Think Like an Employer: Understanding Employment Agreements and Their Impact on Your Practice

At the Coalition of State Rheumatology Organizations 2020 Fellows Conference, Stephen C. McCoy, Esq, Vice President and General Counsel, Patient First Corporation, Glen Allen, VA, spoke to attendees about reviewing and understanding employment agreements. He offered some tricks of the trade and suggested that physicians should be “thinking like an employer” versus “thinking like an employee.” If physicians come at employment agreements a certain way, “You will avoid problems that I see over and over again,” he said.

Important Points to Remember

Mr McCoy said that there are 4 important points for the physician to remember when reviewing the contract. The first point is to read your contract and understand every part of your contract. You should hire an attorney to assist your review and help you understand. Use your attorney as a teacher, not a negotiator.

“It would cost a lot more money and it is less effective to ask your attorney to negotiate for you,” he said. Ask questions and get answers. Focus on big, important items when negotiating. For example, send me “6 or 7 comments, not 60.” And do not forget to get copies of rules that apply to your practice and understand them.

The second point is to visualize your day-to-day practice as described in your contract. You will want to focus on what happens when things go wrong. This is the most important point as employers and physicians tend to ignore their agreements when things are going well.

The third point is to read your contract as if you are unhappy and want to leave. Will you be able to manage departure? “What can you do and what can you not do?” Mr McCoy suggested.

And the most important point is to “get and keep a copy of your contract. Put it in whatever 2020’s version of a safety deposit box is,” he said.

The Basics: Compensation

With these basic ideas in mind, the physician can now begin to think about compensation. There are 4 basic types.

The first is a straight annual salary, while the second type is a salary with bonus potential. “You want to understand how you reach that bonus and you want the methods to be objective, not subjective,” said Mr McCoy. Bonuses can be production based or fixed.

The third type of compensation is a pure production model, where the physician is paid based on productivity.

“When you have a mature practice, that is a very fair way to do it,” said Mr McCoy. A physician can be paid based on adjusted charges or collected revenues less allocated expenses. “Your production will be negative for the first several months, so you want to avoid pure production models during the first 2 to 3 years of practice,” he added.

The fourth type of compensation is compensation based in whole or in part on third-party payer incentives.

“In these models, performance is being measured based on pay-for-performance or value-based care metrics. Make sure you understand the metrics and whether you are going to be able to achieve them as a new physician in your practice,” said Mr McCoy.

Common Questions

Compensation

One common question asked by physicians is whether employers can change their compensation or compensation model without consent. Mr McCoy said that it is relatively common for a large practice to be able to change the compensation model for all, but not less than all, of the employed physicians. He said physicians in large practices should negotiate for this “herd immunity” by requiring any changes to affect all physicians in the practice. In a small practice, the employer should not be able to change compensation or the compensation model without consent. In addition, physicians should pay attention to how “herd” is defined in a multispecialty setting. “Understand what your herd is,” he said.

There are also insurer incentive programs. But do insurer incentive programs affect a physician’s compensation? According to Mr McCoy, “Government programs, such as merit-based incentive payment system, or MIPS, and advance payment models will increasingly affect physician compensation. In addition, commercial payers are following suit with coordinated care programs, ‘value-based’ care initiatives, and similar [pay for performance] incentive programs.”

Professional Liability Insurance

“Your employer should always pay for this coverage, usually written with ‘per incident’ and ‘annual aggregate’ limits. ‘Per incident’ is for any one suit; this is how much money the insurer will pay for an individual claim. ‘Annual aggregate’ is how much the insurer will pay for all claims in any 1-year policy period,” said Mr McCoy.

There are two types of professional liability coverages available to physicians. Occurrence-based, which covers a specified period of time, regardless of when a claim is made, and claims made, which is coverage that is contingent on a claim being made within the policy period. Extended reporting endorsements (or “tail coverage”) become important with claims made coverage.

Termination Provision

An employment agreement typically ends with either termination for cause or without cause. Mr McCoy said that it is important to understand what constitutes cause and negotiate for written notice and the right to cure any breach that can be cured. Notice of termination with cause for breach of contract usually comes with a short (less than 30-day) period to cure.

“That’s why it’s important to pay attention to written notices from your employer; when you get something, they are starting the clock,” Mr McCoy explained. “Be sure you have the individual right to terminate without cause. Usually you’ll see a requirement for between 60 and 90 days prior written notice.”

Due Diligence: Ask Questions

Mr McCoy explained that physicians should ask questions about the practice organization. “Be an interviewer and not just an interviewee,” he stated. Some questions include how is the practice organized, whether it is owned by a health system, health plan–affiliated, or private, and how old are the partners/shareholders.

He suggested that physicians talk to younger physicians and their spouses to get the facts. “It’s hard to ask the tough questions. If you don’t understand it, keep asking,” he said.

Be a Successful Employee

To be a successful employee, physicians should know the rules, ask questions, and keep asking them until you understand. Confirm important matters in writing, such as with e-mail, but Mr McCoy said that physicians should be careful with e-mail and text messaging, particularly with patients.

Terminating Your Agreement

If you have to terminate your agreement, review your contract before you do anything. Mr McCoy offered these tips to the attendees: “Walk through the posttermination effects of your contract. ‘Two weeks’ notice’ is only in the movies.” He shared that the contract is going to tell you how much notice you will have to give.

Postemployment

Once your employment ends, Mr McCoy said that attendees should watch for restrictive covenants, repayment obligations, tail coverage, and any other obligations that continue after your relationship is over.

“The employer’s purpose [with a restrictive covenant] is to prevent you from building a patient base, then leaving and taking your patients with you to a second employer or to your own practice,” he explained.

Restrictive covenants (also known as covenants not to compete) generally mean the physician may not practice medicine in competition with his/her employer, within a defined area, during or after employment, and (if after) for a set period of time. “Remember that physician noncompetition agreements are enforceable in most states,” Mr McCoy stressed.

There are many ways that a covenant not to compete is enforced. “One way is injunctive relief, which means that the court orders you to stop. Another involves money damages, where the court orders you to pay your former employer,” he stated.

Tail Coverage

Extended reporting endorsements, or tail coverage, provide coverage of previous acts after termination of claims-made insurance.

“Before signing, negotiate for cost- sharing for tail coverage premiums. Your employer benefits from tail coverage, and cost-sharing is becoming more prevalent. Negotiate permission to maintain continuing claims-made coverage, generally only possible if you move within the state. Your contract should spell out if you are entitled to tail coverage and who is responsible to pay for it. Sometimes, each side pays half, and that is fair,” said Mr McCoy.

Other Posttermination items

Observe any notice periods, such as that required for termination. “If a contract requires 90 days, give 90 days,” said Mr McCoy. Watch for other contract provisions with posttermination effects, such as confidentiality provisions and repayment obligations.

Mr McCoy then offered a final question that he is asked often: “‘Do I need an attorney in the state where I am going to practice?’ It’s better, but if your choice is between an attorney from a different state and none at all, it’s not critical.” He continued, as a lawyer who does not practice in the state where your group is located, “I’m going to assume that everything in the contract is enforceable.”

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