A contract is an agreement between two parties. To be legally binding, a contract must have an offer, acceptance, and what lawyers call “consideration.” When speaking about a medical contract, the “offer” is the salary and benefits that a hospital or contract management group sets forth on paper, the “acceptance” is the physician’s signature on the dotted line, and the “consideration” is the set of promises made by both parties: The hiring entity promises to pay money to the physician, and the physician promises to provide medical services on behalf of the hiring entity.

Unfortunately, medical contracts are never quite that simple. There are many more provisions to which both parties agree when they enter into a contract. All contracts have some common provisions. For example, a contract has to have a set term. For emergency medicine, the term is usually one year with the addition of what is called an “evergreen clause,” meaning that the contract automatically renews itself every year until it is terminated by one of the parties. Parties to emergency medicine agreements should be able to terminate a contract with a certain amount of advance written notice. This “out clause,” is generally 60-90 days.

All emergency medicine contracts should require that the hiring entity pay for the physician’s medical malpractice insurance. Absent lower statutory limits, the limits for the malpractice insurance should be a minimum of $1 million per incident. All emergency medicine contracts should also include some form of “tail insurance,” meaning that the hiring entity will provide the physician with continuing medical malpractice coverage even if a lawsuit is filed after the contract has terminated. Occasionally, a contract will require that the physician purchase his or her own tail insurance.

Employer-provided tail insurance is an industry standard in emergency medicine contracts. If the hiring entity does not provide tail insurance, I advise my clients not to sign.

Most contract language is highly variable. For example, many contracts offer signing bonuses and reimbursement for moving costs. Some do not. Most contracts reimburse the physician for CME-related expenses. Some do not. Physician compensation varies significantly based upon hospital setting, location, patient volumes, and other variables. Busier hospitals in more affluent areas generally pay more than lower volume hospitals in less affluent areas. Academic hospitals generally pay less than private.

Over the past few years, several alarming contract provisions have appeared more frequently in medical employment contracts. Below are some of those provisions and some reasons you may be concerned about agreeing to them.

Indemnification

Indemnification is a legal concept meaning that one party agrees to pay for all the costs and damages another party sustains. A medical malpractice insurance policy is a form of indemnification where the insurer agrees to pay for all the defense costs and any judgment rendered against a physician. Ten years ago, indemnification clauses were virtually nonexistent in physician employment contracts. Lately, they’re appearing in about 5% of the hospital/group contracts I have reviewed and in an even higher percentage of locum tenens agreements. Below is some particularly egregious language I paraphrased from a contract that I recently reviewed:

Physician agrees to defend, indemnify and hold harmless [Hospital] and its affiliates from any and all damages, liability, and expense (including legal costs, other exspenses, and attorney’s fees) in any way related to physician’s provision of medical care, even if caused in whole or part by the negligence, gross negligence, or other fault of [Hospital] or its affiliates.

Think about the immense risk the physician is accepting by agreeing to this indemnification clause. Suppose that the hospital is named in a medical malpractice suit alleging injury to a patient the physician treated. Under this indemnification or “hold harmless” agreement, the physician agrees to pay for the costs of the hospital’s legal representation, depositions, and expert witnesses in addition to any judgment rendered against the hospital at trial. Suppose a hospital employee accesses patient information in violation of HIPAA laws during a physician’s shift. The hospital could allege that the physician wasn’t supervising staff properly and could demand that the physician personally reimburse the hospital for any government fines, lost hospital revenue, costs to develop new HIPAA policies, and even recruitment expenses to find a new employee, since the physician agreed to indemnify the hospital for all damages and expenses related to the physician’s care.

Or suppose that the hospital overbills Medicare on several of the physician’s patients and the hospital is then audited by CMS. No problem (for the hospital). The physician has agreed to pay for all costs of responding to the audit and any penalties that may be imposed upon the hospital. In fact, under the above indemnification clause, the hospital could even publish blatantly untrue information about a physician’s medical care in a newspaper.

Because the physician agreed to hold the hospital harmless for any liability relating to the physician’s provision of medical care – regardless of the hospital’s legal fault – a court would be left to decide whether the physician had any recourse against the hospital for its intentional misstatements. The examples could go on and on.

Don’t plan on your insurer covering the liability imposed by an indemnification agreement, either. Medical malpractice insurance covers a physician for professional negligence involving the physician’s medical care. Indemnification agreements are contractual in nature and are therefore not considered “medical care” covered under a typical medical malpractice insurance policy. Indemnification clauses therefore can provide a convenient means for a malpractice insurer to withhold policy coverage.

Some employers argue that indemnification is needed to protect their interests. This is patently untrue. There are multiple legal remedies available to employers who have been the victim of employee misconduct. First, every employer or hospital maintains liability insurance to protect (indemnify itself) against just such occurrences.

Further, there are multiple additional remedies available, including common law indemnification (they can sue you, and/or the employee you supervise), if the employer is truly without fault. Those same common-law remedies are also available to the physician against the hospital … unless you have casually signed an indemnification agreement.

Indemnification clauses should absolutely be considered a “deal breaker” in any medical employment contract. If you see the words “indemnification,” “hold harmless,” or any similar phrases in a prospective employment contract, stop reading, throw the contract in the trash, and look elsewhere for a job. Indemnification clauses are that dangerous.

Reimbursement of Nondeductible Expenses

One of the ways in which employers can entice physicians to work for their organization is to provide the physicians with pre-tax reimbursement for business-related expenses.

For example, if a physician purchases a stethoscope, the physician provides the employer with the receipt for the stethoscope, the employer’s accountant reviews the expense to make sure that it is business-related, and then the employer reimburses the physician using pre-tax dollars so the physician does not pay taxes on that portion of the physician’s income.

With the high cost of licensing fees, board certification fees, professional organization memberships, CME, and other expenses, the tax savings from such an arrangement can easily add up to thousands of dollars. With the reimbursement agreement sometimes comes contract language such as the following: If any reimbursement made to EMPLOYEE is disallowed as a deductible expense of CORPORATION by the Internal Revenue Service or by any other federal or state agency, the EMPLOYEE shall reimburse CORPORATION 100% of the tax deficiency (including interest and penalties).

In other words, if the IRS rules that the employer or the employer’s accountant incorrectly determined that a physician’s business expense was deductible, the physician is responsible both for the taxes that should have been paid, but also for paying the interest and penalties related to the accountant’s bad decisions. Why should the physician be responsible for an accountant’s incompetence?

Duty to Supervise

As health care budgets tighten, some hospitals and groups employ mid-level providers as a means to maintain emergency department staffing levels. In most states, however, Medical Practice Acts, Nurse Practice Acts, and/or Physician Assistant Practice Acts require physicians to supervise the activities of those mid-level providers, leading to contract language such as the following:

Physician’s duties shall include, but not be limited to the following … adequately supervising any nurse practitioners, midwives, physician assistants and any other mid-level practitioners assigned to Physician by Employer.

From a legal standpoint, this language raises several issues. First, the responsibility for supervising a mid-level provider may increase liability for the physician if the mid-level provider commits medical errors. The language in state Medical Practice Acts generally makes physicians legally liable for the actions of the mid-level providers they supervise, which could put the physician in the position of having to defend a malpractice claim from a patient the physician never even examined. In addition, professional repercussions can occur with mid-level provider supervision.

For example, just a few months ago, the Nevada State Medical Board took action against a physician’s license and alleged that the physician committed medical malpractice for failing to supervise adequately a physician assistant who provided “improper patient care.” Finally, billing for services provided by mid-level providers can sometimes be tricky. A group or hospital that inappropriately bills the government at physician rates when patients received mid-level care may expose the supervising physician to a government audit and penalties for false claims.

This caveat does not mean that physicians should choose not to work with mid-level providers, only that physicians must not take the duty of supervising mid-level providers lightly. Assuring that mid-level providers have adequate malpractice insurance, that the employer has specific policies in place regarding a mid-level provider’s scope of practice, and that the mid-level provider has agreed not to exceed that scope of practice may help to mitigate a physician’s risk in agreeing to supervise mid-level providers.

Exclusivity

More and more hospitals are demanding that emergency physicians refrain from moonlighting at other facilities. In most industries, such a request may not have significant repercussions, but the economics of physician employment are different from those in most other industries. Consider the following contract language: Without prior written consent from CORPORATION, EMPLOYEE agrees not to be gainfully employed as a physician for any entity other than CORPORATION.

Think about how long it took you to get staff privileges at your current hospital. You had to fill out the hospital application. Then the medical staff office had to contact your previous hospitals and references. Then you had to apply for and receive billing numbers. Then your completed file had to be presented to multiple committees that meet once per quarter. Only then did you receive your privileges. It is not unusual for the credentialing process to take many months.

Now suppose that you are immediately terminated for cause from the only hospital where you hold privileges. You would have to first find another facility looking for an emergency physician. Then you would have to apply for staff privileges at that facility, meaning that for several months you would have no income stream while you waited for the credentialing process to be completed. Then you’d have to get on the emergency department schedule and work for a month before you received your first paycheck. Do you have the financial reserves to pay your bills for several months without any income?

On the other hand, if you happened to be on staff at other facilities, you could simply ask your director(s) to temporarily provide you with additional shifts until you are able to start working somewhere else. Or perhaps the director might offer you a full-time position.

Having staff privileges at several facilities provides a hedge against loss of your income stream if you are immediately terminated from a single facility or if the group that provides emergency department staffing at that facility suddenly loses its contract with the hospital. A guaranteed severance package of at least three month’s income would be an alternative way to prevent the loss of income associated with an immediate termination from a hospital staff position. However, few employers in our industry would agree to such an expense.

Summary

When an employment relationship sours, contract language that is against a physician’s interests can have a significant negative impact on a physician’s finances and even professional status. The often confusing language contained in many medical employment contracts underscores the importance of understanding what you’re reading before you decide to “sign on the dotted line.”

Editor’s Note: LegalEase provides a general discussion of many medical legal issues, but the facts of every case are situation specific. LegalEase articles are provided for general informational purposes only and should not be relied upon as specific legal advice. Readers are encouraged to retain qualified local legal counsel regarding any specific legal questions they may have, or legal issues they encounter.