A Physician is Leaving Your Practice – “Must Have” Employment Agreement Provisions (Part III)

Editor’s Note: The following is the final installment of a three-part series discussing important provisions in physician employment agreements.

When a physician leaves a medical practice, especially if the physician stays in the area to compete against his/her former employer, the situation can become stressful and acrimonious. During the final weeks of employment, the departing physician can start to focus more on his/her new practice to the detriment of the current employer, and disputes often arise regarding access to medical records, soliciting patients and employees and when to schedule procedures – before or after termination. We have seen both medical practices and departing physicians engage in questionable conduct in order to keep as many patients as possible. Lawyers are often engaged in negotiating the terms of separation or, in a worse-case scenario, filing or defending a lawsuit.

Over the years, we have counseled hundreds of physician practices on how to successfully navigate the various issues that arise when a physician departs, regardless of whether the physician is an employee or an owner. Careful planning on the front end through a comprehensive employment agreement is the most important element in an amicable and fair separation. More often than not, we have found that disputes and subsequent litigation can arise when the employment agreement is not properly drafted or does not adequately address the specific terms of separation.

This three-part series provides a summary of the key provisions (with sample language) that can be incorporated into a physician employment agreement to help mitigate problems when a physician leaves your practice. Since each medical practice is unique, please consult with your own attorney before using any of the provided sample provisions in a physician employment agreement.

Protecting the Practice’s Confidential Information. Especially if the departing physician will continue to practice in the same service area as the medical practice, it is very important that the practice protects its sensitive and confidential information, including medical records, charge masters and policies and procedures. As such, the employment agreement should address the confidentiality of such items. Failure to do so will make it more difficult for the medical practice to protect its sensitive information.

Physician agrees that all data and information which he/she receives from Employer, whether directly or indirectly, in connection with this Employment Agreement or Physician’s employment with Employer shall be considered confidential and proprietary information belonging solely to Employer (the “Confidential Information”). Without limiting the foregoing, “Confidential Information” shall mean any written or oral information of Employer, including, without limitation, all business or management studies, patient lists and records, financial information, Employer documents, forms, business or management methods, marketing data, fee schedules, employee and operating manuals, trade secrets as defined by the Alabama Trade Secret Act, as amended from time to time, accounting information, and any other information treated by Employer as being confidential or labeled “Confidential” by Employer. Physician shall hold such Confidential Information in strictest confidence and shall not make use of such Confidential Information except in the performance of his/her services for Employer. Physician shall not disclose, distribute or otherwise divulge such Confidential Information to any other third-party without the prior written consent of Employer, except in the performance of his/her services for Employer. Notwithstanding anything contained in this Section to the contrary, the obligations of Physician under this Section shall not apply to information or property which Physician can demonstrate is: (a) now in the public domain or later publicly available through no fault of Physician, (b) has been or is in the future rightfully obtained without restriction by Physician from other sources not subject to a confidentiality agreement, or (c) independently developed without use of Employer’s Confidential Information. Upon request of Employer and upon termination of this Employment Agreement, Physician shall immediately return to Employer all Confidential Information which Physician received from Employer or any Confidential Information within Physician’s possession. The terms of this Section shall survive termination of the Employment Agreement.

Protecting the Practice from Future Liabilities. When a physician leaves a medical practice it is still possible for the practice to face liability stemming from the physician’s past conduct. For example, federal payers, such as Medicare and Medicaid, as well as commercial payers, can audit medical practices for professional services rendered several years prior to the date of the audit.  Further, HIPAA violations, malpractice issues and other misconduct may not surface until after a physician leaves a medical practice. Unless the employment agreement continues to hold the departing physician responsible after termination for his/her conduct during employment the medical practice may have insufficient remedies in the event a problem arises.

Physician shall hold harmless, indemnify and defend Employer, and its members, partners, officers, directors, employees, successors, representatives and assigns, from and against any and all liabilities, costs, damages, suits, judgments, fines, losses, demands or expenses of any kind whatsoever (including, but not limited to, court costs, arbitration fees, if applicable, and attorneys’ fees and expenses actually and reasonably incurred) from or attributable to: (a) any breach by Physician of this Employment Agreement, (b) any and all negligent or intentional acts and/or omissions of Physician, and/or (c) any overpayment, refunds, offsets or recoupments related to claims for medical services provided or ordered by the Physician, but only to the extent the Physician received compensation from the claims subject to the refund, offset or recoupment.  The terms of this Section shall survive termination of the Employment Agreement.

While it may take more work on the front-end, having a well-thought out and comprehensive physician employment agreement will save significant time, effort and potentially money when a physician leaves your medical practice.

Read the full series:

A Physician is Leaving Your Practice – “Must Have” Employment Agreement Provisions (Part I)

A Physician is Leaving Your Practice – “Must Have” Employment Agreement Provisions (Part II)

Howard Bogard is a Partner with Burr & Forman LLP and serves as the Chair of the firm’s Health Care Industry Group. Kelli Fleming is a Partner with Burr & Forman LLP practicing in the firm’s Health Care Industry Group.

A Physician is Leaving Your Practice – “Must Have” Employment Agreement Provisions (Part II)

Editor’s Note: The following is the second installment of a three-part series discussing important provisions in physician employment agreements.

When a physician leaves a medical practice, especially if the physician stays in the area to compete against his/her former employer, the situation can become stressful and acrimonious. During the final weeks of employment, the departing physician can start to focus more on his/her new practice to the detriment of the current employer, and disputes often arise regarding access to medical records, soliciting patients and employees and when to schedule procedures – before or after termination. We have seen both medical practices and departing physicians engage in questionable conduct in order to keep as many patients as possible. Lawyers are often engaged to try and negotiate the terms of separation or, in a worse-case scenario, to file or defend a lawsuit.

Over the years, we have counseled hundreds of physician practices on how to successfully navigate the various issues that arise when a physician departs, regardless of whether the physician is an employee or an owner. Careful planning on the front end through a comprehensive employment agreement is the most important element in an amicable and fair separation. More often than not, we have found that disputes and subsequent litigation can arise when the employment agreement is not properly drafted or does not adequately address the specific terms of separation.

This three-part series provides a summary of the key provisions (with sample language) that can be incorporated into a physician employment agreement to help mitigate problems when a physician leaves your practice. Since each medical practice is unique, please consult with your own attorney before using any of the provided sample provisions in a physician employment agreement.

Protecting Other Practice Employees. When a physician leaves a medical practice he/she may want to encourage other practice employees (i.e., nurses, technicians, receptionists, etc.) to leave and work for the physician. These employees are a valuable asset to the medical practice and oftentimes the medical practice has invested significant time and resources in training its employees. Under Alabama Code Section 8-1-1, which was amended Jan. 1, 2016, a medical practice can protect an employee from being hired by a departing physician; provided, however, that the practice can demonstrate that the employee is “uniquely essential” to the medical practice. The term “uniquely essential” has not been specifically interpreted by the courts, but appears to require that the medical practice demonstrate that the protected employee(s) is not easily replaced due to a unique skill set or training, and the loss of the employee(s) would be detrimental to the medical practice.

Physician agrees that, during the term of this Employment Agreement and for a period of one (1) year following termination of this Employment Agreement, regardless of the cause of such termination, Physician shall not, directly or indirectly, through any individual, person or entity, without the prior written consent of Employer: (a) solicit, induce or attempt to solicit or induce away, or aid, assist, or abet any other party or person in soliciting, inducing or attempting to solicit or induce away from employment or other association with Employer, any employee of Employer, or (b) employ, hire or contract for services with any employee of Employer, or any person who was an employee of Employer during the six (6) month period prior to termination of Physician’s employment with Employer. The Employer and Physician acknowledge that the restrictions contained in this Section are reasonable and necessary to protect the protectable interests of Employer which include, without limitation, Employer’s confidential information, Employer’s commercial relationships with its patients, patient goodwill associated with its business, and the unique training of its employees, which was and is provided by Employer at considerable expense.  Physician acknowledges and agrees that the Employer’s employees hold positions uniquely essential to the management, organization and service of the Employer.

Compensation.  When a physician leaves a medical practice he/she will be compensated through the date of termination. If, however, the employment agreement provides for some form of bonus compensation based on, for example, collections or other measures of productivity, the employment agreement should address whether the physician is eligible for a bonus, pro-rated through the date of termination, or if termination before the end of the bonus measurement period results in the physician forfeiting any bonus. In addition, if the physician is paid based on production (e.g., collections less allocated expenses), then the employment agreement should address whether accounts receivable generated by the physician which are collected after termination for some designated time period will be counted toward the physician’s final paycheck, or if only collections received through the date of termination will be allocated to the physician. With either a bonus or production compensation model, some employment agreements provide that the departing physician will not be eligible for a bonus or the allocation of any post-termination collections if the physician terminates the employment agreement without cause or if the medical practice terminates the employment agreement with cause. Regardless, it is very important to clearly delineate in the employment agreement how compensation will be addressed upon termination.

Continuing Malpractice Insurance.  When a physician leaves a medical practice it is critical that medical malpractice insurance is maintained which provides continuing insurance for the physician’s professional services if a claim arises after the date of termination. Payment of a reporting endorsement (sometimes referred to as “tail insurance”) is typically an item negotiated by the parties. Regardless of how the costs are allocated, it is important that the employment agreement require either the purchase of a reporting endorsement or that the departing physician be obligated to maintain his/her then current malpractice insurance without interruption for a period of at least four years (eight years if minor patients are involved) after termination of employment. The following sample provision obligates the departing physician to pay for tail insurance, but can be modified as appropriate to provide that the medical practice will cover the costs of such insurance.

Immediately upon termination of employment with Employer, Physician shall, at Physician’s sole expense: (a) purchase or obtain a professional liability insurance reporting endorsement (e.g., tail coverage) with the same base and excess coverage limits and annual aggregate as the professional liability policy made available by the Employer for the Physician (the “Professional Liability Insurance Policy”) in order to provide continuing insurance protection for Physician and Employer against claims for malpractice or negligence occasioned by the acts of Physician while he/she was an employee of Employer (hereinafter referred to as the “Reporting Endorsement”), or (b) make arrangements for the continuation of the Professional Liability Insurance Policy with the same professional liability insurance carrier and with the same base and excess coverage limits and annual aggregate as the Professional Liability Insurance Policy, and listing Employer as an additional insured on such policy (hereinafter referred to as the “Continuation Policy”).

To evidence compliance, Physician shall provide to Employer within ten (10) days following the date of termination of this Employment Agreement either: (a) a copy of the Reporting Endorsement, or (b) a copy of the Continuation Policy, a “Certificate of Insurance Holder,” evidencing the existence of the Continuation Policy and written confirmation from the insurance carrier that Employer is listed as an additional insured on the Continuation Policy. If Physician obtains the Continuation Policy, and within ____ (____) years after termination of employment with Employer, should the Continuation Policy lapse, terminate or be modified so as not to satisfy the definition of a “Continuation Policy” in this Employment Agreement, or should Physician ever change professional liability insurance carriers, Physician agrees that he/she shall immediately purchase the Reporting Endorsement and that he/she shall provide Employer with a copy of the Reporting Endorsement at that time. If Physician fails to purchase such coverage and/or provide Employer with a certificate of same in accordance with the above‑stated requirements, Employer shall have the right, as hereby acknowledged by Physician, but not the obligation, to purchase such coverage and notify Physician in writing of the total premium costs thereof. Physician hereby expressly acknowledges and agrees that the total premium cost for such coverage purchased by Employer under this Section (plus a ten percent (10%) administrative fee) shall be immediately due and payable by Physician to Employer upon Physician’s receipt of said notice and Employer shall have the right to offset Physician’s cost of insurance against any amounts due Physician, with Physician reimbursing Employer for any deficiency. The terms of this Section shall survive termination of the Employment Agreement.

While it may take more work on the front-end, having a well-thought out and comprehensive physician employment agreement will save significant time, effort and potentially money when a physician leaves your medical practice. Stay tuned for Part III of this three-part series which will discuss protecting confidential information and protection from future liabilities.

Read the full series:

A Physician is Leaving Your Practice – “Must Have” Employment Agreement Provisions (Part I)

A Physician is Leaving Your Practice – “Must Have” Employment Agreement Provisions (Part II)

A Physician is Leaving Your Practice – “Must Have” Employment Agreement Provisions (Part III)

Howard Bogard is a Partner with Burr & Forman LLP and serves as the Chair of the firm’s Health Care Industry Group. Kelli Fleming is a Partner with Burr & Forman LLP practicing in the firm’s Health Care Industry Group. Burr & Forman, LLP, is an official Bronze Partner with the Medical Association.