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KOMahonyLaw - Law Office of Kevin P. O'Mahony
Healthcare, Business
& Litigation Services

Healthcare & Physician Contracts

Contracts are an essential component in the operation of a successful medical practice, healthcare organization or business. Whether you are a medical professional seeking employment, currently own a practice, or are looking to establish a new medical practice or healthcare business in Georgia, your contractual agreements must be clear, enforceable, and in compliance with complex laws and regulations governing the healthcare industry.

Retaining a healthcare or physician contract lawyer is one of the best investments a physician, other healthcare provider or business can make. The benefit of that investment can be maximized and the cost minimized by retaining an attorney or firm experienced handling healthcare and physician contract reviews and negotiations.

Attorneys who work on healthcare contracts regularly understand the language, pay structures and terms that affect an an organization’s success and an individual provider’s professional and personal life. For over 30 years, physicians, physician groups, hospitals, healthcare businesses, and other attorneys have placed their trust and confidence in us for their most vital and sensitive contract issues.

Types of contracts we can assist you or your organization with include:

  • Billing and Collection Agreements
  • Business Associate Agreements
  • Call and Coverage Agreements
  • Compliance Plans and Agreements
  • Consulting Agreements
  • Employment Agreements
  • Independent Contractor Agreements
  • Leases
  • Managed Care Contracts
  • Management Services Agreements
  • Marketing Agreements
  • Medical Director Agreements
  • Network Provider Agreements
  • Non-Compete Agreements
  • Non-Disclosure and Confidentiality Agreements
  • Non-Solicitation Agreements
  • Operating Agreements
  • Purchase Agreements
  • Recruitment Agreements
  • Relocation Agreements
  • Sales Agreements
  • Settlement Agreements
  • Severance Agreements
  • Shareholder Agreements
  • Many other types of agreements

In any contract negotiation, each side or party deserves to be represented by separate, independent and competent counsel. Over the years, we have had the honor and privilege of representing both individual and institutional healthcare providers, healthcare organizations and businesses — ranging from small to very large.

Employment Agreements

With regard to employment contracts, we have extensive experience representing employers in numerous cases. And we have advised and represented individual employees and independent contractors in countless others. So we understand both sides of the equation.

For economic and other (often legitimate and understandable business) reasons, employers do not always put a physician’s or individual healthcare provider’s interests first when it comes to a contract’s details. Physician compensation is changing along with the reconfiguration of payment incentives within the healthcare industry. And lower-than-average compensation and ambiguous terms are common. Without the assistance of an experienced healthcare contract attorney, the terms can be detrimental to a physician’s or individual provider’s career.

For individual providers, hiring a healthcare contract attorney requires you to make an investment in your career. But that investment can save you thousands of dollars and multiple headaches down the road. Whether it is through increased compensation, better work schedules or termination provisions should you need to end your contract, your healthcare contract attorney can help tailor the agreement to your needs.

At the Law Office of Kevin O’Mahony, we will analyze your contract, interpret and explain complicated clauses, address missing needs or unfair terms, and compare your offer to other physicians or providers in your specialty, using both internal and external data and surveys. We also can negotiate the contract on your behalf.

During your consultations with us, we will discuss the issues found in your contract, how it compares with others we have seen, revisions we suggest, and concerns you may have. We will advise you on steps to take, and either negotiate on your behalf, or provide coaching on how to handle negotiations yourself.

We have years of experience representing and negotiating with health organizations and their legal teams; however, attorney negotiations are not mandatory. If you feel negotiations would be better received coming directly from you rather than an attorney, or you simply wish to avoid the added expense of paying a lawyer to negotiate on your behalf, we can provide tips to coach you through the process and help ensure things go smoothly.

The services we provide include reviewing and negotiating contracts, preparing contracts, helping employers and employees enforce contracts, advice on setting aside or voiding contracts, litigating contracts (in state or federal court), and litigating restrictive covenants (covenants not to compete, solicit patients or employees, etc.).

For interns, residents, fellows and those just entering the practice of medicine, it is particularly important to retain an experienced health and business law attorney to review and advise you on your physician employment agreement. Such an attorney can help you understand your contract, and explain any pitfalls and potentially problematic provisions, including clauses or paragraphs which might cause you unexpected liability in the future.  This will arm you with the information you need to negotiate from a position of strength to obtain a more favorable agreement.

We can meet with you to review your contract face-to-face, or review it with you by phone. We also can arrange to confer with you after normal business hours or on weekends, should your schedule require.

Because contracts and individual providers’ needs vary greatly, we normally work and bill for our time based on competitive hourly rates. And if you need a written analysis, amendment or addendum to your contract, or you want us to seek revisions on your behalf, we can do so at those hourly rates.

Although not an exhaustive list, physicians and individual healthcare providers should keep the following points in mind when evaluating an offer or negotiating a contract:

  • Health systems and institutional providers have experienced health and business law attorneys who advise and assist them with their contracts. You should as well.
  • Health systems, institutional providers and their counsel have presumably seen and been involved in many more contracts than you have.
  • There is no such thing as a “standard” healthcare contract or physician employment agreement.
  • Contracts vary in numerous ways (as do individual providers and their needs), and many (if not all) terms are negotiable.
  • Do not rely on your colleagues, non-healthcare lawyer acquaintances, or (especially) your future employer’s representatives, for “legal” advice.  Misinformation about legal issues (especially in the highly-regulated healthcare arena) is readily available, but can cost you dearly.  And just because a court may have decided a legal issue a certain way in one case does not mean a different court would not reach a different conclusion in another case.  Every set of facts, circumstances, contract and case is different.
  • Be sure the wording of your contract represents exactly the agreement you made.  If something is not specified in the written contract, or an oral agreement differs from the written contract, the language in the written contract will almost certainly govern in any future dispute.
  • A promise to make you a “partner” or “shareholder” in a practice or group after a certain period of time will not be enforceable unless all key terms are specified sufficiently for a court to enforce it.  (Price, timing, percentage of ownership, method of payment of buy-in, etc., are generally required.)  Similar to the purchase of a home or real estate,  unless all terms required for a binding contract are set forth in writing and agreed to by the parties, it will not be enforceable.
  • Obtain and review copies of every document referenced in the contract.  Such documents usually are considered part of the agreement.  They may include the practice or entity’s policies and procedures, the employee handbook, a code of conduct, sexual harassment policy, compliance agreements, etc.  Keep these documents in a file with a copy of your contract.
  • Ensure the contract is clear throughout that you are an employee and not an independent contractor, or be sure you understand all the ramifications of working as an independent contractor.  Employees generally receive more benefits and have more protections under the law than do independent contractors.  If you sign as an independent contractor, you may have more autonomy, but you will be assuming many expenses and liabilities that the employer ordinarily would be required to assume.
  • Carefully consider clauses that allow the employer to terminate the contract without cause on a 30, 60, 90 or even 180-day notice.  With such a clause in your agreement, you cannot assume you have a one or two-year agreement, even if the anticipated “term” of the agreement is stated to be one or two years.  Instead, you potentially have only a 30, 60, 90 or 180-day contract.  So think about whether you can find another job and relocate in 30, 60, 90 or 180 days, and what you might need to protect for that contingency and cushion the financial ramifications.
  • If there is a “for cause” termination provision in the contract, be sure to seek a right to “cure” provision.  This is a provision which requires the employer to provide you written notice of any alleged breach and allows you a certain period of time (usually anywhere from 10 to 30 days) to cure it.
  • Try to avoid assuming an obligation to pay the premium for tail coverage for professional liability or medical malpractice insurance, especially if the employer terminates the employment.  If you are unable to negotiate this away completely, try to: (1) reduce the percentage you agree to pay to 50%, or 25% for each year you are in the practice; and (2) insert a provision that if you maintain the same insurance company or obtain retroactive coverage, this will be substituted for tail coverage.
  • Do your “due diligence” before signing.  Ask to see billing and collections figures and income statements.  Talk to other employees or associates.  If your compensation will be based on productivity, speak with another physician who is similarly compensated about how his or her compensation is calculated.
  • Visit any hospital or other facility where you will have privileges or see patients.  Contact any physicians or other providers you know or have met who live in the area or surrounding areas. Discuss the quality of the equipment and staff with other physicians and providers in the area.  They may be able to provide you information regarding your potential employer, hospital or city that may affect your decision.
  • Be sure every blank in the contract is completed and filled in before you sign.
  • Be sure every exhibit, schedule or addendum referenced in the contract is attached, and you have read and understand them, before you sign.
  • Do not sign any document you do not understand and agree with.  Contracts have consequences.  Oral “explanations” do not change written terms.  Read anything you are contemplating signing carefully and fully (even if it is long and boring).
  • Do not sign any contract until you are satisfied (or at least prepared to live and comply) with all its terms.  If you sign the agreement, be prepared to honor it.  Do not sign an agreement thinking that there may be certain provisions that won’t be enforceable or that you won’t be required to follow in the event you do not fully comply with them.  Assume that every part of the contract is enforceable.
  • Provided they are drafted correctly, restrictive covenants (covenants not to compete, solicit patients or employees) are generally enforceable in Georgia.  Although there sometimes are exceptions and defenses that may be used to potentially prevent, defeat or minimize enforcement of a restrictive covenant, unless you have sufficient money set aside to finance a lawsuit, expect to honor it if it is in the agreement.  As an employee or independent contractor, your negotiating strategy should be to: (1) try to get the covenant removed completely; or (2) reduce the period of time, geographic area, and scope of services or activities covered to the extent possible.
  • Do not start working until you have a copy of the fully-executed contract.  A draft is not sufficient.  A copy signed by you but not the employer is insufficient.  One of the most common problems we see when there is a dispute over a physician employment agreement is the employee does not have a copy of the contract that is signed and dated by the employer.

Medical Director Agreements

The professional role of a physician can be divided into two main components: the clinical role (which generally involves direct clinical care of patients), and the administrative or managerial role (which usually requires some use of a physician’s clinical knowledge, but may not involve or require actual examination, diagnosis or treatment of individual patients). There are a wide variety of areas where a physician’s clinical specialty knowledge is needed in a non-direct care context.

Hospitals are just one example where healthcare organizations need and, in many cases, must engage Medical Directors. Medical Director roles range from specialty-specific service line program leaders (where the physician assists in the establishment and management of a particular portion of the hospital’s business) to Medical Director positions required by law or regulation (where, for example, Medical Directors perform oversight services designed to ensure compliance with applicable government program requirements).

Serving as a Medical Director gives a physician opportunities to increase his/her earnings and use managerial skills to advance an organization’s goals. But compensation to Medical Directors has become a significant compliance issue for many healthcare providers and businesses. If not properly structured and monitored, a Medical Director arrangement can become a major compliance problem.

Unlike most other types of employment arrangements involving physicians, physicians acting as Medical Directors are compensated for the performance of administrative and managerial services which are not directly related to patient care services. And because Medical Directors are not necessarily performing medical services, many physicians feel comfortable entering into a medical directorship with little or no written documentation. However, physicians should proceed with caution when undertaking a Medical Director role.

Medical Director Agreements are often scrutinized by the Office of the Inspector General (“OIG”) of the U.S. Department of Health & Human Services to determine whether the arrangement is, in reality, being used as a vehicle to provide remuneration to physicians for patient referrals. Because these agreements are subject to increased scrutiny by government regulators and payors, they must be structured carefully to reduce risks of investigations for potential fraud or abuse, including violations of the Stark Law, the Anti-Kickback Statute (“AKS”) and other laws.

To meet state and federal standards, numerous legal requirements must be met, such as the services listed in the Medical Director Agreement must be necessary, properly documented, and compensated at fair market value set in advance. At the Law Office of Kevin O’Mahony, we can help you or your organization meet those legal requirements.

Questions to ask concerning any Medical Director Agreement include:

  • Does the Medical Director Agreement help establish or implement protocols and systems for verifying quality of care and patient satisfaction?
  • Is the Medical Director Agreement designed to ensure staff members are properly trained and supervised?
  • Or are Medical Director Agreements being given only to top referring physicians to a facility, with little or no other value to show for compensation paid?

Medical Director Agreements can be structured as independent contractor relationships where, for example, a hospital contracts with an independent member of its medical staff (often on a less than full-time basis) to perform certain specialty/service line administrative leadership functions. Or, the role of a Medical Director can be structured as a full- or part-time employment arrangement. For instance, the Medical Director role can be included in a full-time employment agreement which calls for the provision of clinical care, but also provides that the physician spend a certain percentage of her/his time performing in the Medical Director role.

The distinction between an independent contractor arrangement and an employment agreement is very important. Whether a physician is performing in an independent contractor vs. employment role is determined by the degree of control the hospital or other healthcare entity exercises over the physician under the arrangement. The Internal Revenue Service’s regulations set forth the factors and criteria applicable to each category. And those regulations must be taken into account to ensure that the Medical Director Agreement is properly structured. But regardless of whether the physician is an independent contractor or an employee, a third party not licensed as a physician should not be permitted to interfere with the physician’s independent clinical judgment. This issue arises more frequently in a physician’s clinical role. But it also can occur in a physician’s role as a Medical Director.

Well-crafted Medical Director Agreements address the various issues involved clearly, to assure not only a meeting of the minds between the parties, but also compliance with applicable state and federal laws. As with any properly structured agreement, Medical Director Agreements should be documented in writing and signed by both parties. Indeed, a written agreement is generally required by law and regulation. And there are numerous other legal requirements as well.

One of the key provisions contained in a Medical Director Agreement is the section (usually appearing early in the agreement or attached as an exhibit incorporated into the agreement) that specifies the Medical Director’s job duties in detail. For instance, a hospital’s Medical Director Agreement might list the physician’s responsibilities in his/her role for a particular service line with job functions such as:

  • Overall program design and development
  • Participation in strategic planning
  • Assistance with developing the program’s operating and capital budgets
  • Participation in program-related meetings
  • Design and implementation of physician and staff education and training
  • Development and implementation of systems, practices and procedures to monitor and improve program clinical quality, efficiency and patient satisfaction
  • Program-specific clinical practice protocol development and implementation
  • Program-related chart review
  • Oversight and assistance with program-related legal and regulatory compliance initiatives
  • Satisfaction of the various standards of the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”) and other regulatory bodies
  • Initiatives aimed at assuring that value-based purchasing standards are satisfied (whether they relate to government program payors or commercial health insurance plans)

The physician’s compensation for his/her performance as Medical Director is extremely important for both financial and regulatory compliance reasons. The structure of the compensation portion of a physician’s Medical Director Agreement varies depending on the type and structure of the underlying agreement. If, for example, the agreement is a part-time independent contractor arrangement, the physician is typically paid an hourly rate for his/her services. The agreement specifies the hourly rate and typically sets forth the maximum number of hours per month the physician may be paid for performing his/her Medical Director duties. The agreement also will usually require that a time sheet setting forth the specific functions performed by the Medical Director be prepared, signed by the physician and submitted as a condition of payment. The form or template of the time sheet may even be attached to the agreement as an exhibit.

This same approach is often also used in situations where the physician’s Medical Director role is included as an element of a physician’s full-time Clinical Services Employment Agreement and the Medical Director services are “over and above” the compensation relating to the physician’s performance in a full-time clinical role. In full-time Medical Director Agreements (such as those for a hospital’s Chief Medical Officer), an annual salary approach is generally used.

If the Medical Director refers patients to the hospital or facility for inpatient or outpatient hospital services, the services are included in the Stark Law’s definition of “designated health services.” If these referrals involve federal program patients, the Stark Law and AKS must be carefully examined and addressed. And even if only private-pay patients are involved, state laws and private health insurance requirements must be considered. Specific conditions must be satisfied in order for the Medical Director Agreement to be legally-compliant. Full descriptions and analyses of the Stark Law, AKS, and other potentially applicable laws are beyond the scope of this summary, but some aspects of these laws governing Medical Directors’ compensation are discussed below.

The Stark Law generally prohibits referrals by a physician of a Medicare or Medicaid patient to an entity providing designated health services if the physician (or an immediate family member) has a financial relationship with that entity. The Stark Law is a strict liability statute. It does not require a showing of intent to violate its terms, and ignorance is not a defense. It is implicated based on referrals unless there is an applicable exception or safe harbor that applies to the referral arrangement.

Similar to Stark but broader, the AKS prohibits anyone from offering, paying, soliciting or receiving remuneration (monetary or otherwise) to induce or reward referrals or generate business for anyone participating in any federal healthcare program. Although neither knowledge of the AKS nor intent to commit a violation is required, the proof required under the AKS (unlike Stark) is knowing and willful misconduct. As a result, those found in violation of the AKS also face criminal penalties in the form of a prison term or fine for each violation. Moreover, recent amendments to the AKS now establish that a violation of the AKS constitutes a false or fraudulent claim under the False Claims Act (for which crippling financial penalties and treble damages can be imposed), even if the service was medically necessary and properly provided.

In all cases that could implicate the Stark Law and the AKS, the provisions of a Stark Law “exception” must be satisfied and the requirements of an AKS “safe harbor” should be satisfied. The exceptions and safe harbors relied upon depend on whether the Medical Director Agreement is structured as an independent contractor arrangement or an employment arrangement.

Under the Stark Law, virtually any Medical Director Agreement is deemed a “financial relationship” between the hospital or other entity and the physician that constitutes a “direct compensation arrangement.” The applicable Stark exception in an independent contractor situation is the personal services exception, and the applicable exception in the case of a Medical Director Agreement structured as an employment agreement is the bona fide employment exception. These two exceptions require (among other key elements) that the compensation paid in return for the physician’s services be “fair market value.”

Under the AKS, the safe harbor that is usually applicable to an independent contractor Medical Director Agreement is the personal services and management contract safe harbor. In cases of Medical Director Agreements structured as employment agreements, the applicable safe harbor is the employment safe harbor. These safe harbor provisions also require (among other elements) that the compensation paid in return for the physician’s services be “fair market value.”

The exception most often relied upon for Medical Director Agreements under both the Stark and Anti-Kickback laws is the “personal services” safe harbor. Although slightly different under each statute, some key elements in complying with the “personal services” safe harbor include:

  • Written Agreement: The agreement between the provider entity and the physician should be in writing, with a term of not less than one year.
  • Duties: The agreement should specify all of the services the physician is expected to perform.
  • Commercially Reasonable: The services provided by the Medical Director should be necessary for legitimate business purposes and not exceed the amount of services required by the provider. This analysis is focused not only on whether the contracting physician’s services in and of themselves are necessary, but also whether there are other Medical Directors, and whether multiple Medical Directors are performing the same services.
  • Compensation: The physician should be paid fair market value for the services provided, and the compensation should be commercially reasonable under the circumstances. Specifically, the aggregate compensation paid over the term of the agreement must be “set in advance,” “consistent with” and “not exceed” “fair market value in arms-length transactions,” and “not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties.” To demonstrate that this is the case, it is wise to obtain an independent fair market value analysis by a respected valuation expert, taking into account the geographic location, credentials and experience of the physician, and type of facility. While having such an analysis is not an absolute defense in an investigation, it will be useful in demonstrating that fair market value was analyzed and that the remuneration falls within what was believed to be an acceptable range.
  • Hourly Rates/Caps on Compensation: Because it is difficult to predict (or even estimate with reasonable certainty) how much time will be involved performing Medical Director services, entities often prefer to pay Medical Directors on an hourly basis. In such cases, however, the hourly rate paid must be the fair market value rate. It is also recommended that the aggregate compensation a physician can earn for his documented hours be capped, to further ensure reasonableness.
  • Documentation: The physician should keep daily time logs of services performed and the time spent on each service. This shows that the physician is performing real work, for which he or she is being paid fair market value, and also can be used to demonstrate that the services being performed are necessary for the facility.

To qualify as a bona fide employment relationship, an arrangement must meet all of the following requirements:

  • The employment must be for “identifiable services”;
  • The amount of remuneration must be consistent with “fair market value”;
  • The amount of the remuneration cannot be determined in a manner that takes into account the volume or value of referrals by the referring physician;
  • The compensation must be “commercially reasonable” even if no referrals are made between the physician and the organization.

The specific facts and circumstances involved in each situation are important in determining the legality of any compensation arrangement. For example, in a 2001 Advisory Opinion, the OIG said that even though total aggregate compensation over a contract was not set in advance, the totality of the facts and circumstances in that case indicated that there was no significant increase in risk of fraud or abuse, due in part to the presence of a monthly payment cap. But in a 2003 Advisory Opinion, the OIG found that a proposed arrangement did not qualify for protection under the safe harbor because the aggregate compensation paid under the agreement was not set in advance. So all relevant facts and circumstances must be evaluated and weighed.

Recent cases have focused on the concepts of “fair market value” and “commercial reasonableness” of compensation paid from a hospital or health system to an employed physician. These cases provide some guidance and parameters to consider when negotiating physician compensation. However, the facts in each case are unique, and the extent to which they will be of guidance to any specific compensation issue is uncertain.

For example, some cases have demonstrated that even though there might be a detailed listing of a physician’s obligations under a Medical Director Agreement, there must be evidence showing that those services were actually provided. If the services were not provided, any compensation in excess of fair market value will be deemed to be for another purpose, such as inducement for referrals.

Thus, from a compliance standpoint, healthcare organizations need to monitor their contracts to assure that specific services being compensated are actually being performed. And an employed physician and his or her employer organization have an equal interest in assuring that this is the case, since both can potentially be in violation of the Stark Law if the services were not actually performed or provided.

Other cases under the AKS illustrate the risks associated with Medical Director Agreements that are not properly monitored or, in extreme cases, are entered into for improper purposes. Indeed, so-called “sham” Medical Director payments can lead to criminal liability under the AKS.

For instance, in one recent case, a physician was convicted criminally under the AKS for conspiring to receive bribes from a nursing home for referring patients to the facility. The jury found that the physician and others were placed on the organization’s payroll as “service medical directors.” They were provided compensation for a list of services that, according to trial testimony, they were never really expected to perform. There also was testimony from employees that the “Medical Directors” were rarely seen around the facility, and that time reports were falsified in order to make it appear that they performed services at the facility that they did not.

In addition to compensation for what were found to be “sham” Medical Director services, the nursing home also paid for a secretary for the physician’s company and paid lease payments for the building owned by the physician. And there was testimony that the physician had told others that he was receiving “free money” from the facility.

Although the facts in that case were egregious, it demonstrates the risks involved with Medical Director Agreements in general. And when the government can show that at least one intended purpose for compensation to, or a payment arrangement with, a Medical Director is to induce otherwise proscribed referrals, or that the Medical Director Agreement is actually a “sham,” criminal consequences (in addition to civil monetary damages) may follow.

Even in cases where intent cannot be proved, there still may be potential liability under the Stark Law. And even in cases where no criminal exposure exists, the financial consequences can be devastating, given the civil monetary penalties involved for Stark Law violations.

It therefore is essential to keep these legal requirements in mind when structuring Medical Director Agreements, to ensure not only that the physician is compensated fairly, but also that there is full compliance with the applicable laws. Adhering to the criteria set forth above can help provide legal protection for both the Medical Director physician and the facility. And it is wise for both parties to consult with experienced healthcare counsel before entering into any Medical Director arrangement.

How We Can Help

We strive to help clients structure all of their agreements consistent with how government regulators are likely to examine the intent and validity of those arrangements. We are a healthcare and business law firm with extensive experience negotiating, drafting and litigating numerous healthcare and physician contracts. We have experience working with physicians, medical groups, hospitals, ambulatory surgical centers, freestanding emergency centers, laboratories, independent diagnostic testing and other healthcare facilities and businesses.

Please contact us if you have questions about your next contract. We hope to have the opportunity to assist you soon.

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