laws.
Employers should be encouraged to
provide for some type of “incentive” compensation – compensation that is put
to risk if the employee fails to adhere to the employer’s policies (such as
policies related to the employer’s compliance efforts or work related
behavior). If an employment agreement does not provide for some flexibility
in the manner compensation is determined or does not contain “incentive”
form of compensation, the employer has less flexibility to discipline an
employee by use of financial methods. The OIG’s published guidance on
compliance plans for small medical groups also encourages an employer to
maintain an effective discipline system for employees who fail to comply
with compliance policies. Most physician groups agree that the strongest
form of discipline short of termination is financial penalties for
disallowed behavior.
Other common forms of incentive
compensation reward physicians for superior performance as judged by patient
satisfaction and participation in the group’s business development or
governance activities. Employers should be cautioned against creating
incentives for physicians to focus exclusively on productivity which may
encourage over-utilization, upcoding or other billing irregularities that
can result in significant exposure to both the employer and the employee on
compliance matters.
Employers should be encouraged to
specify the benefits provided to employees in an employment manual separate
from the employment agreement with the employment agreement referring to the
employment manual in this regard. This enables the employer to modify or
amend the benefits available from time to time without requiring an
amendment to the employment agreement which requires both parties’
signature.
IV. Reassignment and Billing
Issues
There are two major legal issues with
respect to reassignment and billing. The first such issue involves
Medicare. Medicare generally requires that the physician who provides a
service to receive compensation for that service. The two exceptions to
this general rule are employment relationships and, to a much more limited
extent, independent contractor relationships. Medicare permits a physician
to reassign his or her right to receive compensation to his or her
employer. Employment agreements should clearly state that only the employer
has the right to bill for and receive payment for services rendered by an
employee in the scope of his or her employment and that all accounts
receivable resulting from the rendering of professional services provided in
the scope of employment are owned by the employer.
The second major legal issue involving
reassignment and billing relates to IPAs, foundations and other similar
contracting entities. Frequently, IPAs and similar entities will demand to
enter into contracts with individual physicians rather than the employer of
the physician. For many reasons not the least of which include the IPA
attempting to maintain leverage and access to physicians in the same
specialty if another physician terminates an agreement, these efforts should
be resisted to the extent possible. In some cases the medical group will
not succeed in resisting the efforts and the IPA or other payor entity will
succeed in contracting with individual physicians.
It is extremely important in these cases
that the employment agreement contain provisions in which the parties
recognize that (i) from time to time, the employer may require the employee
to individually enter into a provider contract with a payor entity, (ii) all
services rendered under the such contract will be deemed to be within the
scope of the employee’s employment, (iii) by signing the employment
agreement, the employee has assigned to his or her employer all the benefits
accruing from such contract and that (iv) the employee appoints the employer
as the employee’s agent to terminate the agreement immediately upon the
termination of the employee’s employment with the employer. The assignment
of rights under a provider agreement should be crafted in a manner that
addresses the assignment of income doctrine under tax laws.
In regard to billing issues, clearly the
employer has responsibility to not only bill for its employees’ services but
also to ascertain that the bills are being submitted in a compliant manner
with federal and state as well as payor requirements. If an employee fails
to bill in a compliant manner and the employer suffers monetary damages
resulting from the failure, the employment agreement should give the
employer the ability to recoup the damages as well as other costs incurred
by the employer resulting from the employee’s action. This can be
accomplished in the form of an indemnity and/or an offset to compensation
payable in the future (assuming the employee is continued to be employed).
In regard to the indemnity, employers
should be advised that the labor laws of some states, such as California,
preclude an employer from holding an employee liable for costs incurred by
an employee acting within the scope of employment, particularly when such
acts do not rise to misconduct or gross negligence.
V. Professional Liability
There are two types of professional
liability insurance: “claims made” or “occurrence.”
The claims made insurance covers the
physician so long as the physician is covered by the policy. The claims
made insurance coverage ends when a policy is terminated or expires (unless
the termination results from the employee’s death, retirement or total
disability). This insurance is the most popular among medical groups as it
is much less expensive than the occurrence type.
The occurrence insurance covers
liability arising from acts made while the insurance is in effect.
Accordingly, the policy provides coverage for acts made while it is in
effect regardless of the policy expiring or terminating prior to such claim
being made (such as during a statute of limitations period).
“Tail” insurance is required upon
termination or expiration of a claims made policy for at least the duration
of the statue of limitations period. The cost of tail insurance is
frequently the subject of negotiations between the employer and employee.
The employment agreement should both require the employee to obtain a tail
policy upon termination of employment (unless the termination results from
death, total disability or retirement) and should also clearly describe the
parties’ agreement with respect to who is responsible for the cost of tail
insurance.
The following is an example of a tail
coverage provision which allocates responsibility for payment of the cost of
the insurance based on the reason for termination of employment:
Professional liability Insurance.
Employer shall obtain and maintain in full force and effect during
Employee's employment under this Agreement a policy or policies of
professional liability insurance in the aggregate amount of not less than
$[____], insuring Employer and its professional employees from and against
any and all liabilities, costs, damages, expenses and attorney fees
resulting from or attributable to any and all acts and omissions of Employer
and its professional employees. In the event that either (a) Employee
terminates his employment without cause, (b) Employer terminates Employee's
employment for cause or (c) employment is automatically terminated for
disqualification and if Employer deems for it to be necessary, Employee
shall obtain tail coverage insurance covering any acts or omissions of
Employee during his employment with Employer, with Employer being a named
insured for the amount of time Employer determines to be appropriate.
Employer, at its election, may obtain such coverage for Employee and deduct
the cost of such coverage from any amount owed hereunder to Employee. In
the event that employment is terminated for any reason other than stated
above in items (a), (b) and (c), and if Employer deems for it to be
necessary, Employer shall obtain such tail insurance at its expense.
VI. Confidentiality and
Nonsolicitation
As the amount of funds available for
payment of health care services becomes increasingly smaller, providers have
started developing strategies, business plans, marketing plans and employing
similar business devices in safeguarding and even increasing their “market
share” or patient population. These types of information as well as managed
care contracts, rates, protocols, patient lists, referring physicians lists
and other information developed through expenditure, time and efforts are
proprietary information valuable to the employer. The employment agreement
should contain carefully crafted provisions safeguarding the employer’s
ownership of the confidential and proprietary information.
The employment agreement should also
contain non-solicitation provisions relating to patients, payors, referring
physicians and other employees of employer to prevent a departing employee
from soliciting the employer’s business or employees for the benefit of the
departing employee. This provision is particularly important where a
non-compete clause may not be enforceable.
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