Starting Work Under a Physician Employment Agreement

Contractual provisions about starting work under a physician employment agreement can cause physicians nasty surprises. Here are some things to consider.
Starting work under a physician employment agreement

Starting work under a physician employment agreement

It may seem like an obvious question, but many first drafts are not clear as to the date of starting work under a physician employment agreement. While many physicians may view the first position after training as a reward from the universe for all those years of medical school and beyond, employers have a somewhat different perception. To be blunt, employers hire physicians to generate revenue.

To protect the employer, many physician employment agreements provide a starting date, but contain conditions that may move that date back. Virtually no employer wants a physician starting work under a physician employment agreement if the physician is not yet licensed to practice medicine in that state, for example. Similarly, few employers want a physician starting work under a physician employment agreement if the physician does not have federal DEA (and state equivalent) authority to prescribe medicine. 

These requirements are not a problem for most physicians, given the normal timeframe for recruitment and physician  contract review.  As long as the physician is reasonably diligent in applying, the DEA and most state boards of medicine will process the application fairly quickly. Expecting a physician to be diligent in applying is hardly an unreasonable request from the employer’s perspective.

However, many physician employment agreements also impose starting conditions that are at least partially out of the control of the physician. One very common condition that must be met before starting work under a physician employment agreement is the requirement that the physician obtain hospital privileges and become accepted as a participating provider on major payor panels. Depending on when the physician executes the physician employment agreement and its proposed effective date, this can become an issue.

If the physician is executing a physician employment agreement in November with an assumed start date the following July or August, this condition should not be a problem. However, many physician employment agreements are not made final until April or May, with an assumed starting date of July or August. 

Hospital credentialing moves at a snail’s pace. Most hospitals require “primary verification” of the physician’s training, which means they need an official copy of the physician’s transcript directly from each school, residency, and fellowship program that the physician attended. They may also require a letter from the director of the residency/fellowship program(s). Obtaining those documents may take months.

Once the documents are obtained, and the physician’s file is complete, one or more committees will examine the files; then, they may want more information (elaboration on a less-than-ringing endorsement from the fellowship program director, for example). Although the hospital will have paid staff handling the credentialing file’s organization, physicians who are already on staff in the relevant department will perform much of the credentialing analysis – and they are frequently not paid for this thankless task. 

The hospital staff will generally try to avoid imposing on the physicians any more than necessary, so the staff won’t give committee members a credentials packet until the staff feels it is complete. The staff will also schedule meetings to be convenient for committee members.

Although it may be a foreign concept to physicians coming out of training, working physicians engage in a practice called “vacation,” where they frequently hit little balls with expensive sticks at exotic locations. While engaged in this pursuit, these physicians are not available for meetings to look at credentials. 

Worse, from the new physician’s perspective, there is no “Dean of Vacations” to assure that the physicians all take their vacations at the same time, thereby assuring convenient availability for meetings. Hospital staff members, who are used to working at a glacial pace normally, refer to the summer as a “slow period.” If a physician’s credentials packet lands at the hospital during the summer, it can take months to get it in front of the committee.

As a result of such delays, some physicians with contractual start dates in July, August, or even September find that they have not been granted privileges when they thought they would be starting work under a physician employment agreement. The physicians may have moved into town and signed a long-term lease by then, all in anticipation of being employed at the start date. A similar phenomenon can occur with managed-care credentials.

The contractual provisions regarding starting work under a physician employment agreement if a physician doesn’t obtain hospital and managed-care credentials become critical if the physician finds him or herself in such a position. Physicians need to recognize the employer’s legitimate interest in not being forced to pay a physician when that physician is unable to generate revenue. At the same time, the physician should not be forced to continue in unpaid limbo while the process grinds forward. Negotiations around this issue can be tricky because of the economic importance of the matter to both the physician and the employer.

First, let’s talk about what the physician employment agreement should not provide. The physician employment agreement should not automatically terminate if the physician is not credentialed by the effective date, nor should it give the employer the unilateral right to terminate the physician’s employment agreement. Ideally, the physician employment agreement should also not be simply suspended until all credentialing is completed.

The physician employment agreement should distinguish between a failure to become credentialed and a denial of credentials. If the physician has been denied hospital credentials, that physician probably has some major problems in the credentialing file; it may be reasonable for the employer to refuse to wait for the physician to fix those issues. 

The physician employment agreement should also distinguish between failing to obtain credentials because of a lack of responsiveness on the physician’s part, and failing to obtain credentials because the hospital or managed care company is slow to process an application. The employer should agree to provide administrative assistance to the physician in credentialing and to use best efforts to expedite the process. Finally, the physician employment agreement should only require credentialing with major payors, not every payor the employer has dealings with.

When I perform a physician contract review and a MGMA compensation analysis, I always recommend a provision requiring both parties to sit down in good faith and attempt to negotiate a mutually satisfactory arrangement allowing the physician to start at the original start date, even if credentialing is not complete. 

For example, if the physician has hospital credentials and has been accepted by every major payor of the employer except one, the employer may be able to schedule patients for that physician who are not covered by the slow payor. This may not be possible if a dominant payor has not credentialed the physician, of course. The failure to be credentialed by Medicare is going to have a lot more impact on a geriatrician than on a pediatrician, for example.

Similarly, if all the payors have credentialed the physician but the hospital has not, perhaps another physician can admit patients and do rounds until the new physician gets privileges. Both parties likely can find creative ways to work out something acceptable regarding starting work under a physician employment agreement if the agreement is flexible enough.

The physician may need to be flexible as well. If the employer is willing to make concessions to allow starting work under a physician employment agreement, the physician must be prepared to make concessions as well – these concessions might include reduced hours and compensation until all the conditions provided for starting work under the physician employment agreement are satisfied.

You may also be interested in my posts about letters of intent in physician contracts, the “standard” physician employment contract, and the physician employment agreement offer.

To learn more about the critical issues to be aware of when negotiating a physician employment agreement, you can see my podcast of the 4 most common traps in physician employment agreements, my physician employment agreement checklist or, for the most extensive discussion of the topic, my  book on physician employment agreements. For specific information on topics you might be interested in, see my posts about physician productivity compensationMGMA compensation analysismedical record provisions in physician employment agreementsletters of intent in physician contractsphysician covenants not to compete, and call coverage requirements.

If  you have an agreement you would like us to review, you can start your review here. We can also provide a free consultation to talk about how we can help.

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Dennis Hursh

Dennis Hursh has been providing healthcare legal services in Pennsylvania since 1982. Since 1992, he has been a physician's lawyer serving as Managing Partner of Physician Agreements Health Law, the first law firm in the country to focus exclusively on physician employment agreements. Dennis has devoted his life to serving physicians and medical practices. He is the author of the definitive book on physician contracts "The Final Hurdle - a Physician's Guide to Negotiating a Fair Employment Agreement, and a frequent lecturer on physician employment agreements.

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Physician Prosperity Program

How It Works

After purchasing the physician contract review, you will receive an email asking you to transmit the agreement and any concerns you have to me. Many physicians do this by email, but I will be available by phone, too. In three business days from the time you purchase the Physician Prosperity Program® and transmit the draft physician employment agreement along with any concerns you have about the agreement and the information I will need to perform the MGMA analysis, you will receive a detailed physician contract review letter from me.

After you receive my physician contract review letter, you will have the opportunity to discuss it with me, to make sure all of your concerns were met, and to correct any factual inaccuracies, or to point out things that were verbally promised but didn’t make it into the physician employment agreement. These discussions, and revisions of the letter following these discussions, are included in the initial fixed fee.

Once you are completely comfortable with the physician contract review letter, you transmit the letter to your potential employer.