Drafting and Negotiating Physician Employment Agreements – Part 4

November 24, 2014   |   Mark Ison

Note:   This is the fourth in a series of posts that will examine various aspects of drafting and negotiating physician employment agreements in detail.  The first post addressed initial considerations, compensation and benefits.  The second post addressed the provision of various items such as equipment and staff, malpractice insurance, and the term and termination provisions of an agreement.  The third post addressed moonlighting, consideration for ownership, recruiting agreements and restrictive covenants.  This final post addresses the treatment of medical records and the notification of patients upon termination of the employment relationship, indemnification provisions and certain miscellaneous provisions of an employment agreement, and relates some concluding thoughts regarding the negotiation of physician employment agreements generally.

Access to Medical Records

Generally speaking, a medical record (i.e., the information comprising a medical record) belongs to the patient whose information it contains, and physician practices are merely custodians of such records.  You would never know that from reading many physician employment agreements, however.  Because a medical record is the primary tangible evidence of an otherwise intangible, but often extremely valuable, physician-patient relationship, the disposition of medical records is sometimes hotly contested upon the termination of a physician’s employment.

Because a medical record is the primary tangible evidence of an otherwise intangible, but often extremely valuable, physician-patient relationship, the disposition of medical records is sometimes hotly contested upon the termination of a physician’s employment.

In truth, what is usually contested is not the physical custody of the records themselves, but rather a physician’s right of access to them.  In almost all cases, the employer retains the originals of electronic or paper medical records of patients treated by a departing physician.  That is usually the best course of action, since it is typically the employer that would need to respond to a payor inquiry requiring the production of medical records, since the transfer of large numbers of medical records can involve significant effort and expense, and since, as between the employer and the departed physician, a patient is most likely to come to the employer if he or she needs a copy of his or her medical record.  Occasionally, where a physician brings a significant number of preexisting patient medical records into a practice, the parties agree that the departing physician may take the originals of any records he or she physically brought into the practice.  If the parties so agree at the beginning of the employment relationship, they should consider ways of marking or segregating the preexisting records so that they can be easily identified and transferred when the time comes, particularly if the records are electronic or are to be entered into the employer’s electronic medical records system.

A physician leaving a group practice may have various legitimate reasons for requesting access to the medical records of patients treated by him or her.  For instance, a physician may require access to records to complete research, defend a malpractice claim, or respond to a payor or governmental inquiry.  Such uses typically do not engender much controversy.  It is when the requested access involves contacting or treating patients that other considerations come into play. For instance, what if a physician requesting a medical record is subject to a post-termination covenant not-to-solicit or not-to-compete that might limit what he or she could do with that record?

Because access to medical records is so important to both the practice and the physician, a physician employment agreement should address the departing physician’s right to access copies of medical records of patients treated by him or her for legitimate purposes upon presentation of any required patient authorization.

A practice should not (and under various laws, may not) refuse to turn over a copy of a patient’s medical record to the patient. But what if the request comes not from the patient, but from a former physician employee of the practice who is treating the patient?  The best course of action is for a practice to always provide a physician with a copy of a medical record where the request is accompanied by a written patient authorization complying with applicable law, even if the practice suspects that the physician is violating a restrictive covenant by treating the patient.  In short, there is no point to risking liability to a patient as a result of refusing to provide a record, particularly since the practice can always go to court to enjoin a violation of a restrictive covenant.

Because access to medical records is so important to both the practice and the physician, a physician employment agreement should address the departing physician’s right to access copies of medical records of patients treated by him or her for legitimate purposes upon presentation of any required patient authorization.  In most states, the practice may charge a reasonable cost-based or statutory fee for copying records and delivering them to the physician, which fee is often referenced in the physician employment agreement.

Notification of Patients

When a physician leaves a practice, the physician usually wants to notify patients of his or her departure and new contact information in the hope of retaining physician-patient relationships.  The practice, on the other hand, usually would like to limit the information provided to “its” patients in order to encourage them to seek care from another physician associated with the practice.  As a result, it is helpful to set out in a physician employment agreement whether the physician or practice, or both, must or may provide notice to patients upon the physician’s departure from the practice.  It is also helpful to define the universe of patients to whom notice must be given (e.g., all patients seen by the physician in the prior year), to specify the means by which the notice is to be delivered (e.g., by direct mail, by public notice in a newspaper, etc.), to state generally what information the notice will contain, and to set out who is responsible for the costs associated with the notice.  Often, an agreement will state that the practice is responsible for such matters, although in some cases the physician and practice agree to cooperate with respect to the form and content of the notice.

… it is helpful to set out in a physician employment agreement whether the physician or practice, or both, must or may provide notice to patients upon the physician’s departure from the practice.

Of course, patient notice provisions must take into account the applicability of restrictive covenants, particularly those involving confidentiality and non-solicitation, as it would make little sense to allow (or require) a physician who is not allowed to solicit former patients to notify former patients of his or her new contact information.   Finally, the parties must always be mindful that state laws may require a specific level or form of patient notice.  In those cases, the physician employment agreement should, to the extent necessary, reference the requirements of applicable law.

Indemnification Provisions

Whether due to heightened fears regarding medical malpractice recoveries, compliance risks or other causes, indemnification provisions are appearing with increasing frequency in physician employment agreements.  An indemnification provision (sometimes called a “hold harmless” provision) is akin to insurance, in that it requires the indemnifying party to make the indemnified party whole in the event that the indemnified party suffers a specified type of loss or expense.

There are no doubt commentators on both sides of the issue, but in general where a physician is a bona fide employee of a practice, the physician’s indemnification of the practice against “vicarious liability” stemming from the physician’s conduct is inappropriate.  The truth is that most physicians and practices carry adequate malpractice insurance to cover the types of risks that would be subject to the indemnification. Unfortunately, a contractual indemnification provision may actually interfere with the coverage under such insurance policies (e.g., where a policy contains a clause making any other insurance primarily liable or a  clause excluding coverage for contracted liability), subjecting the physician to uninsured, out-of-pocket liability for any losses, attorneys’ fees, court costs, suffered by the practice.  In any event, a practice is certainly more able to prevent and insure against, and even to bear, the types of risks that are normally the subject of such indemnification provisions.

…in general where a physician is a bona fide employee of a practice, the physician’s indemnification of the practice against ‘vicarious liability’ stemming from the physician’s conduct is inappropriate.

If an indemnification provision is nonnegotiable, a physician should at least try to narrow the scope of the indemnification such that it covers only grossly negligent or intentionally wrongful acts or omissions of the physician, and such that it only covers losses that are not otherwise covered by insurance.

Other Issues to Consider

Some other issues to consider (several of which would justify an entirely separate series of blog posts) include:

  • If the employer purchases “key person” life insurance on the employed physician, may the physician assume the policy on termination of employment?  And on what terms (e.g., payment of cash surrender value)?
  • May the practice assign the employment agreement to an affiliate?  To a purchaser of the practice?
  •  If there is dispute arising out of the agreement or the physician’s employment, does the “loser” in the dispute have to pay the “winner’s” attorneys’ fees (and what does it mean to be a “loser” or “winner”)?
  • Does (or should) the employment agreement contain mediation, arbitration or other alternative dispute resolution provisions?
  • If there is a dispute arising out of the calculation of an amount (e.g., an expense or other component of performance-based compensation), what is the process for determining the correct value, if that process is different from the dispute resolution process generally?
  • Does the agreement contain provisions regarding inventions or intellectual property developed by the physician during the term of the physician’s employment?  Who has the rights to those inventions?

Pick Your Battles!

As with any contract negotiation, the parties (and, perhaps more importantly, their counsel) should prioritize their respective negotiating points and be aware of certain points that the other side is unlikely to (and in some cases, cannot) concede.  After all, it is rare that either side gets everything it wants.  Any agreement provision may be nonnegotiable in a given instance, but specific provisions that are commonly difficult, or even impossible, to negotiate absent extraordinary circumstances or leverage include: (i) the fees to be charged for a physician’s services; (ii) the hours of operation of the physician’s office; (iii) non-physician hiring, firing and staffing levels; (iv) the physician’s enrollment in various health plans in which the employer participates; (v) the assignment of patients to the physician; (vi) the physician’s adherence to the employer’s general policies and procedures; (vii) the physician’s participation in employer’s compliance programs and initiatives; (viii) the physician’s participation in the employer’s professional services arrangements with hospitals or other facilities; (ix) the terms of the employer’s employee benefit plans; and (x) the employer’s use of designated accounting, banking, legal and other professional services.

Where a practice has a relationship with a hospital or other facility or a particular health plan or network, be aware that in many cases the practice may not be able to deviate from certain terms imposed on the practice by the third party, including terms involving clean sweep provisions, restrictive covenants and compliance requirements.  In other cases a governmental authority may impose certain requirements on an employer (and its employees) through a corporate integrity agreement or other means.  In all cases, do not underestimate the importance of consistency among employment agreements, particularly in larger organizations with many physician employees or in small organizations where considerations of fairness or “paying one’s dues” may be paramount.

… attorneys and other advisors do well to stay in the background of the negotiations where possible and to encourage and exemplify professionalism and reasonableness in their dealings with the other side.

Finally, the negotiation of an employment agreement is the beginning of a relationship that will require good faith on the part of both employer and employee if it is to succeed.  If the parties cannot amicably negotiate at a time when each party should be looking forward to a productive relationship with the other, how will they interact with one another once inevitable challenges arise?  As such, and perhaps more than in many other types of negotiations, attorneys and other advisors do well to stay in the background of the negotiations where possible and to encourage and exemplify professionalism and reasonableness in their dealings with the other side.

photo credit:    hin255 via freedigitalphotos.net

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