This is the second article in a two-part series examining key medical group contracts. The first article, which appeared in the August 2007 edition, focused on medical group buy-sell agreements.
A well-prepared employment agreement ensures that physicians and their groups understand what each expects of the other. Here are 10 key considerations.
A physician's employment agreement with his or her medical group is the bedrock document defining their relationship. The employment agreement should clearly reflect the physician's and the group's expectations, rights and obligations with respect to each other. Failing to do so can lead to misunderstandings, suboptimal performance, termination of the relationship and a lawsuit.
This article discusses the key terms and conditions that every physician employment agreement should address. Keep in mind that employment agreements are not only for physicians just out of training. They are equally important for owners of professional medical corporations who are also employees of their groups.
Employee vs. Independent Contractor
Full-time physicians need to be hired as "W-2" employees and not "1099" independent contractors. Even if a physician wants to be hired as an independent contractor to "save on taxes," it is generally a bad idea for both parties. The group runs the risk that the Internal Revenue Service and California Franchise Tax Board will impose fines and penalties if the physician is improperly treated as an independent contractor. There are also potential kickback and fraud and abuse risks for independent contractors that are not present for employed physicians.
From the physician's standpoint, an independent contractor has to pay the 15.3 percent self-employment tax and does not have the employee protections provided by federal and California labor laws.
Employment Duties
The agreement should address issues such as the physician's work hours and on-call obligations, the specialty in which the physician will practice, whether moonlighting will be permitted, and whether the physician will be expected to assist in practice administration and promotion.
Term and Termination
The term of the agreement (e.g., one or two years) and whether it will automatically renew should be specified. Equally important are provisions for early termination. Typically, three categories of termination should be addressed:
* Termination with or without cause upon a specified number of days notice (e.g., 30-90 days).
* Termination for breach of the agreement. The physician is generally given a period of time (such as 15-30 days) to attempt to "cure" the breach.
* Immediate termination in the event of certain very serious problems, such as loss of medical license or medical staff privileges, exclusion from the Medicare or Medi-Cal programs, conviction of a felony, uninsurability, endangerment of patients, or acts of dishonesty.
Compensation
Compensation provisions vary widely from straight salary to complex production formulas. Development of a compensation formula that incentivizes desired physician behavior is obviously essential to the success of any group. If a production-based formula will be used (such as a percentage of the physician's collections or profits), the formula needs to be clearly described. For very complex formulas, examples should be included. It should be noted that under the so-called "Stark" law, a physician cannot be compensated directly for ordering certain ancillary services (such as laboratory, physical therapy and imaging) for Medicare patients.
If some or all of the physician's compensation will be based on a production formula, the employment agreement should describe how both revenue and expenses will be determined and allocated. If not handled carefully, the allocation of expenses can be complicated and lead to disputes. For example, some groups allocate certain expenses equally (such as rent), other expenses based on production (such as supplies), and some 100 percent to the physician (such as continuing medical education tuition).
In any production-based formula, it is also important to agree upon how post-termination collections will be handled. Will a departing physician be credited with collections that he or she generated before leaving? If so, for how long? What post-termination liabilities and expenses will be charged to the departing physician? Finally, as noted in the first article in this series, groups need to ensure that post-termination payments qualify under the IRS' new rules for nonqualified deferred compensation plans. Otherwise, the deferred compensation may be taxable to the physician before he or she actually receives the money and also subject to penalty taxes.
Fringe Benefits
The employment agreement should describe the fringe benefits that will be provided, such as paid time off; CME tuition; health, life and disability insurance; automobile allowances; medical staff and professional society dues; license fees; and cell phones. Malpractice insurance should be addressed, including the amount of coverage and who will pay for a "tail" policy in the event of termination.
The agreement should also include a reasonable policy setting a limit on the amount of paid time off a physician can accrue. Otherwise, upon termination, the group runs the risk of owing the physician an enormous amount of money for unused paid time off.
