All Posts by Dennis Hursh

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I am a healthcare attorney with over 35 years of experience, focusing on physician employment contracts.

Physician Recruitment Agreement
Nov 28

Physician Recruitment Agreement Tips

By Dennis Hursh | Physician Contracts

Many health systems address perceived deficiencies in physician specialties in their service area by assisting private practices to recruit physicians into the area. These physician recruitment agreements can be a boon to both the practice and the physician, and often allow a practice to be able to afford to bring in a physician it would otherwise be unable to recruit. However, it is vital that physician’s counsel gets involved in negotiating these agreements.

One common form of physician recruitment agreement constitutes an income guarantee for the practice and/or the physician. In simple terms, the agreement guarantees that the practice will receive enough income from the physician’s services to pay the physician his or her salary and benefits, and costs directly attributable to the physician’s practice. To the extent the physician does not generate collections sufficient to cover these costs, the health system agrees to pay the deficit to the practice. This is generally structured as a loan. Typically there is a “guarantee period” and a “repayment period .” During the “guarantee period” the health system advances funds to the extent needed to pay the physician’s salary and benefits, and costs directly attributable to the physician’s practice. No payment is made in a given month if collections are adequate to pay these costs, but no repayment is required either. The practice then pays back the amounts advanced by the health system in future months (the “repayment period”).

Frequently there are detailed provisions concerning what expenses will be allocated to the physician. It is important to ensure that this is a comprehensive list of expenses. For example, expenses should include: lease or rental charges for space and equipment solely utilized by the physician; reasonable utility and telephone expenses (including expenses of a cell phone and usage plan); malpractice insurance premiums; medical staff dues; medical and office supplies; a portion of premiums for general casualty and liability insurance; reasonable billing, collection, legal, accounting and other professional fees related to the physician; CME expenses; mileage allowances for trips between offices and hospitals; medical association dues; licensure and DEA fees; board certification and recertification costs; health, disability and life insurance premiums; and medical school debt assistance. While not every practice will provide each of those benefits, physician’s counsel can attempt to get these benefits inserted into the recruitment agreement (and the physician’s employment agreement) while the practice is using “other people’s money.”

Although all monies are usually paid to the practice, I have seen instances in which the health system has attempted to treat the physician as a co-borrower. Frequently you can limit the circumstances under which the physician would be required to repay. However, it is difficult to argue that the physician should not be responsible for repayment of the loan where the physician has terminated his or her physician employment agreement without cause.

The health system generally protects its investment in several ways. First, it will take a security interest on the accounts receivable of the practice. Provisions regarding the security interest must be carefully analyzed. Many times the health system will attempt to insert a security interest on all accounts receivable of the practice. This can frequently be negotiated to only cover the accounts receivable generated by the physician being recruited.

The health system will usually also require repayment of amounts advanced if the physician’s employment is terminated for any reason. Two considerations apply here. First, repayment should generally come from the practice, not the physician. The practice received the income guarantee so that it could pay the physician a reasonable salary for services rendered. The expectation of any private practice is that ultimately it will profit from the services of its employed physicians. I have been able to negotiate a clause to the effect that any repayment will come solely from accounts receivable generated by the physician, unless the physician employment agreement is terminated without cause by the physician. The second consideration only applies to the extent the physician is unable to negotiate total personal relief from repayment obligations. At a minimum in these circumstances the physician should be relieved from repayment if the physician’s employment agreement is terminated because of the physician’s death or disability.

Physician recruitment agreements can be complicated, so it is important that counsel for the physician, as well as the practice, carefully negotiate the provisions of these agreements. An experienced physician’s contract lawyer can use this opportunity to “sweeten the deal” in the physician’s employment agreement.

Sep 07

Expiration of Physician Employment Agreements

By Dennis Hursh | Physician Contracts

As more and more health systems are swallowing up smaller systems, I have been getting contacted by physicians who are concerned that their employment agreement has “expired”. For example, a physician’s employment agreement may provide that the agreement ends on June 30, 20xx. It is becoming more common for that date to come and go with no new agreement offered. Physicians in this position are rightly concerned about their status.

The good news in this situation is that most physician employment agreements are “evergreen”. That is, they automatically renew at the end of each term. Therefore, the physician’s employment agreement will remain in full force and effect even though the “expiration date” has passed.

In the somewhat unusual case where the physician’s employment agreement does not automatically renew, the physician should still be protected. Contract law generally provides that where both parties continue to perform under the agreement (i.e., the physician continues to provide services and the employer continues to pay compensation and benefits) the contract is considered “affirmed”. Therefore, the contract will be treated as if it had not expired.

Although you may be relieved to know that the employer is still obligated to keep paying you, you should still keep track of the expiration date. I was recently contacted by a primary care physician whose three-year contract had expired a few months ago. She had an offer from a nearby competing health system of about $60,000 a year more salary. When I spoke to her current employer’s lawyer about the situation, a new and much more lucrative contract was quickly forthcoming.

It is rarely a good idea to allow an old contract to continue. Your value to the employer may have increased significantly, either through changes to market compensation or because of your reputation among referring physicians. In addition, if you didn’t have an experienced physician’s contract lawyer review the first contract, there could be significant legal traps that can be removed or lessened in a new contract negotiation.

Jan 29

Selling Your Medical Practice – the Asset Purchase Agreement

By Dennis Hursh | sale of medical practice

Selling your medical practice is a complicated transaction.  The purpose of this post is to give you a sense of some of the issues you will run into.

One of the first things you have to do is make sure that everything that was agreed to in the letter of intent is included in the final agreement.

In addition, because of the nature of many small practices, it is not unusual to find that personal property in the practice is owned by the physician. In many instances, even if the practice holds title to the asset, the physician still views it as his or hers. For example, laptops and artwork are often “not for sale”, even if the practice paid for them. Developing a listing of what is being sold can be a challenge. Often this is done as a room by room inventory.

Negotiation over assigned contracts can become a major issue. Unfortunately, some physicians  sign the document that was presented to them as the “standard contract” by the vendor. Accordingly, practices are often signatories to long-term commitments with no termination provisions.

One common issue is electronic medical record agreements. If the health system is implementing one electronic records system, it is extremely unlikely it will want to accept assignment of a long-term commitment for a different electronic records system. At the same time, the physicians certainly do not want to continue paying for an EMR system out of their own pockets after selling the practice. I have been able to convince EMR companies to terminate the agreement at some point in the future (after the information has been transferred to the hospital’s EMR), and convinced the hospital to pay for the EMR during that time.  It’s rarely an easy negotiation, though.

Developing a list of on-going expenses that the health system is willing to accept can be a challenge.  In addition, the list of excluded assets (what the practice keeps) and excluded liabilities (obligations the hospital will not assume) can become the subject of extensive negotiation.

Although it isn’t something most physicians want to spend their time on,  the physicians must read and consider the representations and warranties in the agreement. Even though you may view these provisions as mindless insignificant legalese, these provisions in the agreement can produce significant liabilities if they are not accurate. In particular, physicians may be unaware of any liens on their assets, including liens on hard assets included in bank documents for lines of credit or other loans. If you represent that there are no liens, the hospital can seek indemnification (see below) when the liens are discovered.

Covenants not to compete are very likely to be included in the asset purchase agreement as well as the employment agreement. These covenants should be the same, so you don’t inadvertently agree to a longer or more geographically expansive covenant in one of the documents.

Indemnification provisions have to be the subject of negotiation. Many health systems want unlimited, “first dollar” perpetual indemnification. Your lawyer will attempt to limit the survival of these indemnifications (i,e, how long you are on the hook), limit the amount of the indemnifications (at a minimum, to assure that the indemnification commitment will not exceed the purchase price) and insert a materiality provision to prevent “nickel and diming” from the health system (e.g., if it develops that a few dollars’ worth of supplies were not present at closing, you don’t have to cut a check for a few bucks). Various compromises are possible in this regard, from limiting the overall amount of the indemnification requirement to developing “baskets” of various potential liabilities so that, for example, an undiscovered tax lien will not require repayment in excess of the value of the underlying fixed assets.

Selling your medical practice is a huge decision on your part.  This is a major transaction, that requires your careful attention, and involvement by an experienced physician’s lawyer.

DPC manual
Sep 12

Thinking About Starting a Direct Primary Care Practice?

By Dennis Hursh | blog , Medical practice

I recently wrote about the benefits to physicians and patients of a direct primary care practice.  If you’re not familiar with that concept, it generally means opting out of all insurance, and charging a fixed monthly fee for “all you need” care from the practice.

The idea of setting up a direct primary care (“DPC”) practice is probably appealing to many physicians. But, as you can imagine, the administrative aspects of setting up a medical practice can be very daunting. For  a physician thinking about taking the plunge, a great deal of angst is natural. Do you hire consultants to set up appropriate policies for HIPAA, OSHA, CLIA, etc. or do you rely solely on a physician’s lawyer to handle these aspects? Where do you even start? How do you know if you’ve covered everything?

Plenty of physicians have done it, so you know it is possible. Still, wouldn’t it be nice if somebody came up with a road map, including samples of policies for employees and all the regulatory issues? As you may have guessed, that was a rhetorical question.

Kim Corba, D.O. has set up her own DPC practice in the Lehigh Valley, and has been an active contributor to many forums about DPC practices.  She has (with a little help from yours truly) developed what she believes is a comprehensive manual containing all the policies and forms used in her DPC practice. She even has marketing materials included. I can’t imagine the time she spent pulling together all these materials!

Luckily for anybody who wants to set up a DPC practice (or is thinking about setting up a DPC practice), Dr. Corba has made this manual available to physicians. I would encourage anybody who thinks they might be interested in setting up a DPC practice to seriously consider purchasing the manual. It’s even possible to purchase individual chapters, if you have started down the road but don’t have everything complete yet (or would like some reassurance that your forms and policies are complete).

Please look at the manual of policies and procedures for direct primary care. It may be all you need to get away from being employed by the (not so friendly) local health conglomerate, and get back to practicing medicine through really connecting with your patients.

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