Termination “For Cause” in Physician Employment Agreements

By Dennis Hursh | Physician Contracts

Feb 06
terminated physician

The topic of termination for cause in physician employment agreements is obviously a delicate one. Employers have a  legitimate desire to make sure they can terminate a physician’s employment agreement if the physician terms out to be a lousy physician, or if patient demand just doesn’t justify paying the physician any longer.

A physician employment agreement should provide reasonable protection to both the physician and the employer if either party fails to live up to the bargain. The agreement should also provide reasonable flexibility for both parties to get out of the deal, even if the other party didn’t do anything wrong – or “without cause” termination of physician employment agreements.

In legal jargon, the phrase “for cause” refers to termination of a physician employment agreement because the other party breached it. A party can terminate the agreement for cause if the other party didn’t do what it was supposed to do, or did something it wasn’t supposed to do. A party can also terminate the agreement “without cause” (or “not for cause”) even though the other side didn’t do anything wrong..

Grounds for Termination of a Physician Employment
Agreement

The first draft of a physician employment agreement typically contains numerous grounds that authorize for cause termination for the employer, but no similar right for the physician. The reasons a physician can terminate the agreement because the employer was at fault are usually somewhat limited. Generally, simply preserving the physician’s right to terminate the agreement if the employer breaches it (i.e., without listing the various ways that might happen) will be enough protection. This will allow the physician to terminate the agreement if, for example, the employer fails to pay the physician, or fails to do something else that it agreed to do.

When I review a physician employment agreement, I also try to give the physician the right to terminate for cause if the employer is excluded from any federal healthcare program (e.g., Medicare, Medicaid). This is important, since a physician can be excluded from these programs if the physician has a contractual relationship with a party that has been excluded.

The employer, on the other hand, likely will have a long laundry list of grounds to terminate the physician’s employment for cause. Some are hard to argue with, such as if the physician dies or is convicted of a felony. A physician’s ability to see patients will be severely limited if the physician is in the Great Beyond or behind bars. Similarly, if the physician loses his or her medical license, the physician will have little value to the employer.

Like everything else in the agreement, the exact language regarding termination for cause is critical. In this country, one is generally presumed innocent until proven guilty. However, many employers try to stipulate that a physician may be terminated for cause if the physician is indicted (i.e., formally charged with a crime). This point can be difficult to negotiate, since the employer’s reputation could be severely damaged if the media reports one of its physicians has been charged with a serious crime. Nevertheless, it may be worth fighting for the requirement of an actual conviction as grounds for termination. At a minimum, this ground for termination should only apply to felonies or crimes involving alleged healthcare fraud— a physician shouldn’t lose her job because of a speeding ticket.

A similar argument can be made for loss of hospital privileges. If the physician actually loses her privileges, then obviously her value to the employer is significantly diminished (and there is probably a reasonable question regarding her competence to treat patients, as well). However, initiation of the process to revoke privileges should not trigger termination of a physician’s employment. Medical staff politics can be ugly, and some physicians are not above questioning competence for competitive reasons.

The good thing about negotiating the language regarding grounds for termination is that there should not be any question as to how the provisions apply. Presumably, the fact of a physician’s death is not something the physician and the employer will argue about. An actual conviction and a revocation of staff privileges are also both clear-cut.

Negotiable Grounds for Termination of a Physician Employment Agreement

However, there are likely to be other grounds for termination of a physician employment agreement that are not so obvious. For example, disability is another common ground for termination. In this regard, the definition of “disability” is crucial, as is the method of determining a disability. The provisions regarding termination of a physician employment agreement because of a disability should be consistent with the provisions regarding compensation during the physician’s disability. One thing that physicians have going for them is the Americans with Disabilities Act. The ADA generally requires the employer to make “reasonable accommodation” to allow a physician to continue to work even though that physician is disabled.

It’s likely the employer will try to provide other grounds for termination that could be more subject to dispute. One fairly common ground for termination is the employer’s belief that allowing the physician to continue to treat patients would endanger those patients’ health (think of this as a “crappy doctor” termination). While few would argue that a crappy doc should be allowed to continue to treat patients, the quality of care a physician provides may be hard to measure. Occasionally, I have successfully argued that other provisions in an agreement protect the employer (for example, in a hospital setting, the ability to terminate the physician if privileges are revoked protects the employer). More often, I have had to settle for language that requires the “crappy doc” determination be reasonable and made  in good faith. Such language gives the physician some ability to challenge the determination, if necessary.

Employers also frequently insert provisions authorizing for cause termination if the reputation of the physician or the employer is adversely affected by something the physician did. It’s hard to argue with the theoretical appropriateness of that provision. Yet here, again, it is crucial to insert language assuring that any such determination is reasonable and made in good faith. I am also usually able to get the employer’s counsel to agree that the reputation must be “materially” adversely affected by something the physician has done. Picking her nose in front of a patient certainly doesn’t enhance the physician’s reputation or that of the employer—but it shouldn’t be grounds for termination.

It is fairly common to allow the employer to terminate the agreement if the physician is excluded from a managed care company’s panel of providers. Obviously, a physician’s exclusion from a major payor’s panel would have a huge impact on the employer’s finances. However, it is important to limit the employer’s right to terminate the physician’s employment to instances in which the physician is excluded from panels of payors that are material to the practice. It is one thing to be excluded from participation in the Blues (particularly in an area where they dominate the market). It is quite another to be excluded from Mutual of Podunk, when the employer only sees about one patient a year with that insurance.

Some for cause termination provisions allow a “cure” period. That is, the provision will allow the breaching party to fix (“cure”) the problem within a reasonable time. The time allowed to cure a breach varies from as little as five days to 60 days or more. If the employer is given a cure period, the physician should generally be given one as well. However, physicians shouldn’t expect to be given a cure period for everything. Losses of medical licensure, exclusions from payor panels, and losses of hospital privileges can frequently be appealed, both internally and (sometimes) in the courts. If a physician is convicted of a felony, she may very well have appeal rights right up to the Supreme Court. That doesn’t mean that the employer should be required to participate in a work-release program if the physician gets out of the slammer every Wednesday while she is appealing a conviction. For this reason, most for cause termination provisions provide for immediate termination if the provision is triggered.

A for cause termination can have a major impact on a physician’s chances to obtain a good position elsewhere. If the termination is based on alleged clinical deficiencies, the employer will be required to report the termination to the National Practitioner Data Bank (NPDB). An NPDB report will not only make it harder for a physician to obtain employment, it will also impact the ability to obtain hospital privileges and to participate in payor panels.

Because of the devastating impact that a for cause termination can have on a physician’s career, the provisions relating to termination for cause in a physician employment agreement must be reviewed and negotiated.

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About the Author

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

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