Are your employment agreements compliant with both state and federal law?
Physician practice groups should take heed of several tips as they negotiate physician employment agreements in 2024 to achieve the objectives of the practice group and make sure the agreements comply with federal and state laws.
Compensation and benefits provisions
Physician employment agreements should clearly identify the compensation and benefits package for the employed physician. The initial base compensation will need to be specified (usually fixed for at least one year) as should any adjustments to base compensation during the term of any multiyear employment agreement, such as through pre-negotiated increases, consumer price index adjustments, renegotiation provisions or a combination of these adjustment mechanisms.
Variable compensation is often a significant component of overall compensation in the form of periodic bonuses that are objectively determined (i.e., formula based) or (less frequently) subjectively determined. The key issue is balancing the need to incentivize the physician-employee without running afoul of the AKS, the Stark law and similar statutes.For example, variable compensation cannot be based on the volume or value of referrals for ancillary services provided, such as the number of X-rays or ultrasounds ordered. However, a bonus formula based on relative value units is permitted because it is based on the complexity of the services provided by the physician and not the volume or value of the services.
Agreements should specify the rights of employed physicians to participate in the practice group’s retirement plans and health insurance plans (such as medical insurance, dental and vision plans) and whether any waiting periods are required under these plans. If any of these health insurance plans requires a waiting period prior to participation, the group may agree to reimburse the employed physician for the Consolidated Omnibus Budget Reconciliation Act insurance premiums paid for continued coverage under the plans of the employee’s former employer.
Each physician employment agreement should specify how to handle professional liability insurance for any acts or omissions of the physician before first becoming employed by the group and as to acts or omissions that took place while employed that are asserted after the agreement terminates. For example, when will tail insurance policies be required and who will pay the premiums for this protection?
Compliance of physician employment agreements with federal and state laws
Physician employment agreements should comply with the regulatory safe harbors for agreements of this type under federal and state anti-kickback statutes (AKS) and the exceptions to the laws that restrict referrals by physicians to entities in which they have a financial interest for certain types of ancillary services under applicable state and federal laws, such as the Stark law. In addition, federal and state laws require preservation of the privacy of patient information and state laws may affect the enforceability of covenants not to compete. In the future, the Federal Trade Commission may prohibit noncompete covenants as a matter of federal law.
Restrictions on the employed physician after the agreement terminates or expires
With narrow exceptions, physician employment agreements will prohibit the physician from working for others while employed by the employer. After termination of employment, the physician will generally be restricted from the practice of medicine near the employer’s practice location (say, 10 miles) for a time period (say, one or two years after termination).Sometimes these limits go away if the physician terminates the agreement for good reason.
Other post-termination provisions include a requirement to preserve the confidentiality of patient and employer information under Health Insurance Portability and Accountability Act and applicable state laws, specifying who is entitled to patient records and limiting the physician’s solicitation of the employer’s patients and sometimes its employees.
Term and termination provisions
To meet the regulatory exception under the Stark law, each physician employment agreement must be at least one year in duration.However, these agreements are typically multiyear agreements, such as three to five years, and often contain one or more renewal options that are exercisable by the practice group on notice to the employee (such as 180 days prior to expiration of the then-current term).
Employment agreements typically contain options for early termination by the practice group for cause (such as if the physician loses his or her license to practice medicine or is convicted of a felony) or by the physician for good reason (such as if the group does not pay the physician in a timely manner or drops its professional liability insurance policy). These agreements will also often allow either the employer or the employee to terminate the agreement without cause with advance notice to the other party (anywhere from 30 to 180 days).