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What physicians need to know when reviewing contracts
Recently, I worked with two different physicians who faced termination scenarios. In both instances, my clients were terminated without cause while being compensated based on production and were not permitted to work during the notice period. Many physicians are compensated based on pure production, while others may have a base salary plus some type of bonus based on production. When reviewing a physician contract-or drafting it-there are some key issues to take into account concerning the relationship between productivity compensation and termination.
Although we like to think that both physician and employer will continue to meet their obligations during a notice period, some employers may not want a physician to work, perhaps because they wish to reallocate patients, resources, etc. or perhaps for other less business-related reasons. However, it is important to understand that during a notice period, the physician is still employed and his or her compensation formula and/or productivity bonus formula is dependent on production.
As a result, not allowing a physician to work during a notice period can cause significant financial harm to the physician. Moreover, during a notice period, the physician also likely cannot work elsewhere due to exclusivity, non-compete and similar provisions.
To address this issue, some contracts will properly include language that states the physician will be paid the same average compensation that the physician was paid in the 90-day period prior to the date the notice period started to run.
Other alternatives might include an average of monthly compensation over the past 12 months, a per diem rate based on the physician’s average production, etc. No matter what approach is used, some mutually agreeable and fair compromise is appropriate.
Unfortunately, contract drafting sometimes can be rather sloppy. Indicating the physician will “continue to receive compensation” does not address the issue. Similarly, stating the physician will continue to be paid “draw” during the notice period is not ideal. Often, a physician’s contract sets a fixed amount called a “draw” which is then reconciled against actual productivity, quarterly or annually, resulting in bonus being paid to the physician when they exceed the “draw.”
Most physicians set their draw fairly low so as not to “overdraw” and be in a deficit situation. When a contract only allows a physician to be paid “draw” during a notice period, this can substantially reduce the compensation the physician could have earned had he or she been allowed to work.
While some employers make it clear a physician is not permitted to work during a notice period, others pretend the physician is welcome to work, while simultaneously sabotaging them. In my recent situation, the employer reassigned patients asking for my client by telling them he was unavailable, retired or planned to leave. Referral sources were told the physician was leaving and referrals needed to go to other physicians. Staff was reassigned away from my client making it hard for him to perform, and his patient’s calls went unanswered and unreturned, causing damage to his reputation.
Most contracts do not go into enough detail to make these clear breaches and the physician’s claims are quickly dismissed.
This can be a tough situation to address in a contract, but requiring that both parties continue to perform their normal duties and prohibiting a change in patient and employee assignments during the notice period can help with this situation and allow the physician to be productive.
It’s essential that the employment contract clarify that financial documentation regarding all amounts billed and collected (or RVUs performed) be shared with the physician.