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​Key Issues in Physician Employment Agreements

October 20, 2016

Reprinted with permission from the October 2016 issue of Pennsylvania Psychiatric Society © 2016. Further duplication without permission is prohibited. All rights reserved.

By Julia Coelho

It is said that the most important part of any organization is its people, and this is particularly true when it comes to health care organizations. Whether you are on the employer side, such as hospitals or psychiatry practices, or you are a psychiatrist contemplating whether to accept an offer of employment, chances are you’ll need to negotiate the terms and conditions of a professional employment agreement. Depending on which side you’re on, your priorities and objectives will likely be different; however, you’ll invariably be called upon to make decisions on essential terms such as compensation, benefits, and term of employment. Although parties generally spend a lot of time negotiating salary and benefits, certain terms of the employment relationship are often overlooked and can have material (and unexpected) adverse consequences. Therefore, next time you’re asked to sign an employment agreement, either as the employer or the prospective employee, be sure to carefully review and consider the following issues:

  1. Scope of Physician Duties. This section of the agreement typically outlines the duties and obligations the physician agrees to undertake for the benefit of the employer. This section should indicate whether the physician will be expected to work exclusively for the employer, whether the employment will be on a full-time or part-time basis, the nature of the physician’s duties (e.g., will the physician only have clinical duties or will he/she also be expected to fulfill administrative duties?), and should generally outline the policies and procedures the employee will be expected to comply with.
  2. Professional Liability Insurance. The agreement should address who will be responsible for purchasing and paying for professional liability insurance during the term of the employment. If the insurance coverage is purchased on a “claims-made” basis, the agreement should indicate whether the physician or the employer will bear the costs of extended reporting period endorsement insurance coverage (commonly known as “tail insurance”). Generally, if the physician voluntarily terminates his or her employment or is terminated for cause, the physician is required to bear the costs of tail coverage.
  3. Termination of Employment. This section is very important because it sets forth the basis upon which either party may terminate the employment relationship. Either party is often permitted to terminate the relationship for convenience upon the delivery of prior written notice to the other party. Typically, advance notice of at least 30 days is required, although longer notice periods are common. In addition, this section should define what constitutes “cause” for termination by the employer, and whether or not the physician will have an opportunity to cure such cause before the employer is entitled to end the employment relationship. From the physician’s perspective, cause should be narrowly defined and if the cause is curable, the physician should bargain for a provision affording him or her an opportunity to cure.
  4. Restrictive Covenants. This is likely the most heavily negotiated area in physician employment agreements. If you are the employer, you want to safeguard the goodwill of your organization by protecting and retaining patient relationships and limiting the physician’s ability to take away your patients or hire your employees to start a competing psychiatry practice. If you’re the physician, you want to preserve your ability to seek employment elsewhere in the community where you live, or perhaps you want to retain the right to open your own practice. Like most issues, both sides have valid considerations, and the negotiation in this area is generally focused on degree. The employer will want the restrictive covenant to cover a longer period of time and the greatest possible distance, while the physician will bargain for the opposite. Although the outcome will of course depend on the parties’ respective bargaining power, the end result will often fall somewhere in the middle.