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Practice Management  

Contracting Issues for Hospitalists

Smart contracting can make or break a hospitalist's practice. It is important to negotiate and sign contracts with everyone from coworkers and hospitals to insurance companies and managed care organizations that you can live with-and that avoid common and not-so-common pitfalls. Otherwise, you may find yourself unable to earn a living wage, to work the hours that you want, or even to leave and set up practice elsewhere if you find this particular position isn't working out as you expected. The bottom line is that you should always have a lawyer who is knowledgeable in the business of medicine review any contract before you sign.

Before getting into the nitty-gritty of your particular contract, it is important for the parties to perform business and legal due diligence on each other. Contractual arrangements with physicians are based on both the personality and professionalism of the parties. Business due diligence will help assure the parties there is a reasonable personal and financial basis to enter into a contract in the first place and includes research into the following issues: What is the professional background of the parties, including their professional and business reputations? What kinds and how many malpractice actions have been filed? What managed care plans are in effect? What do the financial statements look like? Who are the parties' accountants and bankers? What has been the experience of each party in similar contractual arrangements? It is important to check references and to ask pointed probing questions.

In today's climate, legal due diligence is also essential and helps assure the parties that everyone takes issues such as kickbacks, self-referral and gain-sharing seriously. Legal due diligence includes review and research into the following issues: Has any party been excluded from participating in the Medicare program or any managed care plan? Are there compliance plans in place, and what do they state? Are third-party billing companies used, and do they have compliance plans? Who are the parties' lawyers and consultants? Don't rely on the expertise of the hospital or health plan attorneys. Hire a known experienced health care lawyer that is on your side. It will be money well spent.

Contracting issues for hospitalists can be divided into two separate categories: contracts between an individual doctor and his or her group (Employment or Partnership Contracts) and contracts between the doctor or his group and third-party payers or hospitals and health systems (Professional Services Contracts). There are also issues that commonly arise with all contracts that Hospitalists should be aware of.

Employment or Partnership Contracts

The following business and legal issues typically arise in employment and independent contractor agreements. They relate to the internal business and employment relationship between an individual physician and his or her Hospitalist group and among similar group physician practices.

1. Type of relationship. Are you an employee or independent contractor? There are pros and cons to each, but the correct classification of a physician as either an employee or an independent contractor is very important. If a group engages a physician as an independent contractor, but the IRS later decides that the physician was actually an employee, the group will be responsible for paying back employment taxes, contributions to retirement plans, plus interest and penalties. Because this can have a severe economic impact on a group, groups often include in their independent contractor agreements an obligation for the physician to indemnify the group for all such unpaid taxes, contributions, interest, and penalties in the event a reclassification occurs. The physician should be very sensitive about signing such a provision.

As an employee, the group will have control over how you discharge your duties, when time off is taken, shifts to be worked, etc. The employer will pay withholding, social security, and Medicare taxes on the employee's wages. If full-time, the employee will participate in the group's retirement and other fringe benefit programs.

As an independent contractor, you will be "independent" in how you perform your duties for the group you have a contract with. You are responsible for paying your own employment taxes and for setting up your own retirement and fringe benefit programs.

2. Term, renewability, and termination. How long is the obligation? The parties should understand precisely the term of the arrangement that they are entering into. If the agreement is renewable, it is important to specify whether or not the agreement terminates or renews automatically? What prior notice is required? Can the agreement be terminated without cause at any time? If so, the actual term of the agreement is really only the length of the notice period for termination. For example, a two-year employment agreement that can be terminated by either party with 60 days prior written notice is really only a 60-day contract. If the agreement only can be terminated for cause, the specific types of cause that are sufficient for termination should be listed, as well as the conditions under which the defaulting party can cure the situation.

3. Duties and responsibilities. Is the job full-time, part-time, or temporary? Sometimes, a physician will want to use his or her time off to do other fee-generating services. The employment contract should spell out what physicians can and cannot do. For instance, some employers may feel such fee-generating work outside normal working hours is inappropriate. Also, if a physician desires to perform charitable or other professional activities that are not income-producing, such as speaking, writing, or serving on the boards of civic organizations, that should also be addressed in the agreement

4. Compensation and fringe benefits. How are you being paid? The agreement should set forth the specific formula or methodology for determining the physician's compensation. Non-owner physicians can be compensated in a variety of ways and these can shift over the years depending on the circumstances, for instance to more or less incentive-based pay. The contract also should spell out how expenses are allocated among the different physician employees. If there are incentives in the contract it is important to be aware of the laws as implemented by the Office of the Inspector General, especially regarding any improprieties such as rewards for denying care or controversies around gain sharing arrangements.

Fringe benefits should also be listed with specificity: health insurance for the physician, dependent coverage, if any, CME reimbursement, books and journals, retirement benefits, life and disability insurance, cell phone and beeper, moving expenses, office and facilities. If these benefits are critical to the employee, he or she may want to include a provision in the agreement prohibiting any changes to them without the employee's consent.

5. Call schedule and time off. When must you work? Since the call schedule can be a point of major contention, the method by which the call is shared needs to be clear in the agreement. The time-off policy should also be clearly understood by the parties, including how much and what it covers, such as vacations, CME, sick leave or any other instances. Fringe benefits are like any other form of compensation. If they are not included as part of your package then you are actually getting paid less than a similar position with benefits. Articles on Hospitalist Scheduling or Hospitalist Staffing Requirements are available to members online.

6. Professional liability insurance and tail coverage. Who pays for malpractice insurance? Typically in an employment relationship, the employer pays or reimburses the physician for professional liability insurance premiums. Some employers may deduct this expense from the employee's compensation. In an independent-contractor relationship, professional liability insurance costs are typically the responsibility of the physician. Who will pay for professional liability insurance that covers past acts of the employee after the employee leaves (called "tail coverage") can be a much more difficult issue. Depending on how long the employee has been employed, tail coverage can be expensive. Some employers split the cost with the departing employee, but often the expense is placed on the employee. Tail insurance should be specifically spelled out in the contract.

7. Restrictive covenants. What if you leave the practice? Many contracts include restrictive covenants, which can include promises not to compete, not to solicit patients or employees or referral sources, and to keep group and patient information confidential. Doctors should not assume they cannot be negotiated, especially the provisions relating to the time period for the restrictions (usually six months to three years) and the geographic area of the restriction sometimes the specific hospitals at which the employee physician has been working or a general geographic area which includes all the hospitals in that area. Enforceability, as well, may vary from state to state. The typical remedy for violating a restrictive covenant is an injunction which, if granted, will prohibit the departing physician from further violations. Sometimes, the group will allow the departing physician to "buy out" the restrictive covenants, thereby freeing the doctor to solicit patients or compete. These payments, though, can be very high--in the five to six figure range.

8. Becoming an owner or partner of the group practice. Can you buy into the practice? If applicable, the Hospitalist's employment contract should include general provisions regarding the time period and possible terms for becoming an owner of his group practice. It is often difficult, however, to address these issues in detail at the start of the business relationship. Be sure to understand the advantages and liabilities of being a partner. Will it help you be more involved in decision making in the group? Will you share in revenue distributions? Will you be responsible for liabilities? Sometimes it is better to be a salaried working Hospitalist than a partner who relies on the group being profitable.

Professional Services Contracts between Hospitalists and Third Parties

The following business and legal issues typically arise when individuals or groups of Hospitalist physicians contract with a hospital, a managed care organization, or a physician group such as an IPA or PHO (Physician-Hospital Organization). As with internal contracts, these arrangements may be employment or independent contractor agreements, and each one will have its own individual terms and conditions. As a general matter, each of the points discussed in the section above also will be relevant to these contractual arrangements.

Terms of the Contract

These will vary depending on just what the hospital, medical group, or health plan wants the Hospitalists to do. A sample of the kinds of elements that might be in a particular contract are:

  • Inpatient care of the uncompensated patients (the uninsured, difficult management cases)
  • Responsibility for the unassigned patients (insured without physicians) who present to the hospital and need admission. It may be to your advantage to have exclusive rights to these patients, who often have their own insurance coverage.
  • Coverage or management of patients in ECF or skilled nursing facilities
  • Evaluations and triage of Emergency Department patients for admission or discharge
  • Obligations to meeting regularly (e.g. daily) with utilization review nurses
  • Teaching responsibilities for residents, if applicable. Don't give this away for free. This takes nonbillable time and very often Hospitalists' larger services make this even more of a time consuming activity.
  • Requirements to be in compliance with practice guidelines or pathways. Sometimes this is used as a surrogate for quality. If this is mandated, then the Hospitalist group should have an active role in developing the guidelines they will be using.
  • Responsibility for managing outpatient clinics or for establishing and staffing a follow up clinic
  • Required service on committees (e.g., P&T, UR, IS, Patient Safety). While this was a voluntary activity when spread among the entire Medical Staff, this can be a burden if left to a small group of Hospitalists. This takes real unbillable time.
  • Does the hospital want any performance standards? (e.g., response times to ER for evaluation or to floor for new admissions, doctor-patient ratio, LOS, completion of discharge summaries). Make sure the data is accurate and that there are accurate baselines. Make sure that the patient population warrants and allows for a standard to be met. Very often the difficult patients with significant financial and social obstacles fall to the Hospitalist's care. These may not conform to standards that come from a Milliman and Robertson book of national data that measures the general patient population.
  • Mandates to be available to cover for other services (e.g., cardiology, radiology, special procedures, CPR)
  • Any requirement for CME, especially for quality issues (e.g., Interqual courses) that other internists on staff would not be asked to attend.

Compensation, billings and collections

Contracts with third party payers spell out how Hospitalists will be compensated for their labor. These can take a variety of forms, including billing directly for services rendered on the basis of an agreed fee schedule, receiving a flat fee per case from an MCO, or being paid a flat salary. If the hospital is paying the Hospitalist group, it is important to be aware of any increment issues. The hospital cannot pay or support a physician to induce business for the hospital. It is important to look very carefully at any incentives. Incentives that are based on quality or satisfaction generally are permissible, but incentives based on sharing any financial savings generated by reduction in care, even if appropriate, may warrant legal investigation or at least may cast the Hospitalist program in a poor light.

If the hospital contract is sizable, it is important to have a clause about the timing of payment. The Hospitalists live on their compensation and delays of months waiting to be paid will affect your cash flow.

Support Services

Very often the hospital or medical group can help the Hospitalists indirectly by supplying clerical or billing services. Be sure these people are looking out for your best interests and have the expertise to meet your needs. Even free billers, who don't understand the Hospitalists' special needs, are no bargain.

It is also helpful if the Hospitalist have certain hospital employees assigned to their service. It is often efficient to have a discharge planning nurse or two to facilitate discharge details, allowing the Hospitalist to see additional patients. In addition, a competent UR/QA professional can improve the Hospitalist's efficiently and effectiveness. Data is a key element of the Hospitalist practice and an IS or statistics professional from the hospital assigned to support the Hospitalist group can be very helpful in the long run.

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