Physician Contracts – Codifying How We Work Together

Episode #28 – Physician Contracts – Codifying How We Work Together

We’ve been talking about Recruiting and Dating, and we’ve been talking about developing cultural norms so it makes it very straightforward as to how to add physicians to your group who will be a good cultural fit.

Once you’ve identified the right physician to add to your group, you’ll need a well drafted document that outlines how you will work together – the physician contract.

When we talk about contracts for physicians, there are two main types:

The first is the Employment Contract which should be signed with every physician who joins your group, and it governs the expectations of work done within the practice, and what the physician can expect from the group. You’ll also want to consider a similar agreement with any Advanced Practice Providers and potentially also your top executive leaders.

The second type is the Partnership Agreement – this is typically presented at the end of two years with the practice (or whatever you’ve decided is the length of your “partner track” for how long someone will practice as an employee before he or she is offered ownership) and it governs how the physician will function as an owner of the business. This admits them as a “Partner” into your Limited Liability Partnership, as a “Shareholder” into your Professional Corporation or as a “Member” into your Limited Liability Company, depending upon how your corporate entity is structured.

Most groups use both kinds as they each have a distinctly different purpose. Both of them are commonly referred to as the “Physician Contract,” so it’s good to understand the distinction.

Employment contracts should include:

• The term – how long the agreement is good for, which is usually a year with automatic renewing one-year terms,
• Termination, which means how each party can end the agreement. This includes a notice period, which is usually 90 days, and it also includes a list of reasons why a physician’s contract might be terminated immediately, including the commission of a felony offense, or for losing prescribing privileges from the DEA, or for losing their state license to practice medicine. It will also include a clause that states that they can be terminated for egregious behavior as we discussed in episode 27.
• Compensation, which outlines both any base salary, along with any incentive compensation, or revenue sharing program – we’ll have an entire upcoming episode dedicated to compensation, as it’s a big topic

Employment agreements also include clinical requirements, which covers things like:

• Patient Care hours expected per week to outline the physician’s clinic schedule,
• Documentation standards for how quickly charting is to be completed – we highly recommend that this be standardized for your entire group at 24-48 hours maximum from the time the patient is seen for chart completion, and we recommend that you make this a condition of employment so you don’t get into documentation issues. What that means is that if someone falls behind on their charting, you can actually terminate their employment if they cannot keep it up to date. We’ll talk more about risk in an upcoming episode, but suffice to say here that a physician who does not complete their charting in a timely fashion creates all kind of medical malpractice risk for the entire practice, and documentation is something that should be called out specifically in your employment contracts and handled immediately should a physician begin to fall behind. Again, you get what you tolerate, and if you look the other way when a clinician is behind on their charting, they’ll continue with that bad habit.

Employment agreements almost always specify call requirements as well, so that those expectations are clearly delineated. They will also address the fact that in most groups, documentation occurs outside of patient care hours. This is an important construct to understand – salaried professionals are paid for the job that they do, not the hours that they work, and all salaried professionals are expected to work beyond the hours they are scheduled to be in the office – the same goes for your executive leaders too.

There are many other clauses that go into an Employment Agreement, including practice and cultural requirements to the extent that you have them formally developed. Some groups bake those right into the body of their contract, and others have a separate Exhibit that delineates the practice specific components. Your employment attorney will have excellent input for these. And, if you haven’t updated your physician employment contracts in more than 2 or 3 years, it’s likely time for a review or an overhaul. You can find a template Physician Employment Contract on the Medical Money Matters Toolkit at medicalmoneymatterspodcast.com

As always, if using our templates, be sure to check with your practice’s attorney to assure that the form complies with your state laws.

Partnership Agreements are separate and apart from Employment Contracts, although there should be a clause in the Partnership Agreement that speaks to what happens if an Employment Contract is terminated for any reason. In most groups, that creates a “Triggering Event” which is legal speak for something needs to happen on the Partnership side of the equation too.

As we’ve said previously, terminating a physician’s employment is not anything anyone wants to do, but if it becomes necessary to part ways, some well-constructed Employment Contracts and Partnership Agreements can make this as smooth as possible. If they are not well constructed, you are leaving yourself open for all kinds of unnecessary expense and complication.

In short, admitting someone to your business’ partnership is a bit like getting married. You want to be sure you’ve spent enough time together to know that you are philosophically aligned and that you get along. You may not always agree, but you should have a relationship that is based upon mutual trust and respect, and you should be okay “agreeing to disagree” from time to time.

Unlike an employment contract, a partnership agreement governs how you will own the business together. It will call out things like ownership percentages, vesting schedules and profit distributions. It will also make very clear what happens if a partner leaves the group. It will address any buy in provisions and amounts or buyouts, and a well-constructed agreement will also be clear on how decisions are made, and how ties are broken when an issue comes up for a vote.

Partnership agreements can be fairly complex, so if there are any clauses in yours that are difficult to understand, please ask your attorney to provide some clarity. He or she should be able to break it down and explain in layman’s terms what the agreement means. You might also ask him or her to write it in more simple language, so it doesn’t always require legal translation.

As with employment contracts, partnership agreements should be reviewed for content and structure with your attorney every two or three years at a minimum. This will assure that your agreements are up to date, accurate, and a true reflection of the business of your practice.

Above all else, I encourage you to lean in and learn the basics about the various different parts of your employment contracts and your partnership agreement. Many groups that we work with have not spent any time at all reviewing these for many many years, and it’s only when they have a major change that they review these documents. Times of great change, or crisis, are not the time to realize that your legal documents are inaccurate or out of date. While a well written agreement will not provide 100% assurance of avoiding a lawsuit, it can make things a lot simpler and easier to administer when someone is leaving the practice.

Join me for our next episode, where we’ll talk about how to exit an executive leader when the practice has outgrown them.