Contractual Caution

John Nelson, MD, FACP

Several times a week, I hear from doctors or administrators who want to discuss solutions to the latest crises occurring in their practices. There are three contractual issues that come up regularly in these conversations. One is how to handle the contractual provision for vacation time, and I addressed that in last month’s column.

This month, I’ll discuss the other two issues: payment for malpractice “tail coverage” and the inclusion of a non-compete clause in hospitalist employment contracts.

Malpractice Tail Coverage

Not long ago, I got a call from the worried administrator of a growing and successful hospitalist practice. She described a crisis that had started when a doctor decided to leave the practice to pursue fellowship training. The doctor was happy with the practice and enjoyed the time he had spent as part of it. Yet his departure had set off a wave of threatened resignations that risked the collapse of the practice.

It turns out that the doctors’ employment contract specified that the employer would pay malpractice tail coverage for any doctor who left the practice before completing two years of employment. After the two-year anniversary, the doctor would have to pay for tail coverage. Most doctors in this young practice were nearing their two-year anniversary, and they began to worry about having to assume this responsibility.

I spoke with one such doctor. The physician was happy with the practice and had not spent time thinking about leaving until faced with the issue of tail coverage. Like many hospitalists, she tended to think of her commitment to the practice more in terms of dating than as a marriage. She wanted to keep her options open to pursue other work in the future and thought there might be some chance she would move if she experienced a major life change like marriage. So—like several of her colleagues—she thought about leaving the practice ahead of the two-year anniversary, thus avoiding committing to paying tail coverage that could be as much as $25,000 per year, depending on how long she stayed with the practice. To her, assuming the risk of paying the tail coverage felt like punishment for staying in the practice for longer than two years rather than a reward for her loyalty.

Ultimately, the hospitalists and the multispecialty group that they were part of negotiated for the practice to pay the tail coverage regardless of the duration of a departing doctor’s employment with the group. The group paid for this in part by paying beginning hospitalists a lower salary; in a sense, the doctors were still paying a portion out of their own pockets, but it seemed less painful this way.

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