Large numbers of physicians and physician groups are signing employment contracts with hospitals and hospital systems. The causes of this movement are numerous, but the two most important are probably the desire to pass off overhead and guarantee a flow of patients.

Becoming a hospital employee has a big downside which many physicians do not understand: they become subject to an employment contract.

In our experience as health law employment attorneys, the employment contracts hospitals offer have five clauses which will cause major headaches for physicians in the years ahead:

  • Salary and benefits
  • Termination provisions
  • Restrictive covenants
  • Malpractice insurance responsibilities
  • Hospital politics

Salary and benefits. Salary is tied to production and practice expenses (those very things that physicians want to get rid of). If for some reason patient flow decreases or costs increase, the salary can be reduced the next year. In one case, a surgeon’s salary declined so much because of hospital policy changes that affected his practice that he needed to moonlight in an emergency room to help pay college tuitions.

Lets consider termination provisions. Many contracts provide that the contract is for five years. But on careful reading one finds that either party–physician or hospital–can terminate the employment on short notice, commonly six months, but immediately if the hospital pays the agreed salary for that period. The physician, however, cannot leave on short notice without paying a penalty, usually having to forfeit bonuses and other earned benefits.

You brought your patients with you when you signed on. (you may have been paid a signing bonus). Next year the hospital terminates you for some reason. (older physicians are prime targets). The contract has a restrictive covenant. You cannot practice within 25 miles of your office for two years and you cannot contact your patients or current employees.

Hospitals often self insure or have policies with carriers other than those a physician previously used. The contract provides that you buy the tail coverage if you quit or are terminated for reasons other than cause. If you left your previous carrier when you became an employee, you gave up rights to a free tail and are now obligated by contract to purchase tail coverage.

Finally, hospital politics can affect you through the group you are a part of. Many group contracts provide that if the hospital says you have too many problems (whether proven by peer review evidence or not), the group must terminate you or face possible contract repercussions. This way the hospital can bypass the medical staff apparatus and terminate a physician without due process.

The medical practice paradigm is rapidly changing. Physicians and physician groups must negotiate with the hospitals and health care systems that are employing them. They must not accept the contracts as offered. Health care employment lawyers have the knowledge and experience to help them aggressively negotiate the terms of their employment contracts.