It happens at least once a year. One of the physicians we represent calls and says, “I want you to look at a contract I signed.” It’s the equivalent of a patient coming to the emergency department to show the doctor the job he did with his own stitches. Although you can try to clean up trouble spots, you can’t achieve the best result.
Nonetheless, because we know some hospitalists will continue to enter employment contracts without consulting an attorney, we want to provide some basics for evaluating contracts. These can be agreements signed with a hospital or hospitalist group, or with a group practice that covers a hospital or healthcare system.
Parties enter contracts expecting a mutually beneficial relationship. But our job is to assume the relationship will not only fail, it will go down in flames. By assuming worst-case scenarios we can assess the risks and benefits of each contract provision.
Identify the Parties
Although this may seem self-evident, it’s not. A physician may think he’s contracting with another physician, but the agreement is with a corporation. There are various options for structuring healthcare entities, each with advantages and disadvantages. All are designed to limit liability. There are also legal limits on physician arrangements with certain types of entities. It’s important to understand how the entity with which you’re contracting is organized and operated.
The status of the contracting physician is equally important. A hospitalist can contract individually as an employee, independent contractor, member (full or limited), or through his/her own professional corporation. These options have significant implications for compensation, tax, insurance, and liability.
Define the Purpose
Many contracts begin with recitals, or introductory paragraphs that explain the reasons for the contract. Most people zoom past the recitals—but that’s a mistake. A court asked to resolve a contract dispute attempts to construe the contract in a manner that effectuates the parties’ intent. Make sure recitals accurately state the parties’ intent.
Know the Benefits
All contracts include “consideration,” which is something of value exchanged for contractual obligations. What constitutes fair consideration varies by contract. Important considerations include:
- Compensation (salaries, bonuses, payment formulas, and profit distributions);
- Insurance (health, dental, vision, life, and disability);
- Paid time off (illness, vacation, and professional meetings);
- Retirement plans (401k and profit-sharing plans);
- Professional fees (hospital privileges, professional organizations, medical license, drug enforcement, administration registration, continuing medical education, subscriptions);
- Malpractice insurance and tail coverage;
- Indemnity; and
- Services and equipment (billing, support staff, equipment, and other resources).
All benefits must be adequately described in a contract to be enforceable because most contracts include “integration” clauses stating that the written agreement is the entire agreement between the parties and “no other agreements, written or oral, exist.” Courts will not let parties claim benefits not reflected in the written contract.
Know the Obligations
For a legally binding contract, each party must incur an obligation in exchange for consideration. For example, in a services agreement, a physician can readily agree to provide medical services in exchange for compensation and other benefits. Most contracts fail to provide enough detail about how obligations must be performed. When a physician agrees to “devote their full professional attention and best efforts” to a practice, what does that mean? Who determines whether one has devoted his “best efforts?”