Lawyer for Physicians, Medical
Corporations and Group Medical Practices
Physician employment and
independent contractor agreements
In this suite of articles, I explain the basic
corporate, business and contract law issues for medical
corporations and group medical practices in California.
I explain things from both sides, that is, the perspectives
of both the individual physician and the group practice.
The articles in this suite are:
In
this article, I first discuss when a physician is a
contractor as opposed to an employee.
Second, I look at the essential terms of a physician
employment contract and a physician independent contractor
agreement.
Is you is, or is you ain’t, a contractor?
From time to time, to generate revenue,
the IRS and CA EDD will audit medical practices on the issue
of whether a physician is an employee or independent
contractor. These
governmental agencies hope that the practice has
misclassified the physician as a contractor (not an
employee) so that they can collect on the plethora of taxes
and premiums for employees, e.g. trust fund taxes, interest
and penalties.
In brief, to determine contractor /
employee status, the government considers whether the
practice controls the manner and means by which the
physician does his or her job.
Contractor-physicians have significant control over
how they do their job, whereas employee-physicians do not.
Specifically, the IRS considers whether:
- the doctor is highly integrated into the
practice
- the doctor's work for the practice is substantial
and continuous
- the doctor has authority over employees in the
practice
- the doctor has privileges and benefits ordinarily
given to employees
- the doctor can provide medical services to other
practices
- the doctor hires and pays his or her own associates
and staff
For more discussion, see
IRS
Revenue Ruling 66-274.
Essential terms of a physician employment
contract and an independent contractor agreement
The essential terms are about the same as
between a physician employment contract and a physician
independent contractor agreement.
Once beyond the boilerplate, both contracts deal with
the same basic issues, such as the description of services,
compensation, reimbursement of expenses, and term and
termination (all discussed below).
One significant
difference is that employment agreements sometimes have
clauses that address the physician’s purchase of ownership
in the practice, whereas independent contractor agreements
rarely have such terms.
Job Description.
Whether or not the agreement is for a contractor or
an employee, it must clearly delineate the job
responsibilities. Physicians
particularly care about their hours, be it full-time or
part-time, night and weekend coverage, on-call hours and the
like. Be sure to
clarify the physician’s administrative duties.
Compensation.
You probably don’t need a lawyer to explain physician
compensation, so I’ll keep it short.
I frequently see physicians receive a fixed base
salary + an incentive based on the income that the
physician personally generates.
For example, the physician might receive an incentive
of X% of the gross revenue he or she generates in excess of
$Y (Y being the expenses associated with the income
including an allocation of general overhead, that is, the
break-even point in income).
IMPORTANT
-- Have an attorney run the compensation arrangement through
the federal and CA Stark and Kickback laws.
Expenses.
The practice’s payment of a physician’s “personal”
expenses is an everlasting and wondrous source of conflict.
Everyone wants to run their expenses through the
corporation. The
employment contract or independent contractor agreement must
clearly delineate the expenses that the practice will pay
for the physician. A
practice usually will pay more expenses for an employee than
for a contractor.
Here is a list of expenses that practices frequently pay:
- Professional society dues (within reasonable
limits)
- Hospital staff fees
- Malpractice insurance
- Continuing medical education and related travel
costs (again, within reasonable limits)
- Board certification
Term and Termination.
I prefer that a physician’s employment contract or
independent contractor agreement have a minimum term of 1
year (to satisfy the Stark and Kickback laws), but otherwise be at-will with a notice
period, meaning that either the physician or the practice
can terminate the relationship at any time (after the notice
period) for any reason.
I prefer a free relationship, as opposed to
contractually locking the two sides into a relationship that
isn’t working – this only leads to unhappy endings and
litigation.
If you want a contract for a term of years, be sure
to include termination for cause.
Common examples of cause are:
- Loss of medical license or federal DEA
registration
- Termination or suspension of medical staff
privileges
- Violation of a material provision of that agreement
- Felony conviction or abuse of controlled substances
For more on the termination of a physician
employment contract or a physician contractor agreement, see
my article,
Termination clauses in physician employment and
contractor agreements.
Physician Buy-In.
Physician employment agreements sometimes have
clauses on the physician’s purchase of ownership in the
practice. Usually the
clauses are vague and non-binding, and only express the
parties’ expectations on the subject.
If the physician’s buy-in is a material part of the
deal, however, specify these deal terms:
- The ownership percentage that the physician will
obtain
- The purchase price
- The period over which the physician will pay the
purchase price
- The extent of the physician's participation in
control decisions for the practice, e.g. is the
physician on the board of directors?
For more information on this subject, see
my article,
Bringing
a new partner into a medical practice.
To learn about another crucial contract
for medical practices, read
Shareholder buy-sell agreements for medical corporations.
To learn about non-competition clauses for
physicians, read
May a physician compete against
his or her former practice?
This article only gives a short roadmap of physician
employment contracts and independent contractor agreements. There is a lot more to this topic than introduced
here. Please get competent legal counsel before you hire a
physician.
Call me to schedule a
legal consultation: 510-796-9144
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