Electronic Summer 2023 | Issue 55
Physician Employment Contracts 101: Practical Tips from a Legal Perspective
By: Joseph C. F. Willuweit, JD, Monahan Law Group, LLC and Nishi Shekar, MD, JD Candidate ‘24, Monahan Law Group, LLC
Evaluating physician employment contracts can be particularly complex due to the highly regulated nature of the profession – third-party payor requirements, fraud and abuse statutes, and Illinois-specific employment regulations, to highlight just a few issues. Further, it is important to bear in mind that hospitals, behavioral health agencies, and physician practices are ultimately business entities. While patient well-being is the utmost priority, the underlying issue of profitability is reflected in how an organization hires and manages physicians and other employees.
Whether a resident negotiating a first employment agreement or an experienced clinician pursuing a new professional opportunity, it is advantageous to be acquainted with the business practices and laws specific to healthcare. Additionally, consider obtaining competent legal assistance with contract review and negotiation. Consult with experienced colleagues and engage in basic due diligence. In the context of employment contracts, an ounce of prevention is worth a pound of cure.
Highlighted below are a few essential tips and practical considerations when negotiating and entering into physician employment contracts in Illinois.
Know who you are getting into business with. More important than any specific contract provision is understanding a prospective employer’s business model and organizational practices. Familiarize yourself with the professional relationships involved, the culture and workplace expectations, and issues like supervision of ancillary personnel. Such considerations affecting a physician’s day-to-day experience cannot be overlooked. Inquire about and evaluate billing practices, clinical privileges, how compensation is calculated, and other areas of potential friction with the prospective employer. If a private practice, how is the ownership and legal entity structured? Is there an opportunity for growth? Look for red flags – if a job offer sounds too good to be true, it likely merits further scrutiny.
Understand the differences between independent contractors and employees. It is critical to know what makes an independent contractor or an employee. The legal nature of the professional relationship will impact many practical issues. For example, tax treatment of physician compensation, responsibility for professional liability insurance costs, and the allocation of potential legal liability. While an employer is ordinarily liable for the acts or omissions of an employee, an independent contractor may not be protected by the organization in the event of a lawsuit. Misclassification of employees and independent contractors can also draw the scrutiny of the IRS and the state or federal Department of Labor.
Know the specific details of the contract term and termination provision(s). As they say, “discharge planning begins on the date of admission.” The adage applies to professional relationships and contracts as well. Termination of employment is by far the most frequent area of conflict and potential litigation between a physician and employer. While employment is generally “at-will” in Illinois, meaning termination by either party at any time for any or no reason, the contract may alter the at-will nature of employment. A contract may be for a specific number of years, and early termination may be penalized. A contract with a set term may define what constitutes termination “for cause,” and may even automatically renew unless the physician opts out within a specific window of time. It is crucial to understand the details surrounding term and termination before signing a contract, as non-compliance can result in financial penalties (e.g. repayment of recruitment fees) or limit a physician’s post-employment ability to practice in a particular geographic area.
Be aware of, and negotiate, restrictive covenants. Restrictive covenants are the contractual terms which dictate post-employment activities such as “time and distance” restrictions on competition and non-solicitation of patients. Despite the special nature of the physician-patient relationship, Illinois courts have upheld and enforced restrictive covenants in the medical field. There are specific requirements for restrictive covenants in physician employment agreements, and they must not be overly broad nor unreasonable to be enforceable. A prospective physician-employee should be aware of the existence and details of any restrictive covenant in an employment contract and may be able to negotiate unfavorable or unreasonable terms.
Legal compliance; fraud and abuse laws. Another issue to identify prior to signing any employment contract is compliance with state and federal fraud and abuse laws. In particular, various federal laws regulate the medical field including the Stark Law, Anti-kickback Statute, and the False Claims Act. While most larger organizations will have internal compliance departments and in-house or outside legal counsel, it is important to do your due diligence given the serious penalties associated with noncompliance. Further potential legal issues arise from the Illinois “corporate practice of medicine” doctrine and the prohibition on physician fee-splitting. These laws generally limit who can own medical practices and how reimbursement for physician services can be distributed within and without an organization. Often, employment contracts must be specifically drafted to comply with these, and ignorance is not a valid defense.
Attorney review. In our practice, we hear complaints from psychiatrists all the time about the law, lawyers, or frequently both. However, eschewing legal review of an employment contract is not prudent. After all, an ounce of prevention is worth a pound of cure. Obtaining competent legal advice ensures a physician fully understands a contract’s salient terms, and can avoid significant amounts of expense, distress, and potential legal liability in the future.