NEGOTIATING PHYSICIAN EMPLOYMENT AGREEMENTS KEY PROVISIONS. 1. Can t limit a physician s independent medical judgment

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1 350 Ryman Street P.O. Box 7909 Missoula, Montana (406) Fax (406) NEGOTIATING PHYSICIAN EMPLOYMENT AGREEMENTS KEY PROVISIONS I. GENERAL A. Most contract terms are negotiable B. Some are non-negotiable 1. Can t limit a physician s independent medical judgment 2. ADA 3. Discrimination provisions 4. HIPPA/HITECH (Patient Privacy) 5. In Montana, an employer can t include a contractual right to terminate an employee without cause if the employer wants the contract to be one for a specific term and thus be exempt from the Montana Wrongful Discharge From Employment Act ( WDEA ) C. Before negotiating a contract, do your homework 1. Reputation of employer 2. Interview other physician employees 3. Practice size 4. Doctor/Patient ratios in the region 5. General compensation rates in the region 6. Call coverage requirements 7. Criteria for productivity bonuses 8. Culture II. KEY PROVISIONS A. Preconditions to Employment (need to be satisfied as of the date employment commences)

2 B. Term 1. Licensed in the State 2. Hospital staff privileges 3. Board eligible or Board certified 4. Enrolled with Medicare/Medicaid 5. DEA registration 6. Provider Identification Number 7. Background check a. criminal and drug testing 8. Insurance/Insurability 1. Specific/Finite a. e.g. expires after 1 year unless both parties renew or extend b. A specific term is used to comply with the WDEA 2. Self-Perpetuating ( Evergreen ) a. Automatically renews every year if neither party gives notice of termination b. Employers can t do this if they want to be exempt from the WDEA in Montana 3. Notice to terminate without cause C. Job Description a. e.g. 90 days b. Both parties/reciprocal? c. Same notice period? d. Remember, an employer can t terminate without cause and still be exempt from the WDEA 1. Full-time 2. Part-time

3 3. Detailed job description 4. Hours and schedule 5. Required meeting attendance 6. Employee must follow office policies D. Office Location a. request and read all policies in advance b. Administrative duties? c. Marketing/outreach duties d. Supervision of mid-levels e. Expectation on number of patient visits/surgery days f. Standards of practice 1. Try to identify specific clinical office locations and other facilities where physician will work a. mileage limitation? 2. Work location will change only with mutual agreement E. Call Coverage 1. All call coverage requirements should be detailed a. e.g. office/practice call and town call 2. Schedule a. weekday, weekend, evening, holiday requirements (e.g. 1:4) 3. Call should be shared in a fair equal or equitable manner among physicians within a similar practice area or specialty 4. Will employer pay for call or call in excess of minimum requirement? F. Exclusivity 1. Must all clinical services be performed exclusively for the employer? a. Exceptions should be clearly outlined, e.g.: i. Research at University

4 i iv. Expert witness testimony Lecturing Sports team physician 2. There should be a clear approval process for how to get approval for moonlighting and who is entitled to the income G. Non-Compete Restrictive Covenant 1. Non-compete clauses are generally not favored in Montana 2. Can be enforceable in an employment arrangement if all terms are reasonable a. Duration i. 1-3 years b. Geographic Scope i. limited to the city/county and cities/counties adjacent to the city/county where the physician works not a blanket restriction on the whole or a large portion of the state c. Restricted activity is clearly stated i. e.g. practice of medicine or a specialty d. Liquidated Damages i. Must be reasonable in amount 1) e.g. one year s salary/revenues payable to the employer Must be payable over a reasonable pay period e. Injunctive relief 1) e.g months with reasonable interest rate i. may be difficult to enjoin someone from working in Montana liquidated damages are preferred 3. Maybe should not apply if the employer terminates the employee without cause 4. A covenant is not permitted under federal regulations if there is an agreement with a hospital to help recruit a physician to an existing group practice

5 H. Termination Rights 1. Do the parties want without cause termination rights? a. e.g. 90 day notice 2. Employer can t terminate without cause if it wants an exemption for a specific term contract under the WDEA 3. The parties should be able to terminate by mutual written agreement 4. Both parties should be able to terminate for good cause 5. Physician can be terminated for the following good cause reasons: a. Death b. Extended disability c. Becomes uninsurable d. Criminal conviction e. Breach of ethics f. Loss of license, DEA registration, or privileges g. Loss of Board certification h. Substance abuse i. General neglect of professional responsibility/duties j. Gross misconduct, fraud or embezzlement k. Causing patient safety issues l. Breach of employer s policies m. Failure to work cooperatively with staff, other physicians, or families n. Disbarment from any federal or state payer program o. Other breach of a material term of the agreement 6. Generally, there will be a notice and right to cure a. e.g. 30 days to cure a breach b. although some are automatic (e.g. death or loss of license)

6 7. Use of a committee of peers or an outside reviewer to review breaches can often be useful and fair (e.g. was there a breach of ethics or office policy?) I. Compensation 1. Factors that Influence Compensation a. Geographic location b. Population/demographics c. Doctor/patient ratios d. Employer i. e.g. hospital v. private practice e. Size of hospital, clinic or group f. Fellowship training g. Board Certification h. Specialty 2. Remember, both Stark and Anti-kickback (AKS) require compensation to be in a range of fair market value ( FMV ) 3. Compensation in excess of FMV can be considered to be payment for referrals and can expose both the employer and the physician to significant penalties a. e.g. fines, exclusion from Medicare or even imprisonment for a knowing violation 4. Stark has an exception and AKS has a safe harbor for bona fide employment arrangements where compensation is reasonable and based on FMV 5. Generally compensation and compensation formulas are negotiable, but always subject to a cap dictated by FMV 6. All compensation terms, including any bonus or incentive bonus formulas, should be detailed, clear and understandable 7. To the extent possible, all criteria for productivity bonuses should be based on reasonable, fair, objective, and identifiable factors that are set in advance 8. CURRENT MODELS --- PRODUCTIVITY

7 a. The current prevailing model of compensation has for years been based on productivity and volume i. straight salary income based on production (pure production) 1) billing/collections or RVUs i minimum guaranteed salary plus bonus based on level of production b. There has been a real trend to shift away from straight salary or salary guarantees to pure production models c. Productivity based compensation continues to dominate the market 9. FUTURE MODELS -- VALUE a. Policy makers in Washington DC and elsewhere have concluded that fee-forservice reimbursement and production based compensation models have incentivized physicians to emphasize volume, which can lead to overutilization and sometimes can fail to adequately factor in quality of care/outcomes b. So as a result of the ACA and other pressures, payers are moving toward an emphasis on value based factors: i. patient satisfaction/citizenship criteria i iv. use of EHR quality metrics outcomes v. cost savings c. However, some of these factors are subjective and difficult to evaluate in a fair, consistent, and objective way, so have been difficult to evaluate d. Data metrics are being developed to help measure value e. Until we get a fair and consistent way to measure value, the transition to valuebased compensation will be slow f. The pendulum may swing to value-based compensation and incentives as effective metrics are developed. g. Ultimately, as a practical matter, future models will have to find a balance that creates incentives for physicians to produce both volume and value i. Example

8 J. Insurance ) Current model: $40 per w RVU Plus physician is eligible for a $15,000 quality bonus based on patient satisfaction and timely charting 2) Future model: $25 w RVU guaranteed Plus $15 per w RVU available based on value-based incentive pool for meeting minimum patient satisfaction, quality and outcome metrics/standards Plus a $5 per w RVU employer incentive pool for meeting superlative standards for a particular metric h. The future model creates incentive for physicians to produce both volume and value i. Physicians who produce merely high volume, would see reductions in income j. Physicians who produce a high level of value under the value-based metrics, may see comparable or an increase in income k. The success of implementing such a future model is dependent on being able to measure value-based factors objectively and consistently l. This will be an ongoing process. Ultimately we will see a balanced compensation system with 25-50% of income based on value-based metrics 1. Address professional liability insurance obligations 2. Nose coverage a. prior acts 3. Practice coverage a. occurrence or claims made 4. Tail coverage a. extended reporting endorsement 5. Who pays? a. Nose i. generally physician b. Practice i. generally employer

9 c. Tail i. negotiable K. Benefits 1. Clearly outline all benefits a. Health and disability insurance b. Retirement c. PTO i. vacation, sick leave, CME d. CME reimbursement e. Dues & subscriptions f. Moving expenses g. Sign on bonus h. Maternity L. Miscellaneous 1. Indemnity 2. Confidentiality 3. Arbitration/Attorney s Fees 4. Supervision 5. Performance reviews 6. Physician s future rights to purchase an equity interest in the group practice 7. Facilities and equipment provided by the employer 8. Revise/review compensation to help assure FMV 9. Regulatory savings clause Gary B. Chumrau