Physician Employment Agreements: Hot Topics and Practical Tips
The Current Landscape of Physician Employment
The medical profession has experienced a dramatic shift toward physician employment by hospitals and corporate entities. It was reported that "The decade-long decline of independent physicians rolled on in 2022 and 2023 with a new high of 77.6% doctors employed by hospitals or other corporate entities as of the new year, according to a new report," while "prior reports pegged the total percentage at 25.8% back in 2012." This shift is happening alongside a projected demand for physicians, with approximately "23,600 openings for physicians and surgeons" anticipated annually over the next decade.
Legal Considerations in Physician Contracts
When negotiating employment agreements, understanding key legal frameworks is critical. Compliance with the Stark Law, Anti-Kickback Statute, and fee-splitting regulations is essential. For instance, the Federal Anti-Kickback Safe Harbor allows certain payments to employees if the remuneration is for "employment in the furnishing of any item or service" covered under federal health programs (42 CFR 1001.952(i)). Similarly, the Stark Law exception permits payments if they meet criteria such as fair market value and commercial reasonableness (42 CFR 411.357(c)).
Understanding Physician Compensation Models
Physician compensation structures can vary widely. Common models include:
Salaried Model: Often seen in large health systems like Cleveland Clinic.
Net Income Model: Common in private practices, where physicians earn what remains after expenses.
Collections-based Model: Compensation is tied to a percentage of patient collections.
Productivity Model: Tied to work relative value units (wRVUs), prevalent in health system employment.
Additionally, hybrid models that combine productivity with other incentives are becoming increasingly common, particularly in venture-capital-backed agreements.
Additional Financial Incentives
Health systems frequently offer bonuses and loans to attract physicians. These incentives can range from "$10,000 to over $400,000" and are often forgiven over time based on continued employment. However, it's important to note that forgiven loans are treated as taxable income.
Restrictive Covenants and Their Enforceability
Physician contracts often contain restrictive covenants such as non-compete clauses. In Ohio, for example, these clauses must "be no greater than necessary for the protection of the employer’s legitimate business interests," must not "impose undue hardship on the employee," and must not "be injurious to the public." Non-compete enforceability varies by state, making it crucial for physicians to understand local regulations.
Termination and Exit Strategies
Understanding the terms for terminating employment is critical. Contracts may outline conditions for termination "without cause" (with notice periods of 30-180 days) or "for cause" (e.g., loss of medical license, criminal violations). When ending employment, practical steps include:
Reviewing all governing documents and agreements.
Understanding repayment obligations for moving allowances or signing bonuses.
Managing patient notification and medical record transfers in compliance with HIPAA and state laws.
Updating contact information with licensing boards, payors, and other stakeholders.
Conclusion
Physicians entering or renegotiating employment agreements must carefully navigate legal frameworks, compensation models, and restrictive covenants. By understanding these critical areas and seeking legal counsel where appropriate, physicians can protect their professional and financial interests in a complex and evolving healthcare environment.
For further questions, you may contact Kate Hickner, Member at Brennan Manna & Diamond, LLC.