Termination clauses in physician employment and contractor agreements
By Matt Dickstein
Click on a heading for more articles ⇒
Termination is the most important provision in a Physician Employment Contract and a Physician Contractor Agreement. Your exit from the relationship is crucial — everything must end, and most things will end bad, so be prepared.
This article explains termination provisions and the consequences of termination of the contract.
Most physician contracts have a set term of years, for example 2 years, plus a provision for early termination before expiration of the term if things aren’t working out. The grounds for early termination of the contract can be “for cause” or “at-will” (without cause). At-will termination usually has a notice period, typically 60 days. For cause termination usually is immediate but sometimes has a cure period.
The contract will define “cause” to include a host of negative events, for example, loss of license, loss of hospital privileges, loss of participation status with third-party payers, etc. Cause will also include more nebulous events such as material breach and willful misconduct.
Termination has consequences. In most contracts, the consequences depend on who is terminating the contract (the hospital or group practice, or the physician) and for what reason (for cause or without cause). The three most important consequences of termination are insurance tail coverage, reimbursement of recruitment costs, and restrictive covenants.
Medical malpractice insurance is usually written on a claims-made basis. With a claims-made policy, there is no coverage for claims reported to the insurance company after the end of the term of insurance contract. For an employee or contractor physician, the insurance contract can end at termination of employment, after which there is no insurance coverage. After termination of employment, however, patients may still bring claims for medical malpractice allegedly committed earlier. Both sides want a tail coverage policy to protect them from these claims. Premiums for tail coverage can be low or high depending on the medical specialty.
The issue is, who pays for the tail coverage? In many contracts, the deciding event is how termination came about. Some contracts require the physician to pay for the tail coverage if he quit or was fired for cause, and require the hospital or practice group to pay if it fired the physician without cause. In my opinion, this type of contract is an invitation to litigation. Both sides will spin the termination of employment to avoid having to pay for tail insurance.
The better practice is to specify the allocation of tail insurance for all terminations regardless of cause. You might have the medical group pay the entire cost, or the physician pay all, or the two sides split the cost 50/50. Here, no matter how the end comes, or whose fault it is, the contract will be clear on the issue of tail insurance, and there’ll be one less thing to sue about.
Reimbursement of Recruitment Costs
The termination of a physician’s employment is much more complex in the context of a hospital recruitment arrangement. For more on this, see Physician recruitment agreements.
What’s important in this article is that, at termination of the physician’s employment, the hospital might try to recover from the physician or the group practice the money spent on recruitment and perhaps salary paid to the physician. Many recruitment contracts require that the physician or medical group pay money back to the hospital if the physician’s employment is terminated early or the physician fails to meet performance benchmarks.
This type of contract invariably is long, complicated and poorly drafted, the result being that no one knows when, how and how much money the physician or medical group owes at the end. Frequently a promissory note and security documents are thrown into the mix, against either or both of the group and the physician. In sum, I advise you to get a lawyer if you intend to terminate employment in the context of a physician recruitment agreement.
The third consequence of termination is the non-competition clause. I won’t address this topic here, however, because I’ve already devoted an entire article to it — May a physician compete against his or her former practice? See also, Stealing employees.
Regarding who gets the patient records at termination, read Who owns the patients’ medical records?