Employment contracts can give anyone a headache. Besides being written in legal language, which is foreign to most people, they can be boring, confusing, and take a while to complete. 

Thankfully, we are making physician employment contracts a little easier to understand. In this post, we are going to explain some of the basics about employment contracts, from restrictive covenants to indemnification, to malpractice insurance. 

Contacting a professional is always beneficial, however, this post will give you more confidence when looking at your contract. 

The Basics of Malpractice

Medical Malpractice insurance, also known as professional liability insurance, is a requirement in most states to practice medicine. Due to that, it is very important and should be reviewed in any contract. 

Most likely, your malpractice insurance is paid for by your employer, so many physicians assume they don’t need to review it, but ironically, it is one of the most important things to review in any physician contract.

Let’s Talk About Coverage

What’s covered and what's not? 

Medical malpractice insurance can cover a wide variety of costs, or damages if you may be found liable… Here are some of the costs that are covered: 

  • Attorneys’ fees and court costs

  • Arbitration costs

  • Settlement Costs

  • Punitive and compensatory damages

  • Medical Damages

However, malpractice insurance does not cover liability that may come from sexual misconduct, criminal acts, and alterations that may be inappropriate of medical records.

Different Types of Malpractice Policies

There are two basic types of coverage: Occurrence Policies and Claims-Made Policies. 

Occurrence-based policies cover incidents arising from the coverage period, no matter when the claims are reported.

By contrast, claims-made policies cover only claims that are made while the policy is in effect. 

Once the policy premiums are no longer paid, the coverage lapses and any claim made after the lapse will not be covered, even if it relates to something that happened while the policy was in effect.

Hospitals often provide occurrence-based malpractice insurance but in the event that a physician is offered a claims-made policy, they should request that the hospital cover the costs of obtaining an extended reporting endorsement (also known as “tail coverage”) that extends the liability coverage after the expiration of the policy paid for by the hospital.

It is important to understand that when reviewing an employment contract, a physician should make sure that they are clear on the requirements are written in their contract agreements regarding medical malpractice insurance coverage.


Understanding Restrictive Covenants

Restrictive Covenants refer to contractual agreements that try to restrict post-employment activities to limit competition. Most times, they are signed with the employment contract to protect the employer’s investment in an employee. 

This is becoming more important to physicians because most health care providers are very interested in protecting confidential information, like patient lists, the practice’s investment in the training and development of their professionals and referral relationships.

 

Different Types of Restrictive Covenants

There are two types of restrictive covenants: Non-competition clauses and Non-solicitation covenants

Non-competition clauses prevent a physician who leaves a practice from practicing within a set geographical radius from their former practice for some specified period of time.

Non-solicitation covenants prohibit a physician who leaves a practice from asking patients to follow to a new practice, and from soliciting his or her former practice’s referral sources or other employees.

Sample Restrictive Covenant Contract Language

Remember how we said these contracts were written in a foreign language? This is what we were talking about. Below are listed two paragraphs of restrictive clauses as found in a sample anesthesiologist’s contract:

      "A.  During the twelve (12) month period following the effective date of termination of this Agreement enters into arrangements, contracts or agreements, written or oral, with facilities or third party payors which are parties to arrangements, contracts or agreements with Employer, or

      B.  Engages in the practice of medicine in the specialty of anesthesia, including pain management, or critical care, during the twelve (12) month period following the effective date of termination of this Agreement within fifteen (15) miles of any hospital, outpatient surgery center, office or other facility serviced by any employee of Employer, or an independent contractor retained by Employer, during the twelve (12) month period preceding the effective date of termination.”

Understanding these paragraphs may take a bit of decoding, the main point of paragraph A is that, for 12 months after the end of your contract, if for any reason, the physician can’t enter into a third-party payer agreement with parties that the employer was in contract with. 

That means if your employer has payer contracts with all the insurance companies in the region, you could be missing out on all reimbursement for the next 12 months! Meaning, you could not practice in that area. 

Moving on to paragraph B, the major consequence there is that if the same physician doesn’t practice in her specialty, it must be 15 miles outside of any hospital or office radius served by the employer.  

With some healthcare systems being mega-groups, this could cover a large area and might even require the physician to move in order to not break the restrictive covenants.

 

When are they Enforceable?

This is a question many physicians find themselves asking! 

A court will enforce a restrictive covenant to the extent that it is necessary to protect the best interest of the party seeking to enforce it, generally, they will protect the interest of medical practices. 

If you have any doubt regarding the language of a restrictive covenant, it is advisable to consult a contract attorney who specializes in physician contracts. 

Indemnification

Indemnification is a legal concept that requires one party to pay for losses sustained by another party. Common in contracts, indemnification clauses are bills of sales and purchase orders. 

They are most times hidden deep in the contract, and in small print on the reverse form of a document. Due to this, the indemnification part of the contract is usually discussed by the parties. 


A Closer Look at Indemnification for Physicians 

Many contracts will include language such as the following:

     “The Physician hereby indemnifies and holds harmless the Employer and its directors, officers, employees and agents from and against any claim, loss, damage, cost, expense (including reasonable attorneys’ fees) or liability arising out of or related to the performance or nonperformance by the Physician of any services to be performed or provided by the Physician under this Agreement.”

     “The Physician hereby agrees to indemnify and hold harmless the Group, its officers, directors, employees and agents against all liability, obligations, claims, loss and expensive arising out of any liability accruing to Group as a result of the Income Guaranty Agreement executed between the parties and Martin Memorial Health System.”

In the first paragraph, the contract clause requires that if a patient sues both the physician and employer because of an act or omission on the part of the physician, the employer wants the physician to agree to pay any of the employer’s damages for liability.

The second paragraph describes an income guarantee agreement between the physician, the hiring practice or group, and a local hospital. 

The local hospital is offering the physician a guaranteed level of income in exchange for the physician to remain in practice in the community for a specified amount of time. 

In this contract, the physician agrees that if the group terminates the contract and a loan is owed to the hospital as a result of the hospital’s guaranteed income, the physician will repay that loan to the hospital and leave the group without any liability.

Indemnification clauses are not advised for physicians because the execution of such a hold harmless clause may result in the physician assuming liabilities of the employer that may not be insured. 

Physicians are encouraged to consult an attorney before agreeing to this sort of contract term.

 It is never the hope to have to enforce termination contract agreements, but this is why you need to understand how the terms of the contract will play out. 

It is always a good idea to have an attorney well-versed in contract law and physician contracts specifically to review a contract to ensure that the physician is not left “going bare,” or uninsured as to liability assumed under the contract.